Letter from the Chair
Letter from the CEO
Statement of Corporate Governance Practices
2013 Management’s Discussion and Analysis
Management Statement
Independent Auditors’ Report
Consolidated Financial Statements and Notes
Board of Directors
TMX Group Executive Committee
Shareholder Information
CONTENTS
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LETTER FROM THE CHAIR
This past year was important, as it marked the first full year of operations for TMX Group following the
successful completion of the Maple Transaction. Our senior management and employees channelled their
efforts towards the very successful integration of TMX Group Inc., CDS and Alpha. I am pleased to say that the
integration is nearly complete and that we now expect to exceed our original target for cost synergies by about
forty percent.
TMX Group is well positioned to be an even stronger, more efficient organization that can better tap into
new growth opportunities, and be more competitive both in domestic and select global markets. These
opportunities come from the diverse yet complementary services that TMX Group offers, as the company
continues to expand into new and related technologies and services. As was evident last year, the company’s
strategy has contributed to its resilience in challenging and somewhat unfavourable market conditions.
TMX Group will continue to advance its operational goals while meeting its critical public interest mandate.
The management of the company and my fellow Directors are fully committed to this.
Our CEO, Tom Kloet, announced his retirement earlier this week. On behalf of the Board of Directors, I want to
thank Tom for his leadership and many contributions to TMX Group. I have personally enjoyed working with
Tom as we managed the transition of TMX Group through a time of change and consolidation in the industry,
and look forward to working with him in the coming months as we continue to execute on the organization’s
growth strategy and the transition to his successor.
TMX Group’s vision is to be the provider of choice for capital markets infrastructure services in Canada and for
select capital market services globally. We look forward to working with management to achieve this vision,
to better serve our clients, to further improve the performance of TMX Group’s business, and to continue to
deliver shareholder value.
Charles Winograd
Chair, Board of Directors
TMX Group Limited
March 20, 2014
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LETTER FROM THE CEO
In 2013, TMX Group took important steps to strengthen our evolving organization, advance our strategy and
expand the key role we play in Canada’s capital markets. Against a backdrop of less than ideal market conditions,
we are pleased to report that 2013 was a solid year for TMX Group in terms of our accomplishments and execution.
2013 Highlights
In terms of size and scope, our most significant achievement of 2013 was the integration of TMX Group, CDS,
and Alpha. This process is now largely complete. While not an easy task, our teams successfully navigated the
challenges in integrating our businesses while seamlessly providing excellent service to our customers. We are
pleased to have exceeded our initial estimated annualized net cost synergies by $8.0 million, to an increased target
of $28.0 million in annualized net cost synergies on a run-rate basis in Q1/14. More importantly, the integration
has resulted in improved execution and enhanced efficiency across our businesses, which better positions us to
address competitive challenges and varying economic conditions.
In addition to these integration efforts we also made progress with our strategic priorities in continuing to build
and diversify our business.
In Q1/13, we acquired Equity Financial Holdings’ transfer agent and corporate trust services business, and renamed
it TMX Equity Transfer Services Inc. This business is highly complementary to our existing suite of issuer services
and provides both immediate scale and additional growth opportunities. On the same day, we completed the
combination of our fixed income index business, PC-Bond, with FTSE’s international fixed income index business.
We hold a 25% interest in the resulting entity, FTSE TMX Global Debt Capital Markets Inc.
On our trading platforms, our technology team successfully launched our new high-performance trading engine,
TMX Quantum XA, on TMX Select in Q3/13. TMX Quantum XA, which provides dramatically improved speed,
reduced latency variability, and increased capacity, was shortlisted for a 2013 American Financial Technology
Award for Most Cutting-Edge IT Initiative. We are now preparing for the planned migration of TMX Quantum
XA on Toronto Stock Exchange starting in June 2014. Additionally, in Q4/13 Montreal Exchange completed an
important upgrade of its SOLA derivative trading platform, which delivered a nearly 300% improvement in trading
response time and doubled messaging capacity.
During the year, NGX added four natural gas clearing locations in the U.S. and further enhanced its U.S. business
presence by achieving Foreign Board of Trade status. NGX also entered into an energy alliance with NASDAQ’s
physical energy entity that resulted in the transfer of NASDAQ’s physical energy products and customers to NGX.
Lastly, at the end of Q3/13, we successfully completed a private placement offering of $1.0 billion of senior
unsecured debentures and amended the terms of our credit facility. The proceeds were used to refinance our
debt, which has resulted in a substantial reduction in our finance costs. We were very pleased with both the
investment community’s interest in our offering, and the market`s confidence in investing in our five and ten
year debentures.
Review of 2013 Performance
Despite signs of improvement, market conditions in 2013 continued to be challenging. Our equities business
was adversely impacted in both listings and trading, largely due to weakness in sectors that included metals
and mining, materials, real estate, and utilities. In 2013, we had a lower number of initial and additional listing
transactions compared with 2012, which was reflected in a reduction in initial and additional listing fees.
Despite this softer listing business environment, the World Federation of Exchanges ranked our exchanges
second in the world for number of new listings in 2013, third for number of new international listings, and
seventh for equity capital raised. We are pleased that our global ranking and international reputation has
remained strong.
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On the trading side, consistent with lower overall trading volumes on Canadian equities markets, we recorded
a 14% year-over-year reduction in combined trading activity on Toronto Stock Exchange, TSX Venture Exchange,
Alpha, and TMX Select.
However, there was a noteworthy 70% increase in volumes on TMX Select year over year. As mentioned, we
launched TMX Quantum XA on that market in the summer of 2013. The TMX Select pricing model also differentiates
it from other markets in Canada. We believe these features are attracting more interest in TMX Select.
Looking at our derivatives segment, there was a 3% increase in trading and clearing volumes on MX and CDCC in
2013 compared with 2012. MX set several new volume and open interest records over the course of the year. In the
U.S., however, BOX, the equity derivatives market in which we hold a 54% interest, faced a challenging and highly
competitive environment. This resulted in a 38% decline in trading volumes for the year, reflecting a decrease in
market share. To address this decline, BOX’s management team is expanding the product offering, introducing
new pricing structures and involving an increased number of market participants. Most notably, on March 1, 2014,
BOX implemented a new pricing structure that is already having a favourable impact on its market share.
Turning to our energy business, NGX’s trading and clearing volume was down 12% in 2013 compared with 2012,
primarily due to a 13% decrease in natural gas volumes because of weak market conditions. We have taken
several strategic initiatives to further the growth of this business, including the expansion into the power market
in Texas. Higher revenues at Shorcan Energy Brokers driven by increased volumes in 2013 helped partially offset
the decline at NGX
Looking Ahead
Several years ago, we made the strategic decision to diversify into additional asset classes and to broaden the
range of our products and services. We continue to realize the benefits of the deployment of this strategy across
our business. For example, our deepened issuer services offering helped mitigate the impact of a softer listings
and trading environment in 2013. With the integration of CDS and Alpha almost complete, we expect to continue
expanding into new products, services, and asset classes, while exploring ways to extend our global reach.
At the same time, we remain committed to enhancing and continuing to operate our core exchange, clearing,
and depository businesses with excellence. We expect the implementation of TMX Quantum XA on Toronto Stock
Exchange this year will further advance our technological leadership, and potentially increase participation in our
markets. As market conditions improve, we believe we are well positioned to capitalize on opportunities that the
market may present.
In closing, I want to comment on the announcement that I made earlier this week regarding my retirement at
the end of August. It has been my honour to work with an incredibly talented team who devoted themselves to
managing a company that, unlike any other, plays a unique role in the Canadian economy. We can all be very proud
of what we have accomplished during my tenure as CEO. The exchange industry has been my passion for more
than three decades, and it has evolved rapidly in recent years. I have been privileged to have had the opportunity
to be part of the exciting emergence of TMX Group as Canada’s national exchange group and a partner with many
organizations across the globe.
TMX Group has built a strong team across a diverse set of businesses, and I thank our employees for their
contributions to our company. I look forward to updating you on TMX Group`s progress when we report Q1/14
results in the Spring.
Thomas A. Kloet
CEO
TMX Group Limited
March 20, 2014
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LETTER FROM THE CEOL
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STATEMENT OF CORPORATE GOVERNANCE PRACTICES
Overview
Our Board of Directors (Board) and management are committed to remaining at the forefront of good
governance and to ensuring the highest standard of corporate governance. TMX Group’s corporate governance
policies and practices are designed to support the Board in discharging its responsibilities and to enhance
shareholder value. We review these policies and practices at least annually with a view to enhancing our
governance structure and practices in an ever-evolving corporate governance environment.
TMX Group’s corporate governance system complies with National Policy 58-201—Corporate Governance
Guidelines (NP 58-201), National Instrument 58-101—Disclosure of Corporate Governance Practices (NI 58-101),
National Instrument 52-110—Audit Committees (NI 52-110) as well as our recognition orders issued by the
Ontario Securities Commission, Quebec’s Autorité des marchés financiers, the British Columbia Securities
Commission and the Alberta Securities Commission (collectively, the Recognition Orders). In addition, we
review our corporate governance practices with reference to corporate governance guidelines recommended by
institutional and other shareholder organizations.
Board Responsibilities
The Board is responsible for TMX Group’s governance and stewardship and overseeing its corporate strategy,
operations and management. The Board discharges its responsibilities, either directly or, where appropriate,
through committees, and by selecting and holding management accountable for TMX Group’s operations
and for implementing its corporate strategy. The Board sets clear policies and direction for management’s
responsibilities and authority. Among its many specific duties, the Board annually monitors the performance
of the Chief Executive Officer (CEO) against corporate objectives (established by the Board with the CEO), and
sets the CEO’s compensation. The Board also approves strategic plans and corporate objectives that the CEO
is responsible for meeting, provides advice and counsel to the CEO, oversees ethical and legal conduct of
executive management, and assesses the financial performance of TMX Group. In addition, the Board approves
the adequacy and form of compensation paid to members of the Board (Directors). The Board Charter that
describes the Board’s responsibilities is available on our website.
At each regularly scheduled Board meeting, Directors and executive management examine, review and discuss
a broad range of issues relevant to TMX Group’s strategy, business interests and growth initiatives. In addition,
management provides the Board with timely, periodic reports on operational and financial performance.
During fiscal 2013 the Board held nine regular meetings and three special meetings and held 12 in camera
sessions without management Directors present. Attendance by Directors at these meetings was 96%, either
in person, by teleconference or by video conference. The Board plans to hold nine regular meetings in 2014. At
each of these meetings, the Board will meet without management Directors to ensure it provides independent
assessment and oversight. Each of the Finance and Audit Committee, Governance Committee, Human
Resources Committee and the Regulatory Oversight Committee can, in its discretion, retain an outside advisor
or expert. An individual Director or any other committee of the Board can retain an outside advisor or expert
with the approval of the Governance Committee.
Board Independence and Composition
As at February 28, 2014, the Board has a non-executive Chair and knowledgeable and experienced Directors, 11
out of 17 (65%) of whom, including the Chair, are “independent” within the meaning of section 1.4 of NI 52 110
and our Recognition Orders. The Recognition Orders require: (i) at least 50% of Directors to be “independent”,
within the meaning of section 1.4 of NI 52-110; (ii) at least 50% of Directors to be unrelated to original Maple
Group Acquisition Corporation (as TMX Group Limited was then named) (Maple) shareholders, for as long as
any Maple nomination agreement is in effect; (iii) at least 25% of Directors to be resident of the Province of
Québec; (iv) at least 25% of Directors to have expertise in derivatives; and (v) at least 25% of Directors to have
expertise in the Canadian public venture market.
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The Board also derives strength from the background, qualities, skills and experience of its Directors. The
Governance Committee assists the Board by providing the Board with recommendations relating to corporate
governance in general, including without limitation: (a) all matters relating to the stewardship role of the
Board in respect of the management of TMX Group; (b) Board size and composition, including: (i) confirming
the status of nominees to the Board as independent and/or unrelated to original Maple shareholders, as
appropriate, before the individual is submitted to shareholders as a nominee for election to the Board; (ii)
confirming on an annual basis that the status of the Directors that are independent and/or unrelated to
original Maple shareholders, as appropriate, has not changed; and (iii) assessing and approving all nominees of
management to the Board and any nominees pursuant to the Maple nomination agreements.
In identifying suitable candidates, the Governance Committee will consider independence, (including of
nominees pursuant to the Maple nomination agreements) professional or board expertise, capital markets
experience, public venture market experience, derivatives market experience, energy market experience,
clearing experience, technology expertise and regulated company experience. As well, representation from
geographic regions relevant to TMX Group’s strategic priorities is taken into account when considering
candidates. Qualities such as integrity, good character and high regard in his or her community or professional
field will always be basic criteria for Board members.
Director Education, Access to Management, and Board/Committee Meetings
We provide new Directors with a Directors’ Manual, which serves as a corporate reference, as well as with
orientation materials describing our business, strategy, objectives and initiatives, so new Directors understand
the nature and operations of our business and the role of the Board and its committees, as well as the
contribution individual Directors are expected to make. Directors are invited to spend time at our offices and
also have timely, periodic one-on-one meetings with the CEO and members of executive management.
The Chair sets the agenda for Board meetings and Directors receive a comprehensive package of information
prior to each Board and committee meeting. As well, each committee delivers a report to the full Board
on its work after each committee meeting. TMX Group also provides the Directors with a variety of other
materials and presentations on an ad hoc basis, to keep them informed about internal developments as well
as developments in, or which affect, our industry. All of these materials and other corporate materials are also
accessible by Directors on a permanent, secure extranet.
Directors, with the approval of the Chair, may seek additional professional development education at the
expense of TMX Group. As well, all Directors are members, at our expense, of the Institute of Corporate Directors
(ICD) where Directors have access to ICD events and publications which provide additional sources of relevant
information.
Board and Director Evaluation
The Governance Committee annually evaluates the overall performance and effectiveness of the Board, its
committees and all Directors. This evaluation is conducted by written self-assessment and peer questionnaires
and through formal interviews of each Director (other than the Chair) by the Chair of the Board and of the Chair
by the chair of the Governance Committee. The Chair of the Board reports summary findings to the Governance
Committee and to the full Board.
Code of Conduct
The Board’s Code of Conduct (Board Code) for Directors sets standards for ethical behaviour of the Board,
including for managing conflicts of interest. The Board monitors compliance with the Board Code and is
responsible for considering and granting waivers from compliance with the Board Code, if any. No waivers have
been granted nor have there been any violations of the Board Code. A copy of the Board Code is available on
our website.
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Committees
The Board has six standing committees with specific areas of responsibility to effectively govern TMX Group:
Finance and Audit Committee, Derivatives Committee, Governance Committee, Human Resources Committee,
Public Venture Market Committee and Regulatory Oversight Committee. All of the members of the Finance
and Audit Committee, Governance Committee, Human Resources Committee and the Regulatory Oversight
Committee are independent under both NI 52-110 and the Recognition Orders. The Board believes that the
composition of its committees ensures that they operate independently from management to protect all
shareholders’ interests. The Board also believes that the members of the Finance and Audit Committee are
financially literate, given their education and experience. Each standing Board committee has a formal written
Charter, approved by the Board. These Charters are reviewed at least annually and are available on our website.
Majority Voting
The Board adopted a policy that provides that in an uncontested election of directors, any nominee of TMX
Group who does not receive the support of a majority of the votes cast at an annual meeting of the shareholders
will tender his or her resignation to the Board, to be effective when accepted by the Board. The Governance
Committee will consider the resignation and recommend to the Board the action to be taken. The Governance
Committee would be expected to recommend that the Board accept the resignation, except in exceptional
circumstances. The Board will have 90 days following the annual meeting to make its decision and announce
it by way of press release.
Subject to any corporate or securities law restrictions, requirements of TMX Group’s Recognition Orders and
the Maple nomination agreements, the Board may leave the resulting vacancy unfilled until the next annual
meeting of shareholders, or the Board may fill the vacancy through the appointment of a new director with the
appropriate background, experience and skills as described under Board Independence and Composition above.
Risk Management
TMX Group recognizes that risk management is integral to its business, operations and financial performance.
We follow an integrated enterprise risk management (ERM) program that ensures that the outcomes of risk-
taking activities across TMX Group are (i) transparent and understood; (ii) materially consistent with TMX
Group’s objectives and risk appetite; and (iii) appropriately balance risk and reward. The ERM program provides
a framework to identify, assess, measure, manage, monitor and report on material risks. When identifying,
assessing and measuring material risks, we consider the likelihood and potential impact of each risk. We
develop strategies to manage, monitor, report on and mitigate each identified risk. One of these strategies
includes a plan to mitigate the risk of interruptions to our critical business functions. The plan integrates
disaster recovery and business continuity for critical functions to protect personnel and resources and to
enable us to continue critical business functions if a disaster occurs. The Board provides oversight with respect
to our ERM program and our strategies to manage material risks. The head of the Risk Management group,
the Chief Risk Officer, reports to the Chair of the Finance and Audit Committee.
Internal Audit
The mandate of Internal Audit is to independently examine and evaluate the reliability of financial reporting
and corporate compliance with applicable laws and regulations. Internal Audit provides independent assurance
to the Finance and Audit Committee that TMX Group’s internal control and management information systems
are adequate and effective, and reports on management actions to address findings arising from audits and
reviews. The head of Internal Audit, the Chief Internal Auditor, reports to the Chair of the Finance and Audit
Committee. Internal Audit has full access to the personnel, premises and records of TMX and contracted third
parties, and is authorized to review and appraise all policies, plans, procedures and activities.
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Say on Pay and Executive Compensation
At its annual meeting, TMX Group provides shareholders the opportunity to vote on executive compensation,
on a non-binding advisory basis.
In 2013, Towers Watson was retained by the Human Resources Committee to conduct a formal assessment
of the features of TMX Group’s compensation programs to ensure alignment of incentive compensation and
the achievement of business objectives consistent with TMX Group’s business strategy. Towers Watson also
provided guidance to the board on recent advancements in good governance related to executive pay. As
a result of this review and working in conjunction with management, the Board approved changes to TMX
Group’s executive compensation design. For more information on TMX Group’s executive compensation
practices, please refer to our Management Information Circular.
TMX Group is committed to demonstrating leadership in evolving governance issues including in the area of
executive compensation.
Investor Communication
TMX Group and the Board are committed to open and proactive investor communication. Our investor relations
staff provides information to current and potential investors and responds to their inquiries. We broadcast
quarterly earnings conference calls live and archive these calls on our website. We also make recordings
available via telephone to interested investors, the media and members of the public for three months after
each call. Audio webcasts of such recordings are also available on our website for six months after each call.
We promptly make available presentations from investor conferences on our website. We also make disclosure
documents available via our website.
Shareholders who would like to communicate with the Board should contact us using email at
TMXshareholder@tmx.com. Your communication will be provided to the Board for its consideration and
response, if required.
Additional Information
For a full report on our corporate governance practices, please refer to our Management Information Circular,
which may be accessed through www.sedar.com or through our website at www.tmx.com. The Circular also
describes our corporate governance practices, and provides information about Directors, and the composition,
responsibilities and activities of the Board’s standing committees. All information about corporate governance
practices in our Annual Report and in the Management Information Circular was adopted and approved by our
Board.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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TMX Group Limited
2013 Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS
February 4, 2014
This management’s discussion and analysis (MD&A) of TMX Group Limited’s (TMX Group),
formerly Maple Group Acquisition Corporation (Maple),
financial
performance is provided to enable a reader to assess our financial condition, material changes in
our financial condition and our financial performance, including our liquidity and capital resources,
for the year ended December 31, 2013 compared with the year ended December 31, 2012. This
MD&A should be read together with our 2013 audited consolidated annual financial statements as
at and for the year ended December 31, 2013 (financial statements).
financial condition and
TMX Group completed the acquisition of TMX Group Inc. on September 14, 2012 and the
acquisitions of The Canadian Depository for Securities Limited (CDS) and Alpha Trading Systems
Inc. and Alpha Trading Systems Limited Partnership (collectively, Alpha) on August 1, 2012
(collectively, the Maple Transaction). The TMX Group financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS), as issued by the International
Accounting Standards Board (IASB). The financial statements include the operating results of
TMX Group Inc., CDS, and Alpha, the first full year that includes these operating results.
Comparative financial statements for year ended December 31, 2012, and as at December 31,
2012, include the operating results of TMX Group Inc. from July 31, 2012 and CDS and Alpha from
August 1, 2012.
Maple was an acquisition corporation formed solely for the purpose of pursuing the Maple
Transaction. The most significant aspect of the Maple Transaction was the purchase of TMX Group
Inc., which was a publicly traded company. Prior to the completion of the acquisitions of CDS and
Alpha on August 1, 2012 and the initial take up of 80% of the common shares of TMX Group Inc.
on July 31, 2012 under the Maple offer, Maple had no material assets and no history of earnings
and had not commenced commercial operations. The approach taken in this MD&A is intended to
provide readers with a more complete view of the operating performance of TMX Group. Therefore,
TMX Group’s revenue, operating expenses, net income (loss) attributable to non-controlling
interests and cash flows for the year ended December 31, 2013 are compared with the combined
financial information for TMX Group Inc. for the seven months ended July 31, 2012 and TMX
Group for the year ended December 31, 2012, including TMX Group Inc. from July 31, 2012 and
CDS and Alpha from August 1, 2012. This approach is similar to how the results would be
reported if TMX Group Inc. was the acquirer of CDS and Alpha. Management believes that this is
the most meaningful presentation for the purpose of our comparative discussion of revenue,
operating expenses and net income (loss) attributable to non-controlling interests and cash flows.
Our financial statements and this MD&A for the year ended December 31, 2013 are filed with
Canadian securities regulators and can be accessed through www.sedar.com or our website at
www.tmx.com. The financial measures included in this MD&A are based on financial statements
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prepared in accordance with IFRS, unless otherwise specified. All amounts are in Canadian dollars
unless otherwise indicated.
Certain comparative figures have been reclassified in order to conform with the financial
presentation adopted in the current year.
Additional information about TMX Group, including the Annual Information Form, is available
through www.sedar.com and on our website, www.tmx.com. We are not incorporating information
contained on our website in this MD&A.
MD&A Structure
Our MD&A is organized into the following key sections:
Overview of the Business – a discussion of our business segments and key revenue
drivers;
Vision and Corporate Strategy – our vision and strategic initiatives for future growth;
Market Conditions – a discussion of our current business environment;
Our Business – a detailed description of each of our operations and our products and
services;
Results of Operations – a year-over-year comparison of results;
Liquidity and Capital Resources – a discussion of changes in our cash flow, our outstanding
debt and the resources available to finance existing and future commitments;
Accounting and Control Matters – a discussion of our critical accounting estimates and
changes to our current accounting policies and future accounting changes, an evaluation of
our disclosure controls and procedures and internal control over financial reporting and
changes to internal control over financial reporting; and
Risks and Uncertainties – a discussion of the risks to our business as identified through our
risk management process.
Caution Regarding Forward-Looking Information.
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OVERVIEW OF THE BUSINESS
Summary
TMX Group operates equities, fixed income, derivatives, and energy markets. We provide services
encompassing listings for our issuers, trading, clearing, settlement and depository facilities,
information services as well as technology services for the international financial community.
TMX Group Limited
(based on 2013 revenue of $700.5 million)
* Percentages based on 2013 revenue of $700.5 million for TMX Group. Derivatives Markets includes 100% of BOX revenue, of which MX holds a
53.8% ownership interest.
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Our revenue by segment is categorized as follows:
Cash Markets
Derivatives Markets
Energy Markets
CDS
TSX
TSXV
TMX
Select
Alpha Equicom
Shorcan
Fixed
Income
Equity
Transfer
TMX
Atrium MX
BOX CDCC NGX
Shorcan
Energy
Brokers
CDS
SEGMENTS
2013
Revenue
$700.5M
Issuer
Services
√
√
√
$189.3M
√
Trading,
Clearing &
Depository
$303.1M
Information
Services
√
$181.5M
√
Technology
Services &
Other
$26.6M
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√
√
√
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√
√
√
√
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Our business is represented by the following entities:
Toronto Stock Exchange (TSX) is Canada’s senior
equities market, providing issuers with a venue for
raising capital and providing domestic and
international investors with the opportunity to invest
in and trade those issuers’ securities.
TSX Venture Exchange (TSXV) is Canada’s premier
junior listings market, providing companies at the
early stages of growth the opportunity to raise
capital and providing investors the opportunity to
invest in and trade those issuers’ securities.
TMX Select Inc. (TMX Select) is a Canadian
alternative trading system (ATS) trading TSX and
TSXV listed securities. TMX Select offers additional
execution options
through
differentiated features and pricing.
industry
the
to
Alpha is an exchange that provides equities trading
for TSX and TSXV listed securities. Alpha offers a
continuous limit order book. Alpha offers additional
through
execution options
differentiated features and pricing.
industry
the
to
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CDS is Canada's national securities depository,
clearing and settlement hub. CDS supports
Canada's equity, fixed income and money markets
and
the safe custody and
movement of securities, accurate record keeping,
the processing of post-trade transactions, and the
collection and distribution of entitlements relating to
securities deposited by participants.
is accountable
for
The Equicom Group Inc. (Equicom) is a provider of
investor relations and corporate communications
services.
TMX Equity Transfer Services Inc. (Equity Transfer)
is a provider of corporate trust, securities transfer
and registrar, and employee plan administration
services for issuers.
Shorcan Brokers Limited (Shorcan) is Canada’s first
inter-dealer broker (IDB), providing facilities for
matching orders for Canadian federal, provincial,
corporate and mortgage bonds and treasury bills
and derivatives for anonymous or name-give-up
buyers and sellers in the secondary market.
request-for-quotation
CanDeal.ca Inc. (CanDeal) is an electronic fixed
system between
income
clients and dealers. CanDeal provides online
access to a large pool of liquidity for Canadian
government bonds, money market instruments and
interest rate swaps. We have a 47% ownership
interest in CanDeal.
Montréal Exchange Inc. (MX or Montréal Exchange)
financial derivatives
is Canada’s standardized
exchange. Headquartered in Montréal, MX offers
trading in interest rate, index and equity derivatives.
(47% Ownership)
Canadian Derivatives Clearing Corporation (CDCC)
offers clearing and settlement services for all MX
transactions and certain over-the-counter (OTC)
derivatives, including fixed income repurchase and
reverse
(REPO)
transactions.
repurchase
agreement
(53.8% Ownership)
BOX Market LLC, (BOX) is a U.S. equity options
market for which MX is the technical operator and
technology developer. We have a 53.8% ownership
interest in BOX.
Natural Gas Exchange Inc. (NGX) is a Canadian-
based exchange through which customers can
trade, clear and settle natural gas, crude oil and
electricity contracts across North America.
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5
Shorcan Energy Brokers Inc. (Shorcan Energy
Brokers) is an inter-participant brokerage facility for
matching buyers and sellers of crude oil products.
TMX Datalinx, our information services division,
sells real time data, data delivery services and other
market information to a global customer base.
TMX Atrium is a provider of low-latency network and
infrastructure solutions for the global investment
community.
TMX Technology Solutions provides software and
consulting services to various segments of the
financial services
technology
products include recognized brands such as, SOLA
for
the derivatives market and Razor Risk
Technologies Limited (Razor Risk) which provides
risk management software.
industry. These
VISION AND CORPORATE STRATEGY1
Our Vision
To be the provider of choice for capital markets infrastructure services in Canada and for select
capital market services globally.
Corporate Strategy
Enhance and operate with excellence our core multi-asset class exchange, clearing and
depository businesses.
Expand into new products/services and asset classes leveraging our central position.
Extend global reach of our products and services.
Evolve our performance culture committed to innovation, execution excellence and
appropriate risk tolerance.
We regularly assess strategic alternatives available to further accelerate and enable our strategy,
thereby enhancing our competitive position in Canada and in global capital markets. We remain
1 The “Vision and Corporate Strategy” section above contains certain forward-looking statements. Please refer to
“Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
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6
committed to exploring opportunities for growth and for advancing our strategy, both organically as
well as in other ways (e.g. acquisitions, investments, joint ventures, partnerships or business
combinations) that both fit our strategic plans and provide shareholder value.
MARKET CONDITIONS2
While major North American equities indices increased in 2013, the U.S. markets, as measured by
the S&P 500 Index which rose by 30%, substantially outperformed the S&P/TSX Composite Index,
which rose by 10%. Much of the difference could be attributed to declines in the metals and
mining, materials, REITs and real estate, and utilities sectors in the S&P/TSX Composite Index.
The S&P/TSX Venture Composite Index, which is heavily weighted towards resources, declined by
24% during the year. Overall, Canadian equities markets experienced lower trading volumes in
2013 compared with 2012 due to reduced participation in those aforementioned sectors.
Although the Bank of Canada acknowledged that the global economy is expanding at a modest
rate, it left the overnight interest rate unchanged in December 2013, citing that business
investment spending continues to recover at a pace slower than anticipated and that there is no
reason to change its expectation of a gradual return to full production capacity around the end of
2015. On the other hand, in the U.S., the economy appears to be gathering momentum backed by
positive economic data, including a five-year low unemployment rate of 7% in November 2013.
We operate in the highly competitive exchange industry, both domestically and internationally. We
expect that alternative equities marketplaces will continue to be launched by existing and new
competitors. In addition to competing with North American ATSs and exchanges directly for trading
volumes of our listed and interlisted issuers, we also compete internationally with global
marketplaces for investment capital and order flow. For the full year, our combined equities trading
market shareψ was 80% compared with 85% in 2012. The modification of Alpha’s non-displayed
trading facility (IntraSpread), reduced latency arbitrage following the migration of Alpha onto our
proprietary trading engine, and a competitor paying customers for printing cross-trades, which
produces no revenue, are factors that contributed to somewhat lower market share. Our combined
equities trading volumes were down 14% compared with 2012, while the overall Canadian equities
trading volumes were down 7%. Equities trading volumes on all our marketplaces increased
during Q4/13 compared with Q3/13. Revenue from CDS’s clearing and settlement operation is also
dependent on trading activity on Canadian equities marketplaces. As a result, exchange trades
and non-exchange/over-the-counter (OTC) trades processed by CDS decreased in 2013
compared with 2012.
In derivatives markets, there was a 3% increase in volumes for 2013 on MX, our domestic
derivatives exchange, largely driven by volume increases in bond and interest rate futures.
However, volumes on BOX, our U.S. equity options market, in which MX has a 53.8% ownership
2 The “Market Conditions” section above contains certain forward-looking statements. Please refer to “Caution Regarding
Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
“S&P,” as part of the composite mark of S&P/TSX which is used in the name S&P/TSX Composite Index, is a trade
mark of Standard & Poor’s Financial Services LLC and is used under license.
ψ Source: Investment Industry Regulatory Organization of Canada (IIROC).
Includes Alpha for the comparable period in 2012.
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interest, decreased by 38% compared with 2012, while the overall U.S. options market grew by
3%, reflecting a decrease in BOX’s market share.
In energy markets, natural gas volumes being traded and cleared through NGX were lower in 2013
compared with 2012. This was due to a number of factors, including lower natural gas prices and
reduced volatility reflecting increased supply arising from the production of shale gas in the U.S.
MAPLE TRANSACTION
Integration3
In 2013, we made substantial progress on the integration of TMX Group Inc., CDS and Alpha.
Subsequent to the completion of the Maple Transaction, we announced a target of approximately
$20.0 million in annual cost synergies, net of incremental costs of regulation, on a run-rate basis in
Q1/14. In the third quarter of 2013, we exceeded our original expectation and increased our target
to $28.0 million in annualized net synergies on a run-rate basis in Q1/14. During the year, we
realized approximately $21.0 million of these net synergies. These synergies came from the
consolidation of operations, including the migration of the Alpha trading platform to our proprietary
trading engine (TMX Quantum), and the realization of efficiencies in overlapping functions. We now
estimate approximately $26.0 million in one-time costs to complete the integration, up from
previous estimate of approximately $24.0 million, partially reflecting an increase in the costs
required to achieve the higher synergy target. Total integration costs incurred in 2013 were
approximately $5.6 million, and cumulative integration costs from Q3/12 were approximately $23.5
million.
Alpha Arbitration3
The aggregate purchase price payable by Maple under the agreement to acquire all of the
outstanding equity interests in Alpha was $175.0 million. However, some securityholders of Alpha
were entitled to seek payment from Maple of the fair value of the Alpha securities held by it
pursuant to a binding arbitration process. On July 25, 2012, Maple received a request for
arbitration in accordance with the terms and conditions of the agreement from holders of
approximately 26% of the equity interests in Alpha. In no event will the arbitration process result in
a price payable below a pro rata portion of $175.0 million. The exercise of these arbitration rights
may result in us being required to pay additional consideration for the Alpha Acquisition in excess
of the Alpha purchase price to those holders. We have not recorded any liability related to this
arbitration.
3 The “Integration” and “Alpha Arbitration” sections above contain certain forward-looking statements. Please refer to
“Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
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8
OUR BUSINESS
In the following pages, we provide an overview and description of products and services, strategy,
pricing, fee regulation, competition and market share (where applicable) for each of our businesses
as outlined below:
1. Issuer services
2. Trading, clearing, depository and related
a. Cash trading, clearing and depository
i. Equities trading
ii. Fixed income trading
iii. Equities and fixed income – clearing, settlement and depository
b. Derivatives trading and clearing
c. Energy trading and clearing
3. Information services
4. Technology services and other revenue
For key statistics related to each business above, please see Results of Operations.
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9
We derive revenue primarily from issuer services, trading, clearing, settlement and depository
services, and information services.
Year ended December 31, 2013
Total Revenue of $700.5 million
Technology
Services and other
4%
Information
Services
26%
Issuer Services
27%
CDS Depository
6%
Energy Markets
trading and
clearing
6%
Derivatives
Markets trading
and clearing
16%
Equity and Fixed
Income Cash
Markets trading,
clearing and
related
15%
Issuer Services
Year ended December 31, 2013
Issuer services revenue of $189.3 million
Other Issuer
Services
15%
TSX Venture
Exchange
22%
Toronto Stock
Exchange
63%
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21
Overview and Description of Products and Services4
We carry out our core listings operations through Toronto Stock Exchange, our senior market, and
TSX Venture Exchange, our junior market. TSX Venture Exchange also provides a market called
NEX5 for issuers that have fallen below TSX Venture Exchange’s ongoing listing standards.
In general, issuers initially list on Toronto Stock Exchange in connection with their Initial Public
Offerings (IPOs), by graduating from TSX Venture Exchange or by seeking a secondary listing in
addition to a current listing venue. Junior companies generally list on TSX Venture Exchange either
in connection with their IPOs or through alternative methods such as TSX Venture Exchange’s
Capital Pool Company (CPC) program or Reverse Takeovers (RTOs).
The CPC program provides an alternative, two-phased process to listing on TSX Venture
Exchange. Through the program, CPC founders with financial markets experience raise a pool of
capital that is listed on the Exchange as a CPC. The CPC founders then seek out growth and
development-stage companies to invest in and when an appropriate fit is identified, they complete
a business combination known as a Qualifying Transaction (QT).
Issuers list a number of different types of securities including conventional securities such as
common shares, preferred shares, rights and warrants, and a variety of alternative types of
structures such as exchangeable shares, convertible debt instruments, limited partnership units as
well as exchange traded funds (ETFs) and structured products such as investment funds.
Being listed on Toronto Stock Exchange or TSX Venture Exchange provides many benefits,
including opportunities to efficiently access public capital, providing liquidity for existing investors,
numerous products, such as TSX InfoSuite, and the prestige and market exposure associated with
being listed on one of Canada’s premier national stock exchanges. While we list issuers from a
wide range of industries, we are a global leader in listing issuers in the resource sectors, including
mining and oil and gas companies. In addition, we are a global leader in listing small and medium-
sized enterprises (SMEs), as well as issuers in the clean technology sector.
Together, Toronto Stock Exchange and TSX Venture Exchange were second in the world among
global exchanges by number of new listings in 20136. The ranking was part of a report from the
World Federation of Exchanges (WFE) as of December 31, 2013. Toronto Stock Exchange listed
108 new issuers, including 20 graduates, and TSX Venture Exchange listed 158 new issuers for a
total of 266 new listings in 2013. TMX Group was third in the world for new international listings in
2013, with 256.
Issuers listed on Toronto Stock Exchange and TSX Venture Exchange raised a combined $43.6
billion in 2013 ($39.9 billion on Toronto Stock Exchange and $3.8 billion on TSX Venture
Exchange).
4 The “Overview and Description of Products and Services” section above contains certain forward-looking statements.
Please refer to “Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to
such statements.
5
Unless otherwise indicated, market statistics and financial information for TSX Venture Exchange include information
for NEX.
6 Source: World Federation of Exchanges Statistics.
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11
In addition to listings, we provide other services to our listed issuers:
Our subsidiary, Equicom, provides investor relations and corporate communications services.
CDS Clearing and Depository Services Inc. (CDS Clearing) offers a book-entry-only (BEO) service
to issuers. CDS Securities Management Solutions Inc. (CDS Solutions) provides a Registrar and
Paying Agent (RPA) service, a Holders of Record Report and a Confirmation of Registered
Holdings. In addition, CDS Solutions is the national numbering agency for Canada for International
Security Identification Numbers (ISINs) and provides these numbers to issuers upon request.
In Q2/13, we completed the acquisition of the transfer agent and corporate trust services business
of Equity Financial Holdings Inc. (Equity). The business, now called TMX Equity Transfer Services
Inc. (Equity Transfer), is highly complementary to our existing issuer services business and
provides both immediate scale and additional growth opportunities. Equity Transfer has four main
sources of revenue, including transfer agent revenue, trust service fees, net margin income, and
foreign exchange revenue. Equity will continue to provide trust services, which must be provided
by a trust company, until we obtain the requisite trust licenses. We intend to file for a trust license
in 1H/14. We paid $64.0 million for these assets, which were funded from existing cash and credit
facilities. We expect the acquisition to be slightly accretive to earnings per share in the first year
following the closing of the transaction.
Strategy7
Continue to diversify listings business into non-resource sectors.
Enhance customer facilitation, service excellence and advocacy.
Continue international listings business development efforts in target markets.
Focus on expanding global platform for listing SMEs.
Introduce new products for listing.
Expand public company product and service offering.
Develop private company services.
7 The “Strategy” section above contains certain forward-looking statements. Please refer to “Caution Regarding Forward-
Looking Information” for a discussion of risks and uncertainties related to such statements.
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Pricing8
We generate issuer services revenue from several types of fees, including:
Initial Listing Fees
Toronto Stock Exchange and TSX Venture Exchange issuers pay initial listing fees based on the
value of the securities to be listed or reserved, subject to minimum and maximum fees. Initial listing
fees fluctuate with the value of securities being listed or reserved in a given period. Issuers who
graduate from TSX Venture Exchange to Toronto Stock Exchange are considered initial listings,
but pay no application fee and may receive a discount in certain circumstances up to a maximum
of 25% of the initial listing fee.
Additional Listing Fees
Issuers already listed on one of our equity exchanges pay fees in connection with subsequent
capital market transactions, such as the raising of new capital through the sale of additional
securities and reserving additional shares to be issued under stock option plans. Additional listing
fees are based on the value of the securities to be listed or reserved, subject to minimum and
maximum fees. Additional listing fees fluctuate with the value of securities being listed or reserved.
Sustaining Listing Fees
Issuers listed on one of our equity exchanges pay annual fees to maintain their listing, based on
their market capitalization at the end of the prior calendar year, subject to minimum and maximum
fees. Sustaining listing fees for existing issuers are billed during the first quarter of the year,
recorded as deferred revenue and amortized over the year on a straight-line basis. Sustaining
listing fees for new issuers are billed in the quarter that the new listing takes place and are
amortized over the remainder of the year on a straight-line basis.
Fees charged to issuers vary based on the type of issuer (corporate, structured product or ETF).
Equity Transfer
Transfer agent revenue is primarily derived from a contractual monthly charge that clients pay for a
full range of transfer agent services. Corporate trust fees relate to services that include acting as
trustee for debt instruments, depository for takeover offers, warrant agent, subscription receipt
agent, and agent for voluntary escrow arrangements. This revenue is normally transactional. Net
margin income is the interest earned on balances held on behalf of clients less interest paid to
clients. Foreign exchange revenue is earned on the difference between negotiated and actual
rates on foreign exchange transactions executed on behalf of clients.
Fee Regulation
Prior to becoming effective, changes to Toronto Stock Exchange fees are filed for approval with the
Ontario Securities Commission (OSC) at least seven business days in advance. Fee changes for
TSX Venture Exchange are filed for approval with the Alberta Securities Commission (ASC) and
8 The “Pricing” section above contains certain forward-looking statements. Please refer to “Caution Regarding Forward-
Looking Information” for a discussion of risks and uncertainties related to such statements.
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13
British Columbia Securities Commission (BCSC) at least seven business days in advance. It is
possible that the regulators may require more time to review the fee filing, object, or require
revisions to the proposed fee changes
Competition
We compete for listings with North American exchanges in a broad range of sectors and also
internationally, particularly for resource companies and SMEs. Domestically, we compete for junior
listings with Canadian Securities Exchange (CSE, formerly CNSX Markets Inc.).
While some Canadian issuers seek a listing on another major North American or international
exchange, historically, the vast majority of these issuers also list on Toronto Stock Exchange or
TSX Venture Exchange and do not bypass our markets. At December 31, 2013, there were 331
issuers interlisted on other exchanges. There were also 208 issuers quoted on OTCQX, a U.S
OTC marketplace. As at December 31, 2013, only six Canadian issuers bypassed our markets and
were listed in the U.S., compared with 12 at the end of 2012.
We also compete with institutions and various market participants that offer alternative forms of
financing that are not necessarily traded in public markets including private venture capital and
various forms of debt financing.
In addition, crowdfunding, a new way for start-ups and SMEs to raise capital through small
amounts of money raised from a large number of people over the internet via an internet portal
intermediary, is emerging. In December 2012, the OSC published a consultation paper on
potential capital raising prospectus exemptions in Ontario, including crowdfunding. In August
2013, the OSC released OSC Notice 45-712 – Progress Report on Review of Prospectus
Exemptions to Facilitate Capital Raising, which indicated that the OSC is further considering a
prospectus exemption for crowdfunding, including the development of a regulatory framework for
funding portals.
Finally, as we build out our listed company services business, we may also face direct competition
from domestic and international companies that provide various investor relations and other
shareholder services.
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Trading, clearing, depository and related
Year ended December 31, 2013
Trading, clearing, depository and related revenue of $303.1 million
Energy Markets
14%
CDS Depository
15%
Derivatives
Markets ― MX and
BOX
36%
Cash Markets
35%
Cash trading, clearing, and depository – Toronto Stock Exchange, TSX Venture
Exchange, Alpha Exchange, TMX Select, Shorcan, and CDS
Overview and Description of Products and Services9
Equities – Trading
Trading on Toronto Stock Exchange, TSX Venture Exchange, TMX Select, and Alpha occurs on a
continuous basis on our fully electronic trading systems throughout the day. Retail, institutional and
other proprietary investors place orders to buy or sell securities through Participating Organizations
(POs) who act as principals or agents. Toronto Stock Exchange, TSX Venture Exchange, and
Alpha sessions begin with the market open in an auction format. Toronto Stock Exchange and TSX
Venture Exchange continuous sessions end with a closing auction which establishes the
benchmark closing price for our listed issues. Extended trading sessions after the close on Toronto
Stock Exchange, TSX Venture Exchange, and Alpha allow trades to occur at the closing price,
while TMX Select continues to support continuous trading during this time. Non-displayed trading
offering price improvement during continuous trading hours also occurs through Toronto Stock
Exchange and TSX Venture Exchange non-displayed order, or dark order, types. Trading also
9 The “Overview and Description of Products and Services” section above contains certain forward-looking statements.
Please refer to “Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to
such statements.
26
15
occurs through crosses in which POs internally match orders and report them through the
exchanges.
In Q3/13, we announced the successful implementation of our new high-performance trading
engine, TMX Quantum XA, on TMX Select. TMX Quantum XA provides TMX Select customers
with dramatically improved speed, with response time of approximately 30 microseconds, reduced
latency variability, and increased capacity. TMX Select is the first TMX equity marketplace to use
the new, robust platform. The migration of our other equities marketplaces to TMX Quantum XA is
planned to begin mid-2014.
Our international and domestic business development efforts, core technology initiatives and the
development of responsive new products are fundamental to growing overall trading volumes on
our equity exchanges.
Fixed Income – Trading
Shorcan’s fixed income operations primarily provide a facility for matching orders for Canadian
federal, provincial, corporate and mortgage bonds and treasury bills and derivatives for anonymous
or name-give-up buyers and sellers in the secondary market.
Equities and Fixed Income – Clearing, Settlement, and Depository
CDS manages the clearing and settlement of trades in both domestic and cross-border depository-
eligible securities.
CDS’s domestic clearing and settlement services enable participants to report, confirm or match,
reconcile, net and settle exchange and OTC traded equity, debt and money market transactions,
as well as derivatives transactions in depository-eligible securities (e.g., the processing of rights
and warrants and the settlement of exercised options). CDS also offers related services such as
buy-ins, risk controls and reporting and facilitates trading in CDSX (CDS’s multilateral clearing and
settlement system) eligible securities before they are publicly distributed (trades in these securities
settle after public distribution).
CDS Depository is accountable for the safe custody and movement of depository-eligible domestic
and international securities, accurate record-keeping, processing post-trade transactions, and
collecting and distributing entitlements arising from securities deposited by customers.
Strategy
Continue international business development efforts.
Focus on expanding global platform for trading SMEs.
Continue development of core and new technologies capabilities, including TMX Quantum
XA.
Reposition multiple platform pricing programs and functionality.
Introduce new listed products for trading.
Grow trading transactional services.
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27
Develop exempt market trading services.
Expand fixed income customer base.
Advance technology for, and accelerate, electronic fixed income trading.
Deepen CDS’s central role among clearing members by continuing to deliver exceptional
value through existing and innovative new services.
Seek targeted market-transforming opportunities for CDS to grow its presence in select
market segments with existing and new customers.
Pricing
Equity Trading
We have volume-based fee structures for issues traded on Toronto Stock Exchange, TSX Venture
Exchange, and Alpha. There are differences in our fee structures which provide our customers with
multiple execution options. Most models are structured so that market participants have an
incentive to enter passive orders into the central limit order book. Executed passive orders receive
a credit on a per security basis, and when liquidity is removed from the central limit order book,
each executed active order is charged on a per security basis. All trading revenue is recognized in
the month in which the trade is executed.
In Q4/13, TMX Select introduced an inverted pricing model. Under this fee structure, executed
passive orders are charged on a per security basis while executed active orders receive a credit on
a per security basis.
Fixed Income – Trading
Shorcan charges a commission on orders that are matched against existing communicated orders.
Equities and Fixed Income – Clearing and Depository
CDS’s core business includes clearing, settlement and depository services. Clearing activities
include the reporting and confirmation of all trade types within CDSX. Clearing activities also
include the netting and novation of exchange trades through CDS’s Continuous Net Settlement
(CNS) service prior to settlement.
For reported trades, both exchange trades and OTC trades, CDS charges clearing fees to
participants on a per trade basis. For those trades that are netted in CNS, settlement fees are
charged on the basis of the number of netted trades settled. Settlement fees for those trades that
are not netted (i.e., trades that are settled individually on a trade-for-trade (TFT) basis) are charged
on a per transaction basis. Depository fees are charged per transaction and custody fees are
charged based on a daily average of volume (i.e., number of shares held for equity securities and
nominal value held for fixed income securities) and positions held.
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Clearing services
Clearing fees are recognized as follows:
Reporting fees are recognized when the trades are delivered to CDS.
Netting/novation fees are recognized when the trades are netted and novated.
Other clearing related fees are recognized when services are performed.
Settlement services
Settlement related fees are recognized when the trades are settled.
Depository services
Depository fees are charged for custody of securities, depository related activities, and processing
of entitlement and corporate actions, and are recognized when the services are performed.
International
International revenue consists of revenue generated through offering links as channels to
participants to effect cross-border transactions and custodial relationships with other international
organizations. The related fees are recognized as follows:
Fees are charged to participants based on participant usage of National Securities Clearing
Corporation (NSCC) and Depository Trust Company (DTC) services. Participants are
sponsored into NSCC and DTC services via the New York Link service and the DTC Direct
Link service respectively.
Custodial fees and other international services related revenues are recognized when the
services are performed.
Fee Regulation
Prior to becoming effective, changes to Toronto Stock Exchange fees are filed for approval with the
OSC at least seven business days in advance. Fee changes for TSX Venture Exchange are filed
for approval with the ASC and BCSC at least seven business days in advance. It is possible that
the regulators may require more time to review the fee filing, object, or require revisions to the
proposed fee changes.
Shorcan is regulated as an Exempt Market Dealer by the OSC and is subject to certain IIROC
rules.
CDS Recognition Orders
Under the CDS recognition orders granted by the OSC, the AMF and BCSC, fees for services and
products offered by CDS Clearing will be those fees in effect on November 1, 2011 (the 2012 base
fees).
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CDS cannot adjust fees without the approval of the OSC, AMF and BCSC. In addition, we may
only seek approval for fee increases on clearing and other core CDS Clearing services (which
services are outlined in the OSC and AMF recognition orders) where there has been a significant
change from circumstances as at August 1, 2012, the effective date of the recognition orders.
50:50 Rebates on Core CDS Services
For the period starting November 1, 2012 and subsequent fiscal years starting on January 1, 2013,
CDS shares with participants, on a 50:50 basis, any annual increases in revenue on clearing and
other core CDS Clearing services, as compared with revenues in fiscal year 2012 (the 12-month
period ending October 31, 2012). Rebates are paid on a pro rata basis to participants in
accordance with the fees paid by such participants for these services.
Additional Rebates
In addition, CDS must rebate an additional amount to participants in respect of exchange clearing
services for trades conducted on an exchange or ATS as follows for each year ending October 31:
$2.75 million in the 12-month period ending October 31, 2013
$3.25 million in the 12-month period ending October 31, 2014
$3.75 million in the 12-month period ending October 31, 2015
$4.0 million in the 12-month period ending October 31, 2016
$4.0 million annually thereafter.
Rebates will be paid on a pro rata basis to participants in accordance with the fees paid by such
participants for these services.
Competition and Market Share
There are currently 12 Canadian equity marketplaces which trade or intend to trade Toronto Stock
Exchange and TSX Venture Exchange listed securities, including dark and visible trading venues.
There are also sophisticated mechanisms to internalize order flow, liquidity aggregators and smart
order routers that also facilitate trading on other venues. New market entrants have fragmented
domestic equities market share and we face significant competitive pressure from existing venues,
and potential new entrants. In addition, the variety of other marketplaces and trading venues in the
United States that trade Canadian securities, including dark markets and internalization facilities,
place increasing competitive pressure on our business.
In 2013, our combined monthly average share of volume, including Toronto Stock Exchange, TSX
Venture Exchange, TMX Select, and Alpha, was 80%, down from the combined monthly average
of 85% in 2012.
In Q2/13, a group consisting of money managers, pension fund managers, and institutional and
retail brokers, including a bank-owned dealer, announced plans to create a new stock exchange
expected to launch in 2015.
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We also compete for trading activity in the United States for those issuers that seek additional
listings on other exchanges, referred to as interlistings, or dual listings. Interlistings generally raise
the profile of issuers in the global market, and trading volumes for these issuers’ securities often
increase across all markets including Toronto Stock Exchange. Whether a significant portion of
trading of a particular issuer remains in Canada following its interlisting depends on a number of
factors, including the location of the issuer’s shareholder base and the location of research
analysts who cover the issuer. Our combined market share (including Toronto Stock Exchange,
Alpha, and TMX Select) of the total volume traded in Canadian based interlisted issues was 33%
versus U.S. exchanges in 2013, compared with 41% in 2012 including Alpha. Our cash equities
sales team is focused on attracting more foreign participants and order flow by raising the level of
awareness of the benefits of trading on Toronto Stock Exchange, TSX Venture Exchange, Alpha,
and TMX Select.
Shorcan has several competitors in the Canadian fixed income IDB market.
CDS is Canada's only securities depository, clearing, and settlement hub for equity and fixed
income securities.
Derivatives Trading and Clearing – MX, CDCC, and BOX10
Overview and Description of Products and Services
Our domestic financial derivatives trading is conducted through MX. Our U.S. derivatives trading is
conducted through our controlled subsidiary, BOX, an equity options market located in the U.S.
Our derivatives markets derive revenue from MX’s trading and clearing and from trading on BOX.
Derivatives Trading
MX
MX offers interest rate, index, equity and exchange-rate derivatives to Canadian and international
market participants. MX connects participants to its derivatives markets, builds business
relationships with them and works with them to ensure that the derivatives offerings meet investor
needs. More than half of MX’s volume in 2013 was represented by three futures contracts – the
Three-Month Canadian Bankers’ Acceptance Futures contract (BAX), the 10-Year Government of
Canada Bond Futures contract (CGB) and the S&P/TSX 60 Standard Futures contract (SXF) – with
the balance largely represented by our equity and ETF options market.
In Q2/13, MX announced significant increases for position limits for equity and exchange-traded
fund options. The increases were implemented to make the market more attractive to large
institutional investors and encourage them to trade on MX, rather than over the counter (OTC).
In Q4/13, MX completed the upgrade of its SOLA derivative trading platform, which is the core
technology for MX, CDCC, and BOX. The upgrade delivered a nearly 300% improvement in trading
response time with an overall median response time measure at the network edge of
10 The “Derivatives Trading and Clearing – MX, CDCC and BOX” section above contains certain forward-looking
statements. Please refer to “Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties
related to such statements.
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approximately 460 microseconds. Additionally, messaging capacity has been doubled to
accommodate 100,000 quotes per second and is being offered to all approved participants.
BOX
BOX is an all-electronic equity derivatives market and was created as a simpler, faster, more
transparent and less costly alternative to the other U.S. market models. BOX is one of a number of
equity options markets in the U.S., offering an electronic equity derivatives market on over 1,500
options classes. All BOX trade volume is cleared through the Options Clearing Corporation. BOX’s
Price Improvement Period (PIP) auction, an automated trading mechanism, permits brokers to
seek to improve executable client orders. BOX runs on our SOLA technology, a leading-edge
technology for equity options. BOX launched its Complex Order Book in Q2/13.
In April 2012, BOX received U.S Securities and Exchange Commission (SEC) approval of its
application for registration as a national securities exchange and, after a corporate reorganization,
newly-created BOX Options Exchange LLC began acting as self-regulatory organization (SRO) to
BOX on May 14, 2012. We have a 40% economic interest and a 20% voting interest in the SRO.
Derivatives – Clearing
Through CDCC, MX’s wholly-owned subsidiary, we generate revenue from clearing and
settlement, as well as from options and futures exercise activities. CDCC offers central
counterparty and clearing and settlement services for all transactions carried out on MX’s markets
and on some OTC products. In addition, CDCC is the issuer of options traded on MX markets and
the clearing house for options and futures contracts traded on MX markets and for some products
on the OTC market.
In Q1/12, CDCC launched the first phase of fixed income central counterparty services with the
clearing of REPOs. CDCC's technology and industry specialists worked with the Investment
Industry Association of Canada (IIAC), the Bank of Canada and industry stakeholders to develop
the infrastructure for central-counterparty services for the Canadian fixed income market. The
Canadian Derivatives Clearing Service (CDCS), operated by CDCC, was designated by the Bank
of Canada as being subject to Bank of Canada oversight, being systematically important, under the
Payment Clearing and Settlement Act (Canada). In 2013, CDCC cleared 55,314 REPO
transactions comprised of 104 Government of Canada and 74 Provincial Government eligible
ISINs with a total notional value of approximately $2.5 trillion. This was an increase from 20,556
REPO transactions between February 21, 2012 and December 31, 2012, comprised of 131
Government of Canada eligible ISINs with a notional value of $919.1 billion. In Q4/13, Provincial
Government bonds became eligible, bringing the total number of eligible ISINs to 178. The
development of our REPO clearing initiative continues.
In Q2/13, S&P Dow Jones Indices announced that it had licensed CDCC to clear OTC options
based on the S&P/TSX suite of indices, the first such license for clearing OTC trades in Canada.
This agreement provides the potential for increased risk management in the OTC equity
derivatives marketplace served by these key indices. CDCC requires regulatory approval before it
can launch this clearing service through its Converge offering.
CDCC is regulated as a clearing house in Quebec and British Columbia and is regulated in Ontario
under a temporary exemption order but is in the process of applying to be recognized as a clearing
agency.
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Derivatives – Regulatory Division
MX is an SRO that has a major responsibility for maintaining the transparency, credibility and
integrity of the exchange-traded derivatives market in Canada. MX’s Regulatory Division, which is
operated independently of its other operations, is responsible for the regulation of its markets and
its trading participants. The Regulatory Division is subject to the sole internal oversight of MX’s
Special Committee – Regulatory Division. The Special Committee – Regulatory Division, which is
appointed by the Board of Directors of MX, is composed of a majority of independent members,
none of whom is a member of the Board of Directors of MX or CDCC. The Regulatory Division
operates on a non-profit/cost-recovery basis.
The Regulatory Division generates revenues from two sources: (1) regulatory fees, which are
principally comprised of market surveillance fees collected by MX on behalf of its Regulatory
Division, and (2) regulatory fine revenues, which are generated from fines levied by the Regulatory
Division. Market regulation fees are recognized in the month in which the services are provided.
Any surplus in the Regulatory Division must be, subject to the approval of the Special Committee –
Regulatory Division, redistributed to MX’s approved participants (excluding regulatory fine
revenues, which cannot be redistributed) and any shortfall must be made up by a special
assessment by MX’s participants or by MX upon recommendation of the Special Committee –
Regulatory Division. Regulatory fine revenues are accounted for separately from regulatory fees
revenues and can be used only for specifically approved purposes, such as charitable donations or
educational initiatives.
Strategy
Continue expansion of product suite.
Expand Canadian retail and institutional customer base.
Attract new order flow from international participants.
Strengthen our core franchise in interest rate and equity listed derivatives.
Expand BOX positioning within the U.S. options market.
Pricing
MX participants are charged fees for buying and selling derivatives products on a per transaction
basis, determined principally by contract type and participant status. Since MX trading fee rates are
charged on each transaction based on the number of contracts included in each transaction, MX
trading revenue is directly correlated to the volume of contracts traded on the derivatives market.
Derivatives trading revenue is recognized in the month in which the trade is executed.
CDCC clearing members (Clearing Members) pay fees for clearing and settlement, including OTC
fixed income and REPO transactions, on a per transaction basis. Fees for fixed income
transactions are based on the size and term of the original agreement, and Clearing Members pay
a minimum monthly fee. Clearing Members are also eligible for a revenue sharing arrangement
based on annual cleared volumes of REPO transactions. Clearing and settlement revenues other
than for REPO transactions are correlated to the trading volume of such products and therefore
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fluctuate based on the same factors that affect our derivatives trading volume. Derivatives clearing
revenue is recognized on the settlement date of the related transaction. Clearing revenue for fixed
income REPO agreements is recognized on the novation date of the related transaction.
In Q2/13, CDCC implemented increases in clearing fees for REPO transactions. In addition, it
modified the revenue sharing arrangement for REPO transactions to reflect an increase in the
share of revenue returned to Clearing Members based on certain thresholds for annual cleared
volumes.
BOX participants are charged fees per transaction based on the volume of contracts traded.
In 2013, all of BOX’s revenue was billed in U.S. dollars. We do not currently hedge this revenue or
the operating expenses related to BOX and, therefore, the income from operations is subject to
foreign exchange fluctuations.
Fee Regulation
Prior to becoming effective, changes to MX trading fees are filed for approval with the AMF at least
seven business days in advance. It is possible that the AMF may require more time to review the
fee filing, object, or require revisions to, the proposed fee changes.
Prior to becoming effective, changes to CDCC fees are filed with the AMF.
Prior to becoming effective, changes to the BOX trading fees are filed with the SEC. It is possible
at any point during this process that the regulators may object or require revisions to the proposed
fee changes.
Competition
In Canada, our competition in derivatives trading and clearing is the OTC market and
internationally we compete for a share of trading in derivatives of interlisted equities.
While MX and CDCC are the only standardized financial derivatives exchange and clearing house
headquartered in Canada, their various component activities are exposed, in varying degrees, to
competition. We compete by offering market participants a state-of-the-art electronic trading
platform, an efficient, cost-effective and liquid marketplace for trade execution and transparent
market and quotation data. Additionally, we are continually enhancing our product offering and
providing additional efficiencies to our customers. We are committed to improving the technology,
services, market integrity and liquidity of our markets. In addition to competition from foreign
derivatives exchanges, the majority of derivatives trading occurs OTC or bilaterally between
institutions. OTC alternative trading platforms (dark pools) represent increased competitive risk to
MX with their look-alike futures products that are centrally cleared. We may in the future also face
competition from other Canadian marketplaces.
The Canadian exchange business is seeing more foreign entrants. Chicago Mercantile Exchange
Inc. (CME), Board of Trade of the City of Chicago, Inc., Commodity Exchange, Inc., and New York
Mercantile Exchange, Inc., each of which is a wholly-owned subsidiary of CME Group Inc. and
each of which provides trading and execution services for a range of exchange-traded futures and
options on futures, as well as a number of swap execution facilities, all received exemption orders
from the OSC to operate as exchanges in 2013.
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In the U.S., MX competes for market share of trading single stock options based on Canadian-
based interlistings, or dual listings. However, options traded in the U.S. are not fungible with those
traded in Canada.
With respect to providing clearing services for certain OTC-traded contracts, CDCC is targeting
markets that already are or could easily be the focus of foreign clearing houses. The nature of
these markets makes them attractive targets for all clearing houses throughout the world. Once
such services are in place in a given clearing house, the main criterion for attracting such business
is merely that both counterparties to a transaction clear through members of the clearing house.
The Canadian clearing services market may become more competitive. In 2013, Canada's central
bank designated SwapClear, a global system for clearing over-the-counter interest rate swaps, as
subject to its regulatory oversight, citing the potential to pose systemic risk to the Canadian
financial system. SwapClear is operated by LCH.Clearnet Group Ltd. (LCH), a U.K.-based
company that operates several central counter-party services. In addition, CME (which operates
CME Clearing) and ICE Clear Credit LLC, which clear other OTC products, as well as LCH, have
all recently received exemption orders from the OSC to operate as clearing agencies. CDCC is
regulated as a clearing house in Quebec and British Columbia and is regulated in Ontario under a
temporary exemption order but is in the process of applying to be recognized as a clearing agency.
BOX operates in the highly competitive U.S. equity options market. BOX’s overall equity options
market share decreased to 2.2% in 2013 from 3.6% in 2012. BOX competes for market share with
11 options exchanges in the U.S.
Energy Trading and Clearing – NGX and Shorcan Energy Brokers11
Overview and Description of Products and Services
NGX is a Canadian-based energy exchange with an electronic platform that trades and provides
clearing and settlement services for natural gas, crude oil and electricity contracts. In 2008, we
formed a technology and clearing alliance for North American natural gas and Canadian power
with IntercontinentalExchange, Inc. (ICE). Under the arrangement, North American physical natural
gas and Canadian electricity products are offered through ICE’s leading electronic commodities
trading platform. NGX serves as the clearinghouse for these products.
In Q2/13, NGX announced the addition of products relating to three new natural gas clearing
locations in the U.S., and added one natural gas clearing location during Q4/13. Currently, NGX
offers products and clearing services in a total of 71 natural gas, crude oil, and power locations in
North America, including 49 in the U.S.
In Q2/13, NGX received approval from the U.S. CFTC to become the first registered foreign board
of trade (FBOT). The FBOT registration replaces NGX’s exempt commercial market status, which
was eliminated by the enactment of the Dodd-Frank Act.
11 The “Energy Trading and Clearing – NGX and Shorcan Energy Brokers” section above contains certain forward-
looking statements. Please refer to “Caution Regarding Forward-Looking Information” for a discussion of risks and
uncertainties related to such statements.
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In Q3/13, NGX announced the launch of its U.S. physical power clearing services in the Electric
Reliability Council of Texas (ERCOT) market. This initiative was announced in July 2013 when
NGX entered into an agreement with NASDAQ OMX Commodities Clearing Company (NOCC) for
the transfer of NOCC’s physical energy products and customers to NGX. These products and
customers have been successfully transferred and are available for trading through ICE’s WebICE
platform.
NGX owns The Alberta Watt Exchange (Watt-Ex), a provider of ancillary services to the Alberta
Electric System Operator which uses Watt-Ex to procure its operating reserve electricity for the
Alberta grid.
Shorcan Energy Brokers provides an inter-participant brokerage facility for matching buyers and
sellers of energy products, including crude oil.
Strategy
Develop and implement additional energy products for trading.
Add delivery points and new geographic markets.
Extend the NGX business model to other commodities.
Pricing
NGX generates trading and clearing revenue by applying fees to all transactions based on the
contract volume traded or centrally cleared through the exchange, and charges a monthly fixed
subscription fee to each customer which maintains a clearing account with NGX. Energy trading
and clearing revenue is recognized over the period the relevant services are provided.
In 2013, approximately 49% of NGX revenue was billed in U.S. dollars. We do not currently hedge
this revenue and, therefore, it is subject to foreign exchange fluctuations.
Shorcan Energy Brokers charges a commission on orders that are matched against existing
communicated orders.
Fee Regulation
NGX fee changes are self-certified with the U.S. Commodity Futures Trading Commission (CFTC)
and filed with the ASC.
Competition
The NGX business faces trading competition in Canada and in the U.S. from competing
exchanges, OTC electronic trading platforms, and from the OTC voice and bilateral markets.
NGX’s clearing business faces competition from recognized clearing facilities as well as bilateral
credit lines between counterparties in the OTC markets. In the U.S. physical power and gas
markets, our competition comes from the bilateral markets.
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Our alliance with ICE provides access to leading technology and distribution, which allows us to
compete in the exchange markets and positions us to provide clearing services to the OTC
markets. NGX has arrangements with energy voice brokers to provide OTC clearing services for
standard off-exchange bilateral energy transactions. NGX also has an alliance with Shorcan
Energy Brokers, a wholly-owned subsidiary of Shorcan, to provide clearing services for their
physical and financial crude contracts.
Shorcan Energy Brokers has several competitors in the Canadian crude oil markets.
Information Services – TMX Datalinx, Alpha, CDS, MX, NGX and BOX
Year ended December 31, 2013
Information services revenue of $181.5 million
CDS
Alpha
Fixed Income∂
Non-Canadian
Subscriptions Top
of Book (CEG)
TMXNet and
TMX Atrium
Data Delivery
Solutions
TSX Top of Book
(Level 1)
TSXV Top of Book
(Level 1)
TSX Depth of
Book (Level 2)
TSXV Depth of
Book (Level 2)
Non-Pro Usage
Derivatives
Online/Historical/
Other
∂ On February 27, 2013, FTSE Group (FTSE), part of London Stock Exchange Group (LSEG), and TMX Group announced an agreement to combine
their fixed income index businesses. TMX Group holds a 25% interest in this new enterprise. Closing took place on April 5, 2013. During Q1/13, the
revenue from PC-Bond represented approximately 10% of total Information Services revenue.
Overview and Description of Products and Services
Real-Time Market Data Products – CEG, Level 1 and Level 2 and Alpha Feeds
Trading activity on Toronto Stock Exchange, TSX Venture Exchange, TMX Select and Alpha
produces a stream of real-time data reflecting orders and executed transactions. This stream of
data is supplemented with value-added content (e.g. dividends, earnings) and packaged by TMX
Datalinx into real-time market data products and delivered to end users directly or via more than
100 Canadian and global redistributors that sell data feeds and desktop market data.
We offer our subscribers Level 1 and Level 2 real-time services for Toronto Stock Exchange and
TSX Venture Exchange (including NEX), TMX Select, and Alpha. Level 1 provides trades, quotes,
corporate actions and index level information. Level 2 provides a more in-depth look at the order
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book and allows distributors to obtain Market Book for Toronto Stock Exchange, TSX Venture
Exchange, TMX Select, and Alpha. Market Book is an end-user display service that includes
MarketDepth by Price, MarketDepth by Order and MarketDepth by Broker for all committed orders
and trades. We offer direct data feeds to clients with trading strategies that require lower latency.
Our TMX Quantum Feed provides clients with Level 1 and Level 2 binary data translated to a
standard, highly efficient format for predictable latency for Toronto Stock Exchange, TSX Venture
Exchange, TMX Select, and Alpha.
We also provide market participants with low-latency access to real-time Level 1 and Level 2
market data consolidated to include all domestic equities marketplaces, by way of our TMX
Information Processor Consolidated Data Feed (CDF), Canadian Best Bid and Offer (CBBO),
Consolidated Last Sale (CLS), and Consolidated Depth of Book (CDB) services. TMX is seeking
to renew its Information Processor mandate with the Canadian Securities Administrators and
Recognition Order with the Authorité des marches financiers in June 2014.
TMX Datalinx market data is available globally through TMX Atrium, our low-latency financial
network, and through a variety of network carriers and extranets.
Real-Time Derivative Market Data Products
We also derive information services revenue from MX and BOX.
TMX Datalinx distributes MX real-time trading and historical data to market participants on a global
basis directly and through data distributors.
The SOLA High Speed Vendor Feed (HSVF) is a real-time service for MX’s real-time trading and
statistical information (comprised of trades, quotes, market depth, strategies, bulletins, summaries
and other statistics). The MX HSVF provides access to both Level 1 and Level 2 real-time data for
MX-traded futures and options products.
BOX distributes its market data, like the other U.S. options markets, through a marketplace service
known as OPRA (Options Price Reporting Authority), which collects data from the options
exchanges and disseminates it to entities which then resell it.
Data Delivery Solutions – Co-location, Infrastructure and Managed Services
TMX Datalinx provides co-location services to a broad range of domestic and international market
participants. TMX co-location services clients, through pre-wired co-location cabinets, benefit from
stable, low-latency access to Toronto Stock Exchange, TSX Venture Exchange, TMX Select,
Alpha, and MX trading engines and market data feeds, as well as access to other capital market
clients, financial content providers, and technology providers.
TMX Group’s co-location services offering was introduced in 2008 and has since expanded. In
2013, TMX Datalinx added several new strategic co-location services clients, including the largest
data distributors. This significantly advanced our strategy to diversify the financial community in
our data centre because their services are used by the largest financial institutions globally.
Additionally, TMX Datalinx rolled out 10G access to TMX trading engines and data fees within the
co-location environment. At December 31, 2013, over 75% of capacity was contracted or sold.
TMX Atrium provides low-latency, scalable, and secure connectivity solutions for the financial
services community, connecting clients to multiple marketplaces and participants, including
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exchanges, buy-side asset managers, ATSs, clearing houses, brokers, and software and market
data vendors. TMX Atrium has a presence in 11 countries across North America and Europe,
providing connectivity to over 30 major trading venues and offering low latency access to over 500
data sources.
Index Products – Equities and Derivatives
TMX Datalinx has an arrangement with S&P Dow Jones Indices LLC (S&P Dow Jones) under
which we share license fees received from organizations that create products, such as mutual
funds and ETFs, based on the S&P/TSX indices. In general, these license fees are based on a
percentage of funds under management in respect of those products.
Together with S&P Dow Jones, we launched five new indices in 2013: the S&P/TSX 60 Index
(USD), the S&P/TSX High Income Energy Index, the S&P/TSX High Income Energy Index (USD),
the S&P/TSX Composite Index (Net Total Return), and the S&P/TSX Equity Income Index (Net
Total Return).
TMX Datalinx offers a suite of S&P/TSX Index data product packages. These products support the
wide array of benchmark and investable indices offered in the S&P/TSX family of indices, covering
Canadian equity markets and international global mining markets. Index data provided include
comprehensive index level files, index constituent data files and index notices (upcoming
changes).
Historical, Online, and Other Market Data Products
Historical market data products include market information (such as historical pricing, index
constituents, and weightings) and corporate information (such as dividends and corporate actions)
used in research, analysis and trade clearing. Other market data products include information
services from NGX and third-party data. Third-party data involves redistribution of exchange data
from other markets in North America. We also provide live inter-bank foreign exchange rates, fixed
income rates from CanDeal, a Dow Jones low-latency news and event data feed for trading and
algorithmic strategies, and a TSX/CP Equities News service in partnership with The Canadian
Press. In addition, TMX Datalinx distributes all public trade reports from TriAct Canada
Marketplace LP’s MATCH Now non-quoting marketplace, as well as a Canadian implied volatility
and Greeks analytics feed for options traded on MX.
Fixed Income – Index and Analytics Products
In Q2/13, we completed the combination of our fixed income index business, PC-Bond, with FTSE
Group’s (FTSE) existing international fixed income index business. FTSE is part of the London
Stock Exchange Group. FTSE owns a 75 per cent majority stake and TMX Group holds a 25 per
cent stake in this new enterprise, called FTSE TMX Global Debt Capital Markets Limited.
For TMX Group, the transaction enables more rapid global expansion as we export our fixed
income index and analytic capabilities by leveraging the global distribution reach of FTSE, one of
the world's most recognized index brands. FTSE TMX Global Debt Capital Markets Limited is using
the power of PC-Bond's fixed income capabilities and methodology to offer the global financial and
"S&P" is the trade-mark of Standard & Poor's Financial Services LLC and is used under license. "TSX" is the trade-
mark of TSX Inc.
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capital markets community a suite of proven and valuable fixed income indices and analytics tools
and to use this as a platform for future expansion.
In addition to receiving a 25 per cent interest in this new business, TMX Group received $104.0
million in proceeds. We used $100.0 million from the proceeds of the transaction to pay down debt.
The transaction was dilutive to adjusted earnings per share in 201312. During Q1/13, the revenue
from PC-Bond represented approximately 10% of total information services revenue. Income from
our 25 per cent interest is recorded under Share of net income of equity accounted investees
and Information services revenue (as a royalty).
CDS Computer Services (Managed Network Services)
Users of CDS Clearing services pay a network services fee to maintain and support network
connections to those services.
Strategy
Add and diversify content through addition of third-party data.
Expand low latency networks.
Launch additional analytics products.
Enhance global sales capabilities.
Pricing13
Subscribers to TMX Datalinx and Alpha Market Services data generally pay fixed monthly rates for
access to real-time streaming data, which differ depending on the number of end users and the
depth of information accessed. In addition to streaming data, many individual investors consume
real-time quote data, for which we charge on a per quote basis. We charge market data vendors
and direct feed clients a fixed monthly fee for access to data feeds.
Generally, TMX Datalinx sells historical data products for a fixed amount per product accessed.
Fees vary depending on the type of end use. Data products to be used for commercial purposes
require an enterprise-wide license for internal and external redistribution. We produce two
electronic reference data publications for each equity exchange, a Daily Record and a Monthly
Review, both of which are sold on a subscription and firm license basis.
Real-time market data revenue is recognized based on usage as reported by customers and
vendors, less a provision for sales allowances from the same customers. Fixed income indices
revenue is recognized over the period the service is provided. Other information services revenue
is recognized when the services are provided.
12 Excludes the impact of a gain related to the sale of PC-Bond and related income tax expense. See Adjusted
Earnings per Share Reconciliation for the year ended December 31, 2013.
13 The “Pricing” section above contains certain forward-looking statements. Please refer to “Caution Regarding Forward-
Looking Information” for a discussion of risks and uncertainties related to such statements.
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Subscribers to TMX Group’s co-location services pay a fixed monthly fee depending on the
number of cabinets and other co-location services they receive. Subscribers to TMX Atrium service
also pay a fixed monthly fee depending on the number of connections, distance, and bandwidth.
Co-location and TMX Atrium services are normally contracted for a period of one to five years.
In 2013, approximately 33% of our information services revenue was billed in U.S. dollars. We do
not currently hedge this revenue and therefore it is subject to foreign exchange fluctuations.
On January 1, 2014, we implemented some changes to our fee structure, including a single price
tier for CEG professional subscribers, an increase in CEG non-professional subscriber rates, the
introduction of a Toronto Stock Exchange Level 1 non-professional fee cap for POs, and a
reduction in TSX Venture Exchange Level 1 non-professional subscriber fees. We do not expect
these changes to have a significant impact on our total revenue.
Fee Regulation
Prior to becoming effective, changes to TMX Datalinx market data fees related to Toronto Stock
Exchange, TSX Venture Exchange, TMX Select, Alpha Exchange, and MX market data and co-
location fees are filed with the OSC, BCSC, ASC and the AMF, as required, for approval, seven
business days before becoming effective. It is possible that the regulators may require more time
to review the fee filing, object, or require revisions to the proposed fee changes.
On November 8, 2012, the Canadian Securities Administrators (CSA) published a consultation
paper - CSA Consultation Paper 21-401 Real-Time Market Data Fees - that examines the cost of
real-time market data. The paper was out for public comment until Feb. 8, 2013.
On November 7, 2013, the CSA published CSA Staff Notice 21-312 – Update on Consultation
Paper 21-401 Real-Time Market Data Fees. The notice included commentary indicating that CSA
staff believe options which involve limiting fees that a marketplace can charge prior to achieving
certain activity levels, and publishing data fee proposals or changes for external comment, should
be explored further. Additionally, as part of its review of the Order Protection Rule (OPR), CSA
staff will continue to examine market data fees, the impact of OPR on data fees, and the creation
of a methodology for evaluation of market data fees. The OPR process is ongoing and feedback
from stakeholders will be requested at a later date.
Competition
With the advent of a multi-marketplace environment in Canada, we face competition in market
data, from other trading venues. Market data is generated from trading activity and the success of
certain data products is linked to maintaining order flow.
We have continued to diversify and target new data customers with initiatives such as the
consolidation of our equities and derivatives data centres, new analytics products, the
diversification of data content, and the expansion of our TMX Atrium network and co-location
services.
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Technology Services
TMX Technology Solutions provides software and consulting services to exchanges and other
financial services industry participants around the world. Our team of capital markets technology
professionals have extensive industry experience in designing, building, installing, and operating
trading, risk, and related systems at our exchanges as well as other global exchanges. Technology
services and other revenue is recognized when the software license is sold or when the service is
provided.
Through Razor Risk, we also provide risk management technology solutions to clearing houses,
stock exchanges, financial institutions and brokerages around the world. Razor Risk develops and
integrates economic capital, market, credit and liquidity risk management requirements across
multiple asset classes. In Q4/13, Razor Risk entered into license and services agreements with
NetOTC, a London-based multilateral netting and risk mitigation platform for managing non-
standardized OTC derivative transactions. Under the terms of these agreements, TMX Technology
Solutions will provide NetOTC with a range of software products, our enterprise risk management
software, as well as integration and consulting services.
CDS – SEDAR, SEDI and NRD services
CDS INC. operated, until January 13, 2014, the System for Electronic Document Analysis and
Retrieval (SEDAR), the System for Electronic Disclosure by Insiders (SEDI), and the National
Registration Database (NRD), the electronic database containing information with respect to
various registrants under Canadian securities laws.
Revenue related to the operations of the SEDAR, SEDI and NRD services are based on the
recovery of the full cost of operating these services and include management fees. Revenue is
recognized when the services are performed. The operations were transitioned to a new service
provider on January 13, 2014, and the agreement ended on January 31, 2014. We will not be
earning any revenue from securities regulators for these services after January 31, 2014.
Expenses of $2.0 million associated with the wind down of the business operations have been
recorded in compensation and benefits and general and administration expenses. We expect that
approximately $17.9 million of annual revenue and approximately $8.0 million of annual costs, or
approximately $9.9 million in income from operations, will be eliminated due to the termination of
the contract.
Strategy
Further develop technology services product suite.
Expand international sales efforts.
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IMPACT OF RECOGNITION ORDERS ON OUR BUSINESS
Constraints on Fees, Fee Models and Incentives
As a result of the various recognition orders issued by the securities regulators with respect to the
Maple Transaction (the Final Recognition Orders), we are subject to extensive additional regulation
and oversight with respect to, among other things, fees, fee models, discounts and incentives.
With respect to fees charged by TSX Inc. and Alpha Exchange Inc., the OSC has under the Final
Recognition Orders the right to require those marketplaces to submit a fee, fee model or incentive
that has previously been approved by the OSC for re-approval. In such circumstances, if the OSC
decides not to re-approve the fee, fee model or incentive, the previous fee model or incentive must
be revoked. This power extends to fees, fee models and incentives that are currently in place for
TSX Inc. and Alpha Exchange Inc. and, accordingly, could result in existing fees, fee models and
incentives being revoked in the future.
With respect to the fees charged by all of our equity exchange marketplaces (TSX Inc., Alpha
Exchange Inc., and TSX Venture Exchange Inc.), the Final Recognition Orders also impose
prohibitions on arrangements or volume-based discounts or incentives that are accessible only to a
particular marketplace participant and also may impose restrictions on arrangements or volume-
based discounts or incentives that are accessible only to a class of marketplace participants. Such
prohibitions and restrictions may limit the ability of our equity exchange marketplaces to introduce
new products in the future or to introduce them on a timely basis, which could materially adversely
affect the success of our future strategies, financial condition and results of operations.
Under the CDS recognition orders granted by the OSC, AMF and BCSC, fees for services and
products offered by CDS Clearing will be those fees in effect on November 1, 2011 (the 2012 base
fees).
CDS cannot adjust fees without the approval of the OSC, AMF and BCSC. In addition, we may
only seek approval for fee increases on clearing and other core CDS Clearing services (which
services are outlined in the OSC and AMF recognition orders) where there has been a significant
change from circumstances as at August 1, 2012, the effective date of the recognition orders.
Increased Cost of Regulation
We have incurred increased costs to comply with the additional regulatory requirements that are
imposed pursuant to the Final Recognition Orders. These increased costs have been netted
against the estimated cost synergies for a net estimate of $28.0 million (see Integration). The
AMF’s Final Recognition Order for CDS also requires CDS to reimburse the AMF for the costs and
fees incurred by the AMF for the analysis of applications for approval related to fees for CDS
Clearing services. In addition, the OSC has amended its capital market filing fee structure to
charge new participation and activity fees to specified regulated entities, including exchanges,
ATSs, and clearing agencies.
For more information on the regulatory impact on our business, please see the TMX Group Annual
Information Form, dated March 28, 2013.
32
43
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2013 COMPARED WITH YEAR ENDED DECEMBER 31,
2012
The information below reflects the financial statements of TMX Group for the year ended
December 31, 2013, including the operating results of Equity Transfer from April 5, 2013. The
comparative financial information for the year ended December 31, 2012 includes the operating
results of TMX Group Inc. from July 31, 2012 and CDS and Alpha from August 1, 2012.
For the reasons outlined on earlier in this MD&A, management believes that the historical
information for TMX Group in this table will be of limited use to investors and other users of our
financial information in evaluating the operating performance of our company for the comparative
periods.
(in millions of dollars, except per share amounts)
Revenue
Operating expenses
Net income attributable to TMX Group
shareholders
Earnings per share:
Basic
Diluted
Cash flows from (used in) operating activities
Non-IFRS Financial Measures
Year ended
Dec. 31/13
$700.5
Dec. 31/12
$294.5
$ Increase
$406.0
$442.8
$179.4
$263.4
$123.9
$15.1
$108.8
$2.29
$2.29
$250.4
$0.72
$0.72
$(144.0)
$1.57
$1.57
$394.4
Adjusted earnings per share and adjusted diluted earnings per share provided for the year ended
December 31, 2013 are Non-IFRS measures and do not have standardized meanings prescribed
by IFRS and are therefore unlikely to be comparable to similar measures presented by other
companies. We present adjusted earnings per share and adjusted diluted earnings per share to
indicate operating performance exclusive of a number of adjustments that are not indicative of
underlying business performance. These adjustments include credit facility refinancing expenses,
an adjustment related to the sale of PC-Bond and related income tax expense, the increase in
deferred income tax liabilities resulting from the change in British Columbia (B.C.) corporate
income tax rate, Maple Transaction and integration costs, and the amortization of intangible assets
related to acquisitions. Management uses these measures to assess our financial performance,
including our ability to generate cash, exclusive of these costs, and to enable comparability across
periods. There is no comparative information on adjusted earnings per share for 2012.
Earnings per share information is based on net income attributable to TMX Group shareholders.
44
33
Adjusted Earnings per Share
Reconciliation for Year Ended December 31, 2013
The following is a reconciliation of earnings per share to adjusted earnings per share
:
(unaudited)
Earnings per share
Adjustment:
Related to credit facility refinancing expenses (includes
write-off of prepaid financing fees and related items)
Related to the sale of PC-Bond and related income tax
expense
Related to increase in deferred income tax liabilities
resulting from the change in B.C. corporate income tax
rate
Related to Maple Transaction and integration costs
Related to amortization of intangibles related to
acquisitions
Adjusted earnings per share
Year Ended
December 31, 2013
Basic
$2.29
$0.22
$0.11
$0.05
$0.11
$0.60
$3.38
Diluted
$2.29
$0.22
$0.11
$0.05
$0.11
$0.60
$3.38
Weighted average number of basic common shares outstanding in the year ended Dec. 31/13 was
54,041,528
Weighted average number of diluted common shares outstanding in the year ended Dec. 31/13
was 54,119,518
SUPPLEMENTARY INFORMATION FOR YEAR ENDED DECEMBER 31, 2013
COMPARED WITH YEAR ENDED DECEMBER 31, 2012
The following table contains TMX Group revenue and operating expenses, income from
operations, and net income attributable to non-controlling interests for the period from January 1,
2013 to December 31, 2013, including the operating results of Equity Transfer from April 5, 2013.
As described earlier in this MD&A, in order to provide a meaningful discussion of the results of
operations in this MD&A, we have compared TMX Group consolidated revenue and operating
expenses, income from operations and net income (loss) attributable to non-controlling interests for
the year ended December 31, 2013 with the combined financial information for TMX Group Inc. for
the seven months ended July 31, 2012 and TMX Group for the year ended December 31, 2012,
including TMX Group Inc. from July 31, 2012 and CDS and Alpha from August 1, 2012. This
See discussion under the heading Non-IFRS Financial Measures.
Earnings per share information is based on net income attributable to TMX Group shareholders.
34
45
approach is similar to how the results would be reported if TMX Group Inc. was the acquirer of
CDS and Alpha.
This information for the year ended December 31, 2012 differs from the TMX Group consolidated
financial statements for that period. The TMX Group consolidated financial statements do not
include financial information for TMX Group Inc. for the seven months ended July 31, 2012.
Financial information for TMX Group Inc. has been included from July 31, 2012 and for CDS and
Alpha from August 1, 2012.
(In millions of dollars) (Unaudited)
Revenue:
Issuer services
Trading, clearing, depository and related
Information services
Technology services and other
REPO interest:
Interest income
Interest expense
Net REPO interest
Total revenue
Operating Expenses:
Compensation and benefits
Information and trading systems
General and administration
Depreciation and amortization
Total operating expenses
Income from operations
Net income (loss) attributable to non-controlling
interests
TMX Group
Jan-Dec/13
(audited)
TMX Group Inc.
Jan-July/12
TMX Group
Jan-Dec/12
(unaudited)
$189.3
303.1
181.5
26.6
73.4
(73.4)
-
700.5
204.8
74.2
91.2
72.6
442.8
257.7
(0.2)
$197.4
272.6
179.3
23.8
35.7
(35.7)
-
673.1
167.4
66.5
83.8
53.0
370.7
302.4
15.4
Revenue
Revenue was $700.5 million for 2013, up $27.4 million or 4%, compared with $673.1 million for
2012. The increase attributable to acquisitions was $73.5 million and reflected the inclusion of
revenue from CDS and Alpha, and approximately nine months of revenue of Equity Transfer
(acquired April 5, 2013) totalling $117.5 million, versus five months of revenue from CDS and
Alpha totalling $44.0 million in 2012. The increase was partially offset by lower revenue from
additional listing fees on Toronto Stock Exchange and TSX Venture Exchange, cash markets
trading on Toronto Stock Exchange, TSX Venture Exchange, and Alpha, and derivatives trading
and information services on BOX, as well as the reduction in revenue following the sale of PC-
Bond on April 5, 2013. Income from our 25% interest in FTSE TMX Global Debt Capital Markets
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
46
35
Limited is recorded under Share of net income of equity accounted investees and Information
services revenue (as a royalty). In addition, 2012 revenue reflected the one-time receipt of
approximately $5.0 million from IIROC, in connection with the termination of our contract to provide
services effective March 31, 2012.
Issuer services revenue
(in millions of dollars)
Year Ended
Dec. 31/13
Dec. 31/12
$ increase/
(decrease)
% increase/
(decrease)
Initial listing fees
Additional listing fees
Sustaining listing fees
Other issuer services
$14.6
$76.9
$68.2
$29.6
$16.4
$94.6
$70.7
$15.7
Total
$189.3
$197.4
$(1.8)
$(17.7)
$(2.5)
$13.9
$(8.1)
(11%)
(19%)
(4%)
89%
(4%)
Initial listing fees in 2013 were lower primarily due to a decrease in the number of new
listings and going-public transactions on TSX Venture Exchange and Toronto Stock
Exchange, partially offset by an increase in the value of new listings on Toronto Stock
Exchange.
Additional listing fees in 2013 decreased mainly due to a decrease in the number and value
of additional financings on both Toronto Stock Exchange and TSX Venture Exchange.
Issuers listed on Toronto Stock Exchange and TSX Venture Exchange pay annual
sustaining listing fees primarily based on their market capitalization at the end of the prior
calendar year, subject to minimum and maximum fees. The decrease in sustaining listing
fees was partially due to a decline in market capitalization of some issuers listed on Toronto
Stock Exchange. While there was an overall increase in the market capitalization for issuers
listed on Toronto Stock Exchange at December 31, 2012 compared with Dec. 31, 2011, a
number of issuers had reached the maximum fee; therefore, there was no incremental
revenue. The decrease was also due to a decline in the market capitalization of issuers
listed on TSX Venture Exchange at December 31, 2012 compared with December 31,
2011.
Other issuer services revenue in 2013 included $15.3 million of combined revenue from
Equity Transfer (acquired April 5, 2013) for about nine months and CDS Solutions for the
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
For TSX Venture Exchange, this data includes Qualifying Transactions and Reverse Takeovers.
36
47
year, compared with $1.1 million from CDS Solutions for August to December 2012,
representing an increase of $14.2 million in revenue.
Trading, clearing, depository and related revenue
(in millions of dollars)
Year Ended
Dec. 31/13
Dec. 31/12
$ increase/
(decrease)
% increase/
(decrease)
$106.8
$45.2
$94.6
$18.7
$12.2
$26.5
13%
142%
$109.2
$115.6
$(6.4)
(6%)
$41.9
$303.1
$43.7
$272.6
$(1.8)
$30.5
(4%)
11%
Cash markets trading and
clearing
CDS Depository
Derivatives markets trading,
clearing and related
Energy markets trading and
clearing
Total
Cash Markets
The increase in cash markets trading and clearing revenue reflected $16.8 million of CDS
clearing and settlement revenue, net of rebates, compared with $6.9 million for August to
December 2012, representing an increase of $9.9 million in revenue. CDS processed 332.1
million exchange trades and 20.4 million non-exchange/OTC trades from January 1, 2013
to December 31, 2013, compared with 126.6 million exchange trades and 7.1 million non-
exchange/OTC trades from August 1, 2012 to December 31, 2012.
The revenue increase was also due to the impact of higher volumes from increased fixed
income trading activity at Shorcan. In addition, there was a more favourable product mix on
Toronto Stock Exchange in 2013 versus in 2012, as well as a 21% increase in the volume
of securities traded on TMX Select (2.83 billion securities traded in 2013 versus 2.34 billion
securities in 2012).
The increase in cash markets trading and clearing revenue was partially offset by the
impact of a 16% decrease in the volume of securities traded on TSX Venture Exchange
(36.8 billion securities in 2013 versus 43.6 billion securities in 2012) and a 6% decrease in
the volume of securities traded on Toronto Stock Exchange (77.8 billion securities in 2013
versus 82.5 billion securities traded in 2012).
The decrease was also partially offset by the inclusion of $6.5 million of revenue from
Alpha, compared with $3.5 million from Alpha for August to December 2012, which resulted
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
48
37
in $3.0 million of increased revenue. There were 20.9 billion securities traded on Alpha from
January 1, 2013 to December 31, 2013, compared with 12.0 billion securities traded on
Alpha from August 1, 2012 to December 31, 2012.
CDS Depository
CDS depository revenue, net of rebates, was $45.2 million, compared with $18.7 million for
August to December 2012, representing an increase of $26.5 million in revenue. CDS held
a daily average of approximately 329,000 equities positions with an average of 275.5 billion
shares and a daily average of approximately 180,000 debt positions with an average par
value of $2.3 trillion on deposit from January 1, 2013 to December 31, 2013.
Derivatives Markets
The decrease in derivatives markets revenue reflects lower revenues from BOX primarily as
a result of a 38% decrease in BOX volumes (89.5 million contracts traded in 2013 versus
145.0 million contracts in 2012), reflecting a loss in market share. Revenue from BOX in
2012 was also higher due to the inclusion of Options Regulatory Fees. As of May 14, 2012,
when the BOX self regulatory organization (SRO) commenced operations, the fees charged
and the related costs incurred by the BOX SRO are not consolidated into TMX Group
results.
The decrease in derivatives markets revenue was partially offset by an increase in trading
and clearing revenue from MX and CDCC, reflecting higher volumes. Volumes increased by
3% in 2013 (66.2 million contracts traded in 2013 versus 64.3 million contracts in 2012).
Open interest increased by 2% at December 31, 2013 compared with December 31, 2012.
In addition, there was an increase in repo fees in 2013 compared with 2012.
The decrease in derivatives markets revenue was also partially offset by the positive impact
of the appreciation of the U.S. dollar against the Canadian dollar on BOX’s revenue in 2013
compared with 2012.
Energy Markets
The decrease in energy markets was due to a revenue deferral in NGX in 2013 compared
with a net recovery of revenue in 2012.
The decrease also reflects a 12% decrease in total energy volume on NGX in 2013 (12.3
million terajoules in 2013 versus 13.9 million terajoules in 2012), primarily due to a 13%
decrease in natural gas volumes due to weak market conditions.
The decrease in revenue was partially offset as a result of higher power volumes in 2013
than in 2012 due to volatility on the forward curve, increased liquidity, and the expansion
into the power market in Texas during Q3/13. In addition, the appreciation of the U.S. dollar
against the Canadian dollar in 2013 compared with 2012 had a positive impact on NGX’s
and Shorcan Energy Brokers’ revenue.
NGX total energy volume includes trading and clearing in natural gas, crude oil and electricity.
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49
The decrease was also partially offset by higher revenue from Shorcan Energy Brokers,
driven by higher volumes in 2013 compared with 2012.
Information services revenue
(in millions of dollars)
Year Ended
Dec. 31/13
$181.5
Dec. 31/12
$179.3
$ increase
% increase
$2.2
1%
The increase in revenue was due to the inclusion of $15.8 million of revenue from CDS and
Alpha, compared with $6.9 million for August to December 2012, representing an increase
of $8.9 million in revenue. The increase in revenue is also attributable to higher revenue
from TMX Atrium, co-location services, feeds, and royalties received following the FTSE
transaction during 2013 compared with 2012. During Q4/13, there were also various
revenue recoveries of approximately $2.8 million. In addition, the appreciation of the U.S.
dollar against the Canadian dollar in 2013 compared with 2012 had a positive impact on
revenue.
The average number of MX market data subscriptions was essentially flat (27,398 MX
market data subscriptions in 2013 compared with 27,749 in 2012). There was a price
increase effective April 1, 2012 related to certain data feeds.
The increase in revenue was partially offset by the reduction in revenue following the sale
of PC-Bond, which we did not consolidate following the closing of the transaction with FTSE
to create FTSE TMX Global Debt Capital Markets on April 5, 2013.
The increase in revenue was also partially offset by the impact of net price reductions on
Toronto Stock Exchange market data subscriptions effective April 1, 2012 and lower
revenue from usage-based quotes. In addition, there was a decrease in BOX’s OPRA tape
revenue.
Overall, there was an 8% decrease in the average number of professional and equivalent
real-time market data subscriptions to Toronto Stock Exchange and TSX Venture Exchange
products (139,938 professional and equivalent real-time market data subscriptions in 2013
compared with 151,799 in 2012), which resulted in a reduction in revenue.
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
Prior to August 1, 2012, data includes a base number of subscriptions for customers that had entered into enterprise
agreements.
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39
Technology services and other revenue14
(in millions of dollars)
Year Ended
Dec. 31/13
Dec. 31/12
$ increase/
(decrease)
% increase/
(decrease)
Technology services and
other revenue
SEDAR, SEDI, NRD and other
CDS revenue
Total
$9.1
$17.0
$(8.3)
(49%)
$17.9
$26.6
$6.8
$23.8
$11.1
$2.8
163%
12%
Technology services and other revenue includes $17.9 million of revenue from CDS
services relating largely to the administration of SEDAR, SEDI, and NRD in 2013,
compared with $6.8 million for August to December 2012, representing an increase of
$11.1 million in revenue. The operations were transitioned to a new service provider on
January 13, 2014, and the agreement ended on January 31, 2014. We will not be earning
any revenue from securities regulators for these services after January 31, 2014.
Expenses of $2.0 million associated with the wind down of the business operations have
been recorded in compensation and benefits and general and administration expenses.
We expect that approximately $17.9 million of annual revenue and approximately $8.0
million of annual costs, or approximately $9.9 million in income from operations, will be
eliminated due to the termination of the contract.
In addition, there were net foreign exchange gains on U.S. dollar accounts receivable in
2013, compared with net foreign exchange losses in 2012.
In 2012, revenue was higher due to receipt of a one-time termination fee, recovery of
disposal and severance costs, and recognition of previously deferred revenue from IIROC
of approximately $5.0 million.
The increase was also somewhat offset by the loss in revenue from IIROC following the
termination of our contract to provide services effective March 31, 2012, which amounted to
approximately $6.7 million on an annual basis, as well as lower Razor Risk revenue. In
addition, revenue in 2012 included revenue related to services provided to CDS which have
been eliminated upon consolidation effective August 1, 2012. This revenue from CDS was
approximately $1.0 million in the first seven months of 2012.
14 The “Technology services and other revenue” section above contains certain forward-looking statements. Please refer
to “Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such
statements.
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
40
51
Operating Expenses
Operating expenses in 2013 were $442.8 million, up $72.1 million or 19%, from $370.7 million in
2012. The increase attributable to acquisitions was $63.9 million and reflected the inclusion of
operating expenses from CDS and Alpha, net of synergies, and approximately nine months of
operating expenses from Equity Transfer (acquired April 5, 2013) totalling $117.5 million, versus
only five months of operating expenses from CDS and Alpha totalling $53.6 million in 2012.
Operating expenses include $36.4 million from amortization of intangible assets related to TMX
Group’s acquisitions of TMX Group Inc., CDS, Alpha, and Equity Transfer (acquired April 5, 2013),
compared with $14.8 million from amortization of intangibles related to the acquisitions of TMX
Group Inc., CDS, and Alpha for August to December 2012, representing an increase of $21.6
million in depreciation and amortization. The increase was partially offset by the lower operating
expenses related to PC-Bond that were no longer consolidated following the sale on April 5, 2013.
Compensation and benefits
(in millions of dollars)
Year ended
Dec. 31/13
$204.8
Dec. 31/12
$167.4
$ increase
% increase
$37.4
22%
Compensation and benefits costs include $40.3 million of combined costs related to CDS
and Alpha for the full year in 2013, net of synergies, and Equity Transfer (acquired April 5,
2013) for about nine months, compared with combined costs of $16.7 million related to
CDS and Alpha for August to December 2012, representing an increase of $23.6 million in
costs. The combined CDS, Alpha, and Equity Transfer costs include $1.8 million of
organizational transition costs associated with the wind down of the business operations
related to SEDAR, SEDI and NRD services.
There were higher Compensation and benefits costs in 2013 due to an increase in short-
term employee performance incentive plan costs, lower capitalization of costs associated
with technology initiatives, higher organizational transition costs, incremental costs related
to Razor Risk, and higher merit and pension costs compared with 2012.
The increase was offset by lower costs related to PC-Bond that were no longer
consolidated following the sale on April 5, 2013.
There were 1,306 TMX Group employees at December 31, 2013 versus 1,310 employees
at December 31, 2012, reflecting a decrease in the number of employees due to
integration, as well as a reduction from PC-Bond, partially offset by an increase related to
68 employees from Equity Transfer following the acquisition in April 2013.
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
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41
Information and trading systems
(in millions of dollars)
Year ended
Dec. 31/13
$74.2
Dec. 31/12
$66.5
$ increase
% increase
$7.7
12%
Information and trading systems expenses included $18.6 million of combined expenses
from CDS and Alpha for the full year in 2013, net of synergies, and Equity Transfer
(acquired April 5, 2013) for about nine months, compared with $10.8 million of expenses
related to CDS and Alpha for August to December 2012, representing an increase of $7.8
million in costs. In addition, there were higher costs related to CDS, MX, and smart order
router technology initiatives, higher telecommunications costs, and TMX Atrium costs.
The increase was offset by lower operating costs, and lower costs related to PC-Bond that
were no longer consolidated following the sale on April 5, 2013.
General and administration
(in millions of dollars)
Year ended
Dec. 31/13
$91.2
Dec. 31/12
$83.8
$ increase
% increase
$7.4
9%
General and administration costs included $17.3 million of combined expenses from CDS
and Alpha for the full year in 2013, net of synergies, and Equity Transfer (acquired April 5,
2013) for about nine months, compared with $7.3 million of expenses related to CDS and
Alpha for August to December 2012, representing an increase of $10.0 million in costs.
The increase was partially offset by lower marketing expenses and BOX linkage fees, as
well as lower costs related to PC-Bond that were no longer consolidated following the sale
on April 5, 2013.
These increases were also partially offset by lower net BOX expenses due to the
commencement of operations by the BOX SRO entity in May 2012.
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
42
53
Depreciation and amortization
(in millions of dollars)
Year ended
Dec. 31/13
$72.6
Dec. 31/12
$53.0
$ increase
% increase
$19.6
37%
Depreciation and amortization costs include $36.4 million of amortization of intangible
assets related to TMX Group’s acquisitions of TMX Group Inc., CDS, and Alpha for the full
year in 2013 and Equity Transfer (acquired April 5, 2013) for about nine months (exclusive
of amortization related to intangible assets previously held by TMX Group Inc., CDS, Alpha,
and Equity Transfer), compared with $14.8 million from amortization of the intangibles
related to the acquisitions of TMX Group Inc., CDS, and Alpha for August to December
2012, representing an increase of $21.6 million in costs. In addition, amortization further
increased due to incremental amortization related to assets held by BOX. In addition,
amortization
in combined depreciation and
amortization costs associated with the business operations of CDS, Alpha, and Equity
Transfer (nine months), compared with $4.0 million for August to December 2012,
representing an increase of $0.9 million in costs.
to $4.9 million
increased due
further
The increase was somewhat offset by a reduction in depreciation and amortization relating
to assets that were fully depreciated by the end of 2013 and PC-Bond assets which were
sold on April 5, 2013.
The Depreciation and amortization costs of $72.6 million in 2013 included $40.1 million
related to amortization of intangibles related to acquisitions (60 cents per basic and diluted
share).
Net income (loss) attributable to non-controlling interests
(in millions of dollars)
Year ended
Dec. 31/13
$(0.2)
Dec. 31/12
$15.4
$ (decrease)
% (decrease)
$(15.6)
(101%)
MX holds a 53.8% ownership interest in BOX. The results for BOX are consolidated in our
Condensed Consolidated Interim Income Statement. Net income (loss) attributable to non-
controlling interests represents the other BOX members’ share of BOX’s income or loss for
the period.
TMX Group Inc. results for January 1, 2012 to July 31, 2012 and TMX Group results for January 1, 2012 to December
31, 2012, including TMX Group Inc., CDS, and Alpha for August 1, 2012 to December 31, 2012.
54
43
In 2012, net income attributable to non-controlling interests included $3.5 million related to
TMX Group Inc. TMX Group owned 80% of TMX Group Inc. from July 31, 2012 to
September 13, 2012.
In 2012, net income attributable to non-controlling interests included $11.9 million related to
BOX, of which $6.2 million was their share of a non-cash reversal of an impairment loss on
an intangible asset.
The remaining decline in the net income attributable to non-controlling interests in BOX for
2013 reflected the decrease in BOX’s revenue resulting from lower volumes due to a loss in
market share. In addition, prior to May 14, 2012, BOX received Options Regulatory Fees
(see Revenue – Derivatives Markets), which contributed to higher revenue in 2012.
ADDITIONAL INFORMATION
The following information regarding share of net income of equity accounted investees, credit
facility refinancing expenses, gain on sale of PC-Bond, Maple transaction and integration costs, net
finance costs, and income tax expense has been derived from TMX Group financial statements for
the year December 31, 2013 compared with the year ended December 31, 2012. The TMX Group
financial statements reflect the accounts of TMX Group for the year ended December 31, 2013,
including the operating results of TMX Group Inc. (including Equity Transfer from April 5, 2013),
CDS, and Alpha. For 2012, the financial statements reflect the accounts of TMX Group, including
TMX Group Inc. from July 31, 2012, and CDS and Alpha from August 1, 2012.
Share of net income of equity accounted investees
(in millions of dollars)
Year ended
Dec. 31/13
Dec. 31/12
$ increase
% increase
$2.6
$2.0
$0.6
30%
This includes our 25% share of net income from FTSE TMX Global Debt Capital Markets
from April 5, 2013 and our 47% share of net income from CanDeal.
Gain on sale of PC-Bond
(in millions of dollars)
Year ended
Dec. 31/13
Dec. 31/12
$ increase
% increase
$5.4
$ -
$5.4
-
We received $155.1 million in consideration, which included $104.0 million in proceeds and
250 Ordinary B shares of FTSE TMX Global Debt Capital Markets Limited, representing a
44
55
25% interest, which have been valued at $51.3 million. We disposed of net assets of $149.7
million. The disposed assets were previously revalued from a book value of $34.6 million to
a fair value of $149.7 million upon the acquisition of TMX Group Inc. by Maple, resulting in
an increase of $115.1 million of intangibles and goodwill (see OUR BUSINESS–
Information Services).
Maple Transaction and integration costs
(in millions of dollars)
Year ended
Dec. 31/13
Dec. 31/12
$ (decrease)
% (decrease)
$7.2
$49.9
$(42.7)
(86%)
Maple Transaction and integration costs were lower in 2013 compared with 2012. In 2012,
there were significant legal, advisory and other costs incurred related to completing the
Maple Transaction. In 2013, we incurred $7.2 million of costs primarily related to
organizational transition and systems integration expenses as part of the integration
process.
Net finance (income) costs
(in millions of dollars)
Finance (income)
Finance costs
Credit facility refinancing expenses
Net finance costs
Year ended
Dec. 31/13
Dec. 31/12
$(3.1)
$60.6
$16.4
$73.9
$(2.4)
$27.9
$ -
$25.5
$ increase/
(decrease)
$(0.7)
$32.7
$16.4
$48.4
Net finance costs primarily relate to interest expense and fees incurred during the period
from January 1, 2013 to December 31, 2013 on the Loans Payable and Debentures
Payable (see DEBENTURES, CREDIT AND LIQUIDITY FACILITIES), compared with
interest expense and fees incurred on the Loans Payable from August 1, 2012 to December
31, 2012.
In Q3/13, we incurred net costs of $16.4 million related to the refinancing of the credit
facility (22 cents per basic and diluted share). These costs consisted of:
The write-off of $18.5 million of prepaid financing fees (see DEBENTURES, CREDIT
AND LIQUIDITY FACILITIES – Loans Payable) and other financing fees of $0.8
million
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Less the gain of $2.9 million from unwinding and de-designating interest rate swaps
(see DEBENTURES, CREDIT AND LIQUIDITY FACILITIES – Interest Rate Swaps).
Income tax expense
(in millions of dollars)
Year ended
Effective Tax Rate (%)
Dec. 31/13
Dec. 31/12
Dec. 31/13
Dec. 31/12
$60.9
$21.2
33%
51%
Income tax expense for 2013 relates to TMX Group’s operating businesses. In 2012, TMX
Group included operating results of TMX Group Inc. only from July 31, 2012 and CDS and
Alpha from August 1, 2012.
The effective tax rate was higher in 2012 mainly due to the transaction costs incurred by
Maple in 2012 in acquiring TMX Group Inc., CDS and Alpha, which are non-deductible for
income tax purposes.
For 2013, we recognized deferred income tax expense of $11.3 million related to the sale of
PC-Bond, which consists of $17.3 million of deferred income tax expense recognized for
Q2/13 less $6.0 million deferred income tax recovery recognized for Q1/13.
In 2013, the British Columbia corporate income tax rate increased from 10% to 11%. As a
result of this change, there was a net increase in the value of deferred income tax liabilities
and a corresponding non-cash net increase in deferred income tax expense of $2.7 million
for 2013.
Excluding the adjustments in 2013 primarily related to the sale of PC-Bond and the British
Columbia corporate income tax rate increase, the effective tax rate would have been
approximately 27%.
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SEGMENTS
The following information reflects TMX Group’s financial statements for and as at the years ended
December 31, 2013 and December 31, 2012. This information for the year ended December 31,
2012 includes the operating results of TMX Group Inc. from July 31, 2012 and CDS and Alpha
from August 1, 2012. TMX Group has certain corporate costs and other balances not allocated
across the other disclosed segments which are included within the Corporate segment. Equity
Transfer and PC-Bond (until April 5, 2013) are included in the Cash Markets segment.
2013
(in millions of dollars)
Revenue
Net Income (Loss) Attributable
to TMX Group Shareholders
2012
(in millions of dollars)
Revenue
Net Income (Loss) Attributable
to TMX Group Shareholders
Cash
Markets
$450.4
Derivatives
Markets
$129.2
Energy
Markets
$43.1
CDS
$88.9
Corporate
$(11.1)
TMX
Group
$700.5
$130.2
$26.4
$8.6
$11.0
$(52.3)
$123.9
Cash
Markets
$189.5
Derivatives
Markets
$52.5
Energy
Markets
$18.6
CDS
$37.1
Corporate
$(3.2)
TMX
Group
$294.5
$48.1
$13.3
$5.6
$ -
$(51.9)
$15.1
Revenue for 2013 includes the accounts of TMX Group, including the operating results of
TMX Group Inc., Alpha, CDS, and their respective subsidiaries for 12 months, whereas
revenue for 2012 includes the results of these companies for a five-month period.
Net Income Attributable to TMX Group Shareholders includes the accounts of TMX Group,
including the operating results of TMX Group Inc., Alpha, CDS, and their respective
subsidiaries for 12 months, whereas Net Income Attributable to TMX Group Shareholders
includes the results for a five-month period.
Net Loss Attributable to TMX Group Shareholders allocated to the Corporate segment of
$52.3 million for 2013 was primarily attributable to the amortization of intangibles of $36.4
million related to the Maple Transaction and the acquisition of Equity Transfer, deferred
income tax expense of $11.3 million related to the sale of PC-Bond (see ADDITIONAL
INFORMATION – Income tax expense), as well as credit facility refinancing expenses of
$16.4 million (see ADDITIONAL INFORMATION – Net finance (income) costs), partially
offset by the gain on sale of PC-Bond of $5.4 million.
Net Loss Attributable to TMX Group Shareholders allocated to the Corporate segment of
$51.9 million for 2012 was primarily attributable to Maple Transaction and integration costs
and the amortization of intangibles related to the Maple Transaction.
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As at December 31, 2013
(in millions of dollars)
Total assets
Total liabilities
As at December 31, 2012
(in millions of dollars)
Total assets
Total liabilities
Cash
Markets
Derivatives
Markets
Energy
Markets
CDS
Corporate
TMX
Group
$1,850.0
$11,291.8
$941.9
$532.1
$1,879.7 $16,495.5
998.7
10,244.7
893.6
469.5
918.3
13,524.8
Cash
Markets
Derivatives
Markets
Energy
Markets
CDS
Corporate
TMX
Group
$2,003.2
1,114.1
$8,867.1
$844.3
$513.5
$1,814.1 $14,042.2
7,829.4
795.2
457.5
946.6
11,142.8
Total assets in our various segments include goodwill and other intangible assets acquired
in connection with the Maple Transaction. In addition, the Derivative Markets, Energy
Markets, and CDS segments hold assets related to their clearing operations (see Total
Assets).
Total liabilities in our various segments include the segments' share of Loans Payable and
Debentures Payable, which were $331.4 million and $996.4 million, respectively, at
December 31, 2013. Loans Payable were $1,453.1 million at December 31, 2012. In
addition, the Derivatives Markets, Energy Markets and CDS segments carry offsetting
liabilities related to the clearing assets described above (see Total Assets).
The increase in total assets and total liabilities in 2013 was primarily due to the increase in
Balances with Clearing Members at CDCC of $2,430.9 million, reflecting an increase in the
clearing of fixed income REPO agreements.
Geographical Information
The following information provides revenue and non-current assets by geography for and as at the
years ended December 31, 2013 and December 31, 2012. Revenue is allocated based on the
country to which customer invoices are addressed.
2013
(in millions of dollars)
Revenue
Non-current assets
Canada
U.S.
Other
TMX Group
$509.9
$4,706.5
$149.5
$190.1
$41.1
$21.8
$700.5
$4,918.4
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59
2012
(in millions of dollars)
Revenue
Non-current assets
Canada
U.S.
Other
TMX Group
$218.3
$4,790.7
$61.0
$186.0
$15.2
$28.2
$294.5
$5,004.9
Revenue includes the accounts of TMX Group, including the operating results of TMX
Group Inc., Alpha, CDS, and their respective subsidiaries for 12 months, whereas revenue
for 2012 includes the results of these companies for a five-month period.
Non-current assets are primarily comprised of premises and equipment, investments in
equity accounted investees, goodwill, and other intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Marketable Securities
(in millions of dollars)
December 31, 2013
December 31, 2012
$279.2
$245.5
$ increase
$33.7
The increase reflects cash flows from operating activities of $250.4 million in 2013,
proceeds from the sale of PC-Bond of $104.0 million and net proceeds from the issuance of
Debentures of $996.2 million. These cash inflows were largely reduced by repayment on
our credit facilities of $1,146.6 million, cash used to purchase Equity Transfer of $64.0
million, dividends to TMX Group shareholders of $86.4 million, and additions to our
premises and equipment and intangible assets of $28.4 million.
Total Assets
(in millions of dollars)
December 31, 2013
December 31, 2012
$16,495.5
$14,042.2
$ increase
$2,453.3
Our consolidated balance sheet as at December 31, 2013 includes outstanding balances
on open REPO agreements within Balances with Clearing Members and Participants.
These balances have equal amounts included within Total Liabilities. Balances with
Clearing Members and Participants relating to CDCC were $9,833.9 million at December
31, 2013.
The increase in Total Assets of $2,453.3 million was largely attributable to the increase in
Balances with Clearing Members of $2,430.9 million for CDCC, which reflected an increase
in the clearing of fixed income REPO agreements.
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Total Assets also includes energy contracts receivable of $764.9 million and fair value of
open energy contracts of $86.9 million related to the clearing operations of NGX, as well as
Balances with Participants relating to CDS of $330.8 million. There was an increase in
these balances of $49.6 million from December 31, 2012 to December 31, 2013, thereby
increasing total assets by $49.6 million. As is the case with CDCC, NGX and CDS carry
equivalent amounts as liabilities.
DEBENTURES, CREDIT AND LIQUIDITY FACILITIES
Debentures Payable
(in millions of dollars)
December 31, 2013
December 31, 2012
$996.4
$ -
$ increase
$996.4
On September 30, 2013, TMX Group completed the Offering of $1.0 billion aggregate
principal amount of Debentures to accredited investors in Canada. The net proceeds of
$996.2 million (net of $3.8 million of fees that were capitalized) were used to repay a
significant portion of outstanding indebtedness under the TMX Group’s Credit Agreement
(see Loans Payable below). The Debentures, all of which received a credit rating of A
(high) with a Stable trend from DBRS Limited (DBRS), consist of:
Debenture
Series A
Principal Amount
$400 million
Series B
$250 million
Series C
$350 million
Coupon
3.253% per annum, payable in arrears in
equal semi-annual instalments
(long first coupon)
4.461% per annum, payable in arrears in
equal semi-annual instalments
(long first coupon)
3-month Canadian Dealer Offered Rate
(CDOR) plus 70 bps payable quarterly in
arrears (long first coupon)
Maturity Date
October 3, 2018
October 3, 2023
October 3, 2016
The Series A and Series B Debentures may be redeemed in whole or in part at the
redemption price equal to the greater of the applicable Canada Yield Price (as defined in
the relevant Indenture) and 100% of the principal amount of the Debentures being
redeemed to the date fixed for redemption, together with accrued and unpaid interest to the
date fixed for redemption at the option of TMX Group. For the Series B Debentures, if
redeemed on or after the date that is three months prior to the maturity date of such series,
the redemption price is equal to 100% of the aggregate principal amount outstanding on the
Series B Debentures redeemed.
Series C Debentures may be redeemed in whole or in part at the option of TMX Group on
any interest payment date. The redemption price is equal to the greater of the CDOR Yield
Price (as defined in the relevant Indenture) and 100% of the principal amount of the
Debentures being redeemed. Accrued and unpaid interest will be paid to the holder of the
Series C Debentures on the relevant record date for such interest payment.
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The trust indentures governing the Debentures (the Trust Indentures) include the following
covenants:
Negative pledge – which restricts the ability of TMX Group and each of its material
subsidiaries (as defined in the Indentures) to create a lien on these entities’ assets
unless the Debentures are similarly secured on an equal and rateable basis
Limitation on indebtedness of material subsidiaries of TMX Group – the Trust
Indentures impose restrictions on the ability of material subsidiaries to enter into certain
types of indebtedness
Repurchase on change of control of TSX Inc. or MX coupled with a triggering event – in
the event of a change of control (as such term is defined in the Trust Indentures) of
either TSX Inc. or MX and if the rating of the Debentures is lowered to below investment
grade (as defined in the Trust Indentures), TMX Group will be required, at the option of
the Debenture holder to repurchase, in whole or in part the holder’s Debentures at a
cash price of 101% of the outstanding principal amount of the Debentures plus all
accrued and unpaid interest up to the date of repurchase.
Loans Payable
(in millions of dollars)
December 31, 2013
December 31, 2012
$331.4
$1,453.1
$ (decrease)
$(1,121.7)
On July 31, 2012, TMX Group signed a credit agreement (Credit Agreement) with a
syndicate of Canadian and global financial institutions, as amended on February 11, 2013.
The maturity date of the Credit Agreement is July 31, 2016. On August 1, 2012, TMX Group
drew $1,538.0 million under the Credit Agreement and paid an aggregate amount of $31.1
million in financing and other associated fees. These financing fees were being amortized
over the term of the Credit Agreement.
As at December 31, 2012, the balance outstanding under the Credit Agreement was
$1,481.0 million ($57.0 million repaid) and the balance of the prepaid financing fees was
$27.9 million, leaving the Loans Payable balance at $1,453.1 million.
In 2013, and prior to the completion of the Offering (see Debentures Payable), TMX Group
had repaid $150.0 million on the Credit Agreement and had amortized $6.4 million of
financing fees.
On September 30, 2013, $995.5 million of the net proceeds from the Offering were used to
repay a significant portion of the balance outstanding under the Credit Agreement, leaving a
balance in Loans Payable of $355.0 million. As a result of the substantial reduction in the
outstanding balance, prepaid financing fees of $18.5 million were written off in the Q3/13.
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(in millions of dollars)
Repayments, New
Financing Fees, and
Amortization
(excluding the
Offering)
December 31,
2012
Effect of the
Offering
December 31,
2013
Revolving Facility
Drawn
Term Facilities
Principal Debt
Outstanding
Deferred
Financing Fees
Loans Payable
$71.0
1,410.0
$(45.0)
(105.0)
$ -
(995.5)
$26.0
309.5
$1,481.0
$(150.0)
$(995.5)
$335.5
(27.9)
$1,453.1
5.6
$(144.4)
18.2
$(977.3)
(4.1)
$331.4
In conjunction with the Offering, TMX Group paid $0.3 million in fees to amend and restate
the terms of the Credit Agreement on September 30, 2013 (the Amended and Restated
Credit Agreement) to include, among other things, the release of various guarantees
provided by certain of TMX Group’s subsidiaries as well as significantly more favourable
pricing terms and less restrictive financial covenants (see Amended and Restated Credit
Agreement filed on SEDAR on September 30, 2013).
The Amended and Restated Credit Agreement contains various covenants, including a
requirement that TMX Group maintain:
an Interest Coverage Ratio of more than 4.0:1, where Interest Coverage Ratio at any
time means the ratio of adjusted EBITDA for the period comprised of the four most
recently completed financial quarters to the consolidated interest expense for such four
financial quarters;
a Total Leverage Ratio of not more than:
4.25:1 until December 31, 2014;
4.0:1 on and after January 1, 2015 until December 31, 2015;
3.5:1 on January 1, 2016 and thereafter
In addition, the Amended and Restated Credit Agreement, among other things, contains
restrictions on TMX Group’s and its material subsidiaries’ (as defined in the Amended and
Restated Credit Agreement) ability to incur certain types of indebtedness and the ability of
these entities to enter into acquisitions, other than acquisitions permitted under the
Amended and Restated Credit Agreement. In addition, material subsidiaries are restricted
from creating liens, except as provided for in the Amended and Restated Credit Agreement.
As at December 31, 2013, all covenants were met.
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The following table summarizes the current Applicable Rates and Fee Rates and
corresponding Total Leverage Ratios under the Amended and Restated Credit Agreement.
The Standby Fee is charged on the unutilized portion of the Revolving Facility. The
Applicable Rate represents the corporate spread that is included in the interest rate that is
applied to our Loans Payable. Total Leverage Ratio at any time is the ratio of consolidated
debt as at such time to adjusted EBITDA for the period comprised of the four most recently
completed financial quarters. Adjusted EBITDA means earnings on a consolidated basis
before interest, taxes, extraordinary, unusual or non-recurring items, depreciation and
amortization, Maple Transaction and integration costs, as well as non-cash items.
Applicable Rate for Standby Fee
Total Leverage Ratio
Revolving Facility
Applicable Rate for
BA Instruments, LIBOR Loans,
and Letters of Credit
< 2.0
> 2.0 but < 2.5
> 2.5 but < 3.0
> 3.0 but < 3.5
> 3.5
14 bps
17 bps
20 bps
25 bps
30 bps
70 bps
85 bps
100 bps
125 bps
150 bps
In the future, we may replace the TMX Group’s credit facility in whole or in part with another form of
financing.
Interest Rate Swaps
On August 3, 2012, TMX Group entered into a series of interest rate swaps, to hedge the
interest rate risk associated with the initial amount drawn under the Credit Agreement,
totalling $1.4 billion where TMX Group would receive floating rate interest based on one-
month CDOR bankers' acceptances (BA) and TMX Group would pay fixed rate interest at
rates ranging from 1.232% to 1.499%.
In 2013 and excluding the completion of the Offering on September 30, 2013, TMX Group
unwound interest rate swaps with a $46.5 million notional value of the original $200.0
million notional value maturing on September 30, 2013.
On September 30, 2013, to reflect the repayments made on the Credit Agreement, TMX
Group executed the following:
$153.5 million notional value of swaps maturing on September 30, 2013 ($200.0 million
notional value at December 31, 2012) were not extended and expired
$250.0 million notional value of swaps maturing on September 30, 2015 were unwound,
resulting in a net settlement gain of $0.05 million
$350.0 million notional value of swaps maturing on July 31, 2016 were unwound,
resulting in a net settlement gain of $1.55 million
Of the remaining $600.0 million notional value of swaps, $250.0 million were left to
hedge indebtedness under the Credit Agreement, and $350.0 million, previously used to
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hedge indebtedness under the Credit Agreement, were re-designated to hedge Series
C Debentures. As a result of this re-designation, a $1.3 million gain was recorded.
The changes in interest rate swaps are summarized in the following table:
Swap Maturity
Sept. 30, 2013
Sept. 30, 2013
Sept. 30, 2014
Sept. 30, 2015
Sept. 30, 2015
July 31, 2016
July 31, 2016
Total
Notional Value at
December 31,
2012
$46,500,000
153,500,000
$200,000,000
$50,000,000
$250,000,000
$350,000,000
$350,000,000
$1,400,000,000
Status
Unwound
Expired
Unchanged
Unchanged
Unwound
Unwound
Re-designated
Notional Value at
December 31,
2013
$-
$200,000,000
$50,000,000
$-
$-
$350,000,000
$600,000,000
Swap rate
-
1.312%
1.416%
-
-
1.499%
Effective Interest Rates
The effective interest rates as at December 31, 2013 for the Debentures and indebtedness
under the Amended and Restated Credit Agreement are shown below:
Debentures or
Credit Facility
Series A Debentures
Series B Debentures
Series C Debentures
Credit facility
Credit facility
Credit facility
Principal
($ millions)
$400.0
$250.0
$350.0
$200.0
$50.0
$85.5
Maturity
October 3, 2018
October 3, 2023
October 3, 2016
July 31, 2016
July 31, 2016
July 31, 2016
Reference
Rate
Spread
Swap
Rate
Floating
Rate
3-mo CDOR
1-mo CDOR
1-mo CDOR
1-mo CDOR
0.70%
1.50%
1.50%
1.50%
1.499%
1.312%
1.416%
1.23%
All-in
Rate
3.253%
4.461%
2.199%
2.812%
2.916%
2.730%
Other Credit and Liquidity Facilities
CDCC maintains daylight liquidity facilities for a total of $700.0 million to provide liquidity on the
basis of collateral in the form of securities that have been received by CDCC. The daylight liquidity
facilities must be cleared to zero at the end of each day.
CDCC maintains a syndicated revolving standby liquidity facility to provide end-of-day liquidity in
the event that CDCC is unable to clear the daylight liquidity facilities to zero. Advances under the
facility are secured by collateral in the form of securities that have been pledged to or received by
CDCC. As at December 31, 2013, CDCC had drawn $1.3 million to facilitate a failed REPO
settlement. The amount was fully offset by liquid facilities included in cash and cash equivalents
and has been fully repaid. The facility was increased from $100.0 million to $200.0 million on April
17, 2013. On January 31, 2014, the CDCC Board approved an increase in the amount of the
facility to $300.0 million effective March 7, 2014, subject to regulatory approval.
CDCC also maintains a repurchase facility with a syndicate of 6 Canadian Schedule I chartered
banks. This facility is in place to provide end-of-day liquidity in the event that CDCC is unable to
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65
clear the daylight liquidity facilities to zero. It will provide liquidity in exchange for securities that
have been pledged to or received by CDCC. The overall size of this facility was increased to
$12,300.0 million from $4,800 million on May 2, 2013, including $1,200.0 million in committed
liquidity and $11,100.0 million in uncommitted liquidity.
In addition, CDCC has signed an agreement that would allow the Bank of Canada to provide
emergency last-resort liquidity to CDCC at the discretion of the Bank of Canada. This liquidity
facility is intended to provide end-of-day liquidity only in the event that CDCC is unable to access
liquidity from the revolving standby liquidity facility and the syndicated REPO facility or in the event
that the liquidity under such facilities is insufficient. Use of this facility would be on a fully
collateralized basis.
CDS maintains unsecured operating demand loans totalling $11.0 million to support short-term
operating requirements. To support processing and settlement activities of participants, an
unsecured overdraft facility and demand loan of $15.0 million and an overnight facility of US$5.5
million are available. The borrowing rates for these facilities are the Canadian prime rate or the
U.S. base rate, depending on the currency drawn. No amounts were drawn on these credit
facilities as at December 31, 2013.
CDS maintains a US$200.0 million or Canadian dollar equivalent secured standby credit
arrangement that can be drawn in either U.S. or Canadian currencies. This arrangement is
available to support processing and settlement activities in the event of a participant default.
Borrowings under the secured facility are obtained by pledging or providing collateral pledged by
participants primarily in the form of debt instruments issued or guaranteed by federal, provincial
and/or municipal governments in Canada or U.S. treasury instruments. Depending upon the
currency drawn, the borrowing rate for the secured standby credit arrangement is the U.S. base
rate or the Canadian prime rate. No amounts were drawn on these credit facilities as at December
31, 2013.
In addition, CDS has signed agreements that would allow the Bank of Canada to provide
emergency last-resort liquidity to CDS at the discretion of the Bank of Canada. This liquidity facility
is intended to provide end-of-day liquidity for payment obligations arising from CDSX, and only in
the event that CDS is unable to access liquidity from its standby liquidity facility or in the event that
the liquidity under such facilities is insufficient. Use of this facility would be on a fully collateralized
basis.
To backstop its clearing operations, NGX currently has a credit agreement in place with a
Canadian Schedule I bank which includes a US$100.0 million clearing backstop fund. TMX Group
Inc. is NGX’s unsecured guarantor for this fund up to a maximum of US$100.0 million. No amounts
were drawn on this facility as at December 31, 2013.
NGX also has an Electronic Funds Transfer (EFT) Daylight facility of $300.0 million in place with a
major Canadian chartered bank.
Shorcan maintains a facility with a major chartered bank to provide end of day liquidity to cover any
shortfalls due to timing of payments and receipts. Utilization of this facility is secured by collateral in
the form of securities.
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Total Equity attributable to Shareholders of TMX Group
(in millions of dollars)
December 31, 2013
December 31, 2012
$2,887.8
$2,816.2
$ increase
$71.6
At December 31, 2013, there were 54,116,023 common shares issued and outstanding and
1,355,585 options outstanding under the share option plan.
At February 3, 2014, there were 54,121,018 common shares issued and outstanding and
1,335,608 options outstanding under the share option plan.
The increase in Total Equity attributable to Shareholders of TMX Group is primarily
attributable to the inclusion of net income of $123.9 million and proceeds received on the
exercise of share options of $14.5 million, partially offset by dividend payments to
shareholders of TMX Group of $86.4 million.
SUMMARY OF CASH FLOWS
The following tables provide the summary of cash flows for TMX Group for the year ended
December 31, 2013, including Equity Transfer from April 5, 2013. The comparative financial
information for the year ended December 31, 2012 includes the accounts of TMX Group Inc. from
July 31, 2012 and CDS and Alpha from August 1, 2012.
(in millions of dollars)
Cash Flows from (used in) Operating Activities
Cash Flows from (used in) Financing Activities
Cash Flows from (used in) Investing Activities
2013
$250.4
(229.6)
33.4
2012
$(144.0)
3,047.3
(2,751.9)
$ increase/
(decrease) in
cash
$394.4
(3,276.9)
2,785.3
The increase in Cash Flows from Operating Activities in 2013 compared with 2012 was
primarily due to significantly higher income from operations (excluding depreciation and
amortization) reflecting 12 months of activity in 2013 versus five months of activity in 2012.
In addition, the increase is due to lower Maple Transaction and integration related cash
outlays, an increase in trade and other payables as well as an increase in cash related to
deferred revenue. The increases were somewhat offset by higher interest and income
taxes paid in 2013 compared with 2012.
In 2013, Cash Flows used in Financing Activities included dividend payments of $86.4
million to TMX Group shareholders, dividends to non-controlling BOX shareholders of $5.3
million and net repayments on our credit facilities of $1,146.6 million (net of financing
costs). These cash outflows were largely offset by net proceeds of $996.2 million on the
issuance of Debentures.
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In 2012, Cash Flows from Financing Activities included $2,078.7 million due to the net
issuance of common shares in connection with the Maple Transaction and $1,449.9 million
of net proceeds related to the establishment of a new credit facility (net of financing costs),
offset by the repayment of $430.0 million of TMX Group Inc.’s debt and $51.4 million of
dividends.
In 2013, Cash Flows from Investing Activities included $104.0 million in proceeds from the
sale of PC-Bond and $21.8 million in proceeds from the sale of marketable securities,
partially offset by $64.0 million used in the acquisition of Equity Transfer and $28.4 million
of additions to premises and equipment and intangible assets.
In 2012, Cash Flows used in Investing Activities included $2,677.1 million due to TMX
Group’s acquisition of TMX Group Inc., CDS, and Alpha, net of cash acquired, $65.0 million
from the purchase of marketable securities, and $13.3 million of additions to premises and
equipment and intangible assets.
Summary of Cash Position and Other Matters15
We had $279.2 million of cash and cash equivalents and marketable securities at December 31,
2013. In 2013, cash flows from operating activities were $250.4 million. We paid $86.4 million in
dividends on TMX Group common shares during that period. Based on our current business
operations and model, we believe that we have sufficient cash resources to operate our business,
make interest payments, and meet our financial covenants under the Amended and Restated
Credit Agreement and our capital maintenance requirements imposed by regulators.
Debt financing of future investment opportunities could be limited by current and future economic
conditions, the covenants on TMX Group’s Amended and Restated Credit Agreement and the
Debentures (see DEBENTURES, CREDIT AND LIQUIDITY FACILITIES), and by capital
maintenance requirements imposed by regulators (see MANAGING CAPITAL).
The recognition orders of some of our subsidiaries contain certain financial viability tests that must
be met. For example, if either TSX Inc. or Alpha Exchange Inc. fails to maintain or anticipates that
it will fail any of its financial viability tests, the OSC can impose additional terms and conditions.
This could, for example, include a requirement that TSX Inc. or Alpha Exchange Inc. may not
without the prior approval of the Director of the OSC, pay dividends (among other things) until the
deficiencies have been eliminated for at least six months or a shorter period of time as agreed by
OSC staff. In addition, the recognition order of MX imposes similar restrictions on the payment of
dividends. If MX fails to meet the financial viability ratios for more than three months, MX will not,
without the prior approval of Quebec‘s AMF, pay dividends (among other things) until the
deficiencies have been eliminated for at least six months.
As at December 31, 2013, we met all of the above requirements.
15 The “Summary of Cash Position and Other Matters” section above contains certain forward-looking statements. Please
refer to “Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such
statements.
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Defined Benefit Pension Plan16
Based on the most recent actuarial valuations, we estimate a deficit of approximately $20 million
as at December 31, 2013, of which $6.7 million was funded in 2013.
SELECT ANNUAL AND QUARTERLY FINANCIAL INFORMATION
TMX Group was formed solely for the purpose of pursuing the Maple Transaction. Prior to the
completion of the CDS and Alpha acquisitions on August 1, 2012 and the initial take up of 80% of
the common shares of TMX Group Inc. on July 31, 2012 under the Maple Transaction, it had no
material assets and no history of earnings and had not commenced commercial operations.
Management believes that the required historical information for TMX Group contained in the
select annual information table and the quarterly financial information table for the most recent
eight quarters would not be useful to investors and other users of our financial information in
evaluating the operating performance and profitability for the prior quarters and years. However,
we have compared the results for the first five full quarters following the close of the Maple
Transaction:
(in millions of dollars except per share amounts – unaudited)
Dec. 31/13
Sept. 30/13
June 30/13
Mar. 31/13
Dec. 31/12
Revenue
$180.7
$165.3
$182.3
$172.2
$181.1
Income from operations
71.3
58.9
67.3
60.2
75.5
Net Income attributable
to TMX Group
shareholders
Earnings per share:
Basic
Diluted
41.4
19.2
25.5
37.8
32.6
0.77
0.77
0.35
0.35
0.47
0.47
0.70
0.70
0.61
0.61
Q4/13 compared with Q3/13
Revenue in Q4/13 was 9% higher than Q3/13 primarily due to increased initial and
additional listing fee revenue as well as increased information services and technology
services and other revenue.
Operating expenses in Q4/13 increased by 3% over Q3/13 primarily due to higher
information and
increased operating and
costs
telecommunications costs. In addition, there were higher general and administration costs
reflecting increased marketing costs and initiative spending. These increases were partially
offset by higher capitalization of costs associated with technology initiatives and lower
short-term employee performance incentive plan expense.
reflecting
systems
trading
16 The “Defined Benefit Pension Plans” section above contains certain forward-looking statements, Please refer to
“Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
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Income from operations increased by 21% from Q3/13, reflecting the combined impact of
higher revenue somewhat offset by higher operating expenses.
Net income attributable to TMX Group Shareholders increased by 116% from Q3/13
partially due to higher income from operations and lower finance costs. In addition, during
Q3/13 net income was reduced by $16.4 million of credit facility refinancing costs.
Q3/13 compared with Q2/13
Revenue in Q3/13 was 9% lower than in Q2/13 primarily due to lower additional listing fee
revenue as well as both cash markets and derivatives markets trading and clearing
revenue.
Operating expenses in Q3/13 decreased by 7% over Q2/13 primarily due to reduced
information and trading system costs reflecting lower fees to ICE (relating to NGX’s
technology and clearing alliance with ICE), and a decrease in project costs. In addition,
there were reduced general and administration costs reflecting lower bad debt expenses
and overall reduced operating expenses due to realized synergies from the integration of
TMX Group Inc., CDS, and Alpha.
Income from operations decreased by 12% from Q2/13, reflecting the combined impact of
lower revenue and somewhat offset by lower operating expenses.
Net income attributable to TMX Group shareholders decreased by 25% primarily due to
lower income from operations and $16.4 million of credit facility refinancing costs.
Q2/13 compared with Q1/13
Revenue in Q2/13 was 6% higher than in Q1/13 primarily due to higher other issuer
services revenue, including Equity Transfer (acquired April 5, 2013), higher initial and
additional listing fee revenue, and higher derivatives markets trading and clearing revenue,
somewhat offset by lower information services revenue following the sale of PC-Bond on
April 5, 2013.
Operating expenses in Q2/13 increased slightly over Q1/13 primarily due to the inclusion of
Equity Transfer and an increase in general and administration expenses.
Income from operations of $67.3 million increased by 12% reflecting the 6% increase in
revenue, partially offset by a 3% increase in operating expenses.
Net income attributable to TMX Group shareholders decreased in Q2/13 over Q1/13
primarily due to significantly higher income tax accounting adjustments related to the sale of
PC-Bond. The decrease was partially offset by the higher revenue and the gain on the sale
of PC-Bond. (See ADDITIONAL INFORMATION – Gain on sale of PC-Bond and Income
tax expense.)
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Q1/13 compared with Q4/12
Revenue in Q1/13 was lower than in Q4/12 primarily due to lower issuer services revenue
from initial and additional listing fees, lower energy markets trading and clearing revenue
and reduced technology services and other revenue, partially offset by higher cash markets
trading and clearing revenue.
Operating Expenses in Q1/13 increased over Q4/12 primarily due to an increase of $11.2
million in compensation and benefits expenses. Compensation and benefits expenses in
Q4/12 included higher capitalization of costs associated with technology initiatives and
lower costs associated with short-term employee performance incentive plans. In addition,
there were higher costs in Q1/13 related to organizational transition costs compared with
Q4/12. The increase in compensation and benefits expenses was somewhat offset by lower
information and trading systems costs, reduced general and administration expenses and
lower depreciation and amortization.
Income from operations of $60.2 million decreased by 21% reflecting the combined impact
of a 5% decrease in revenue and a 6% increase in operating expenses.
Net income attributable to TMX Group shareholders increased in Q1/13 over Q4/12
primarily due to lower Maple Transaction and integration costs as well as lower income tax
expense largely resulting from recognizing a deferred income tax asset of $6.0 million
related to PC-Bond. The increase was largely offset by lower revenue and higher
expenses.
REVIEW OF FOURTH QUARTER RESULTS
Compared with Q4/12
Revenue in Q4/13 was essentially unchanged from Q4/12. Revenue increased in the
following:
Issuer services revenue reflected the inclusion of revenue from Equity Transfer
(acquired April 5, 2013).
Technology services and other revenue increased, reflecting increased revenues from
CDS services relating to the administration of SEDAR, SEDI and NRD and the impact
of higher foreign exchange gains on U.S. dollar accounts receivables.
Information services revenue increased reflecting higher revenue from TMX Atrium,
feeds, co-location services, and royalties following the FTSE transaction. During Q4/13,
there were also various revenue recoveries of approximately $2.8 million. The
appreciation of the U.S. dollar against the Canadian dollar had a positive impact on
revenue.
Derivatives markets revenue increased due to an increase in trading and clearing
revenue from MX and CDCC, reflecting higher volumes, as well as a more favourable
product mix on MX and an increase in REPO fees.
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The increases were largely offset by the following:
Issuer services revenue was lower due to decrease in additional listing fee revenue
reflecting a decrease in the number of additional financings on Toronto Stock Exchange
and the number and value of additional financings on TSX Venture Exchange. While the
total value of additional financings on Toronto Stock Exchange increased in Q4/13
compared with Q4/12, this was primarily due to one significant transaction on which the
listed issuer paid the maximum fee. Excluding this transaction, the value of additional
financings on Toronto Stock Exchange decreased in Q4/13 compared with Q4/12. In
addition, there was a decline in initial listing fee revenue reflecting a decrease in the
number and value of new listings on Toronto Stock Exchange.
Information services revenue was reduced following the sale of PC-Bond, which we did
not consolidate following the close of the transaction with FTSE to create FTSE TMX
Global Debt Capital Markets on April 5, 2013.
BOX and NGX trading and clearing revenue decreased, reflecting lower volumes.
Operating expenses in Q4/13 increased by 4% over Q4/12. The increase reflects the
inclusion of three months of operating expenses of Equity Transfer (acquired April 5, 2013).
Operating expenses were also higher primarily due to higher costs associated with the
short-term employee performance incentive plan, higher organizational transition costs,
lower capitalization of Compensation and benefits costs associated with technology
initiatives, and higher Information and trading systems costs related to technology
initiatives. The increase was partially offset by the lower operating expenses related to PC-
Bond that were no longer consolidated following the sale on April 5, 2013. In addition, we
realized costs synergies as a result of the integration of TMX Group Inc., CDS, and Alpha.
Net income attributable to TMX Group shareholders increased in Q4/13 compared with
Q4/12 primarily due to lower integration costs and reduced finance costs, partially offset by
a decrease in income from operations.
The increase in Cash Flows from Operating Activities in Q4/13 of $35.6 million compared
with Q4/12 was primarily due to an increase in trade and other payables and long-term
accrued and other non-current liabilities, lower Maple Transaction and integration related
cash outlays, and reduced interest paid, somewhat offset by a decrease in income from
operations.
In Q4/13, Cash Flows (used in) Financing Activities decreased by $45.1 million compared
with Q4/12 primarily due to lower net repayments on our credit facilities (net of financing
costs).
In Q4/13, Cash Flows from Investing Activities decreased by $27.9 million compared with
Q4/12 primarily due to a reduction in the sale of marketable securities.
Compared with Q3/13
See SELECT ANNUAL AND QUARTERLY FINANCIAL INFORMATION – Q4/13 compared with
Q3/13.
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MANAGING CAPITAL17
Our primary objectives in managing capital, which we define to include our cash and cash
equivalents, marketable securities, share capital, Debentures, and various credit facilities, include:
Maintaining sufficient capital for operations to ensure market confidence and to meet
regulatory requirements and credit facility requirements (see Debentures, Credit and
Liquidity Facilities for a description of certain financial covenants under the Amended and
Restated Credit Agreement). Currently, we target to retain a minimum of $250.0 million in
cash, cash equivalents and marketable securities. This amount is subject to change;
Reducing the debt levels to be below the Total Leverage Ratios under the Amended and
Restated Credit Agreement, which decrease over time;
Maintaining a credit rating in a range consistent with our current A (high) credit rating from
DBRS;
Using excess cash to invest in and continue to grow the business; and
Returning capital to shareholders through methods such as dividends paid to shareholders
and purchasing shares for cancellation pursuant to normal course issuer bids.
We achieve the above objectives while managing our capital subject to capital maintenance
requirements imposed on us and our subsidiaries as follows:
In respect of TSX, as required by the OSC to maintain certain financial ratios on both a
consolidated and non-consolidated basis, as defined in the OSC recognition order, as
follows:
a current ratio of greater than or equal to 1.1:1;
a debt to cash flow ratio of less than or equal to 4:1; and
a financial leverage ratio of less than or equal to 4:1.
In respect of TSXV, as required by various provincial securities commissions to maintain
sufficient financial resources.
In respect of NGX, to:
maintain a current ratio of not less than 1:1, as required by a major Canadian
chartered bank;
maintain sufficient financial resources to cover 12 months of operating expenses, as
required by the CFTC; and
17 The “Managing Capital” section above contains certain forward-looking statements. Please refer to “Caution Regarding
Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
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maintain sufficient financial resources to cover the failure of its single largest
contracting party under extreme but plausible market conditions, as required by the
CFTC.
In respect of MX, as required by the AMF to maintain certain regulatory ratios as defined in
the AMF recognition order, as follows:
a working capital ratio of more than 1.5:1;
a cash flow to total debt ratio of more than 20%; and
a financial leverage ratio of less than 4.0.
In respect of CDCC, to maintain certain amounts, as follows:
$5.0 million cash and cash equivalents or marketable securities as part of the
Clearing Member default recovery process plus an additional $5.0 million in the
event that the initial $5.0 million is fully utilized during a default; and
sufficient cash, cash equivalents and marketable securities to cover 12 months of
operating expenses, excluding amortization and depreciation; and
$20.0 million total shareholders’ equity.
In respect of Shorcan:
by IIROC which requires Shorcan to maintain a minimum level of shareholder’s
equity of $0.5 million;
by the National Futures Association which requires Shorcan to maintain a minimum
level of net capital; and
by the OSC which requires Shorcan to maintain a minimum level of excess working
capital.
In respect of TMX Select, IIROC requires TMX Select to maintain an adequate level of risk
adjusted capital.
In respect of CDS and CDS Clearing, as required by the OSC and the AMF to maintain
certain financial ratios as defined in the OSC recognition order, as follows:
a debt to cash flow ratio of less than or equal to 4.0; and
a financial leverage ratio of less than or equal to 4.0.
In addition, the OSC requires CDS and CDS Clearing to maintain working capital to
cover 6 months of operating expenses (excluding, in the case of CDS, the amount
of shared services fees charged to CDS Clearing).
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In respect of Alpha Exchange Inc., as required by the OSC to maintain certain financial
ratios on both a consolidated and non-consolidated basis as defined in the OSC recognition
order, as follows:
a current ratio of greater than or equal to 1.1:1;
a debt to cash flow ratio of less than or equal to 4.0:1; and
a financial leverage ratio of less than or equal to 4.0:1.
As of December 31, 2013, we were in compliance with all of these externally imposed
capital requirements. See Loans Payable in this MD&A for a description of the financial
covenants imposed on us under the Amended and Restated Credit Agreement.
FINANCIAL INSTRUMENTS
Cash, Cash Equivalents and Marketable Securities
Our financial instruments include cash, cash equivalents and investments in marketable securities
which are held to earn investment income. These instruments include units in a money market fund
and a short-term bond and mortgage fund, managed by an external advisor, as well as Treasury
Bills. The primary risks related to these marketable securities are variation in interest rates, liquidity
risk and credit risk. For a description of these risks, please refer to Liquidity Risk – Marketable
Securities, Credit Risk – Marketable Securities and Interest Rate Risk – Marketable
Securities.
We have designated our marketable securities as fair value through profit and loss. Fair values
have been determined by reference to quoted market prices or are based on observable market
information. Unrealized losses of $0.2 million have been reflected in net income for the year ended
December 31, 2013, compared with unrealized losses of $0.2 million for the year ended December
31, 2012.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents contains tax withheld by CDS on entitlement payments made
by CDS on behalf of CDS participants. The restricted cash and cash equivalents related to this
withheld tax is ultimately under the control of CDS; however, the amount is payable to various
taxation authorities within a relatively short period of time and so is restricted from use in normal
operations. An equivalent and offsetting amount is included in the consolidated balance sheet
under the caption Participants` tax withholdings. At December 31, 2013, we had restricted cash
and cash equivalents of $102.9 million. The primary risks related to these restricted cash and cash
equivalents are liquidity risk and credit risk. For a description of these risks, please refer to
Liquidity Risk – Cash and cash equivalent and Restricted cash and cash equivalents, Credit
Risk – Cash and cash equivalent and Restricted cash and cash equivalents.
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Trade Receivables
Our financial instruments include accounts receivable, which represents amounts that our
customers owe us. The carrying value is based on the actual amounts owed by the customers, net
of a provision for that portion which may not be collectible. The primary risk related to accounts
receivable is credit risk. For a description of these risks, please refer to Credit Risk – Accounts
Receivable.
CDS – Participant collateral
As part of CDS’s clearing operations, CDS Participant Rules require participants to pledge
collateral to CDS in the form of cash or securities in amounts calculated in relation to their
activities. Cash pledged and deposited with CDS is recognized as an asset and an equivalent and
offsetting liability is recognized as these amounts are ultimately owed to the participants. There is
no impact on the consolidated income statement. Securities pledged do not result in an economic
inflow to CDS, and therefore, are not recognized.
Securities held in custody by CDS for participants and associated non-cash entitlement
transactions on these securities are not financial assets of the corporation nor do these
transactions give rise to a contractual or constructive obligation. All cash dividends, interest, and
other cash distributions received by the corporation on securities held in custody awaiting
distribution are recognized as an asset and offsetting liability as these amounts are ultimately owed
to participants.
(in millions of dollars)
Entitlements and other funds
Participants` cash collateral
Balances with participants
December 31,
2013
11.9
318.9
330.8
$
$
December 31,
2012
16.2
354.7
370.9
$
$
As a result of calculations of participants’ exposure at December 31, 2013, the total amount of
collateral required by CDS Clearing was $3,237.8 million (2012 – $3,078.0 million). The actual
collateral pledged to CDS Clearing at December 31 is summarized below.
(in millions of dollars)
Cash (included within Balances with participants
on the consolidated balance sheet)
Treasury bills and fixed income securities
Total collateral pledged
December 31,
2013
December 31,
2012
$
$
318.9
3,668.7
3,987.6
$
$
354.7
3,534.8
3,889.5
Non-cash collateral is not included in our consolidated balance sheet.
CDCC – Daily Settlements due to and due from Clearing Members
As part of CDCC’s clearing operations, amounts due from and to Clearing Members as a result of
marking to market open futures positions and settling options transactions each day are required to
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be collected from or paid to Clearing Members prior to the commencement of trading the next day.
The amounts due from and due to Clearing Members are recognized in the consolidated assets
and liabilities as Balances with Clearing Members and participants. There is no impact on the
consolidated statements of income. The primary risks associated with these financial instruments
are credit risk, liquidity risk and market risk. For a description of these risks, please refer to Credit
Risk – CDCC, Liquidity Risk – CDCC and Other Market Price Risk – CDCC.
CDCC – Clearing Members’ cash margin deposits and clearing fund cash deposits
These balances represent the cash deposits of Clearing Members held in the name of CDCC as
margins against open positions and as part of the clearing fund. The cash held is recognized as an
asset and an equivalent and offsetting liability is recognized as these amounts are ultimately owed
to the Clearing Members. There is no impact on the consolidated income statement.
CDCC – Net amounts receivable/payable on open REPO agreements
In February 2012, CDCC launched the clearing of fixed income REPO agreements. OTC REPO
agreements between buying and selling Clearing Members are novated to CDCC whereby the
rights and obligations of the Clearing Members under the REPO agreements are cancelled and
replaced by new agreements with CDCC. Once novation occurs, CDCC becomes the counterparty
to both the buying and selling Clearing Member. As a result, the contractual right to receive and
return the principal amount of the REPO as well as the contractual right to receive and pay interest
on the REPO is thus transferred to CDCC.
These balances represent outstanding balances on open REPO agreements. Receivable and
payable balances outstanding with the same Clearing Member are offset when they are in the
same currency and are to be settled on the same day, as CDCC has a legally enforceable right to
offset and the intention to net settle. The balances include both the original principal amount of the
REPO and the accrued interest, both of which are carried at amortized cost. As CDCC is the
central counterparty, an equivalent amount is recognized in both the Company’s assets and
liabilities.
The following table sets out the carrying amounts of Balances with Clearing Members that are
subject to offsetting, enforceable master netting arrangements and similar arrangements:
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(in millions of dollars)
Asset/(Liability)
Gross amount
Amount offset in the
consolidated balance
sheet
As at December 31, 2013
Net amounts presented
in the consolidated
balance sheet
Financial assets
Daily settlements due from Clearing
Members
Net amounts receivable on
open REPO agreements
Financial liabilities
Daily settlements due to Clearing
Members
Net amounts payable on
open REPO agreements
Net amount
(in millions of dollars)
$
$
$
$
$
28.8
17,211.7
17,240.5
(28.8)
(17,211.7)
(17,240.5)
-
$
$
$
$
$
(2.1)
(7,713.8)
(7,715.9)
2.1
7,713.8
7,715.9
-
$
$
$
$
$
26.7
9,497.9
9,524.6
(26.7)
(9,497.9)
(9,524.6)
-
Asset/(Liability)
Gross amount
Amount offset in the
consolidated balance
sheet
As at December 31, 2012
Net amounts presented
in the consolidated
balance sheet
Financial assets
Daily settlements due from Clearing
Members
Net amounts receivable on
open REPO agreements
Financial liabilities
Daily settlements due to Clearing
Members
Net amounts payable on
open REPO agreements
Net amount
$
$
$
$
$
143.2
10,036.4
10,179.6
(143.2)
(10,036.4)
(10,179.6)
-
$
$
$
$
$
(1.5)
(3,199.3)
(3,200.8)
1.5
3,199.3
3,200.8
-
$
$
$
$
$
141.7
6,837.1
6,978.8
(141.7)
(6,837.1)
(6,978.8)
-
The actual collateral pledged to CDCC at December 31 is summarized below:
(in millions of dollars)
Cash collateral held:
Clearing Members’ cash margin deposits
Clearing fund cash deposits
Non-cash collateral pledged:
Non-cash margin deposits
Non-cash clearing fund deposits
December 31,
2013
December 31,
2012
$
$
$
261.2
48.1
309.3
3,691.9
287.0
3,978.9
$
$
$
361.3
62.9
424.2
3,310.7
258.1
3,568.8
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Non-cash collateral is held in government securities, put letters of guarantee, and equity securities
and is not included in our consolidated balance sheet.
Loans Payable
We established the Credit Agreement in connection with the acquisition of TMX Group Inc., Alpha
and CDS. (see Debentures, Credit and Liquidity Facilities – Loans Payable). In conjunction
with the Offering on September 30, 2013 (see Debentures, Credit and Liquidity Facilities –
Debentures Payable), TMX Group amended and restated the terms of the Credit Agreement on
September 30, 2013 (the Amended and Restated Credit Agreement) to include, among other
things, the release of various guarantees provided by certain of TMX Group’s subsidiaries as well
as significantly more favourable pricing terms and less restrictive financial covenants (see
Amended and Restated Credit Agreement filed on SEDAR on September 30, 2013). The loans
payable are subject to interest rate risk. For a description of this risk, please refer to Interest Rate
Risk – Loans Payable and Debentures. We entered into a series of interest rate swaps to
partially manage our exposure to interest rate fluctuations on the loans payable (see Debentures,
Credit and Liquidity Facilities – Interest Rate Swaps).
Debentures Payable
On September 30, 2013, we completed the Offering of $1.0 billion aggregate principal amount of
Debentures to accredited investors in Canada. The Offering consisted of a $400-million principal
amount Series A Debenture with a 3.253% coupon and a five-year term, a $250-million Series B
Debenture with a 4.461% coupon and a 10-year term, a $350-million Series C Debenture with a
floating rate coupon (three-month CDOR + 70 bps) and a three-year term (see Debentures, Credit
and Liquidity Facilities – Debentures Payable). The net proceeds of $996.2 million (net of $3.8
million of fees that were capitalized) were used to repay a significant portion of outstanding
indebtedness under the TMX Group’s Credit Agreement. The Debentures received a credit rating
of A (high) with a Stable trend from DBRS. The fair value of the Debentures was obtained using
market prices as inputs. The Series C Debenture is subject to interest rate risk. For a description
of this risk, please refer to Interest Rate Risk – Loans Payable and Debentures. We entered into
a series of interest rate swaps to manage our exposure to interest rate fluctuations on the
Debentures payable (see Debentures, Credit and Liquidity Facilities – Interest Rate Swaps).
Interest Rate Swaps (IRS)
We entered into a series of interest rate swap agreements to partially manage our exposure to
interest rate fluctuations on the Loans payable and Series C Debentures payable (see
Debentures, Credit and Liquidity Facilities – Interest Rate Swaps). We mark to market the fair
value of the interest rate swaps, which is determined by using observable market information. At
December 31, 2013, the fair value of the interest rate swaps was a liability of $0.4 million. The
counterparties on these interest rate swaps are major Canadian chartered banks. The unrealized
fair value gain on these interest rate swaps designated as cash flow hedges was $0.8 million for
2013 (net of $0.6 million of tax). This is reflected in the calculation of Total comprehensive income
(loss). In addition, there was a charge of $2.0 million to net income related to the net settlement on
these interest rate swaps. The approximate impact on income before income taxes of a 1% rise
and a 1% fall in interest rates with respect to the interest rate swaps is an increase of $6.0 million
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and a decrease of $6.0 million, respectively. Interest rate swaps are subject to credit risk. For a
description of this risk, please refer to Credit Risk – Interest Rate Swaps.
Total Return Swaps (TRS)
We have entered into a series of TRSs which synthetically replicate the economics of TMX Group
purchasing our shares as a partial economic hedge to the share appreciation rights of the non-
performance element of Restricted share units (RSUs). We have also entered into a series of
TRSs as a full fair value hedge against the share price appreciation associated with the Deferred
share units (DSUs). We mark to market the fair value of the TRSs as an adjustment to income,
and simultaneously mark to market the liability to holders of the units as an adjustment to income.
Fair value is obtained from a pricing service based on a discounted cash flow model. The fair value
of the TRSs and the obligation to unit holders are reflected on the consolidated balance sheet. The
contracts are settled in cash upon maturity.
Unrealized losses and realized gains of $0.6 million and $0.6 million, respectively, have been
reflected in net income in the financial statements for the year ended December 31, 2013 (2012 –
unrealized losses and realized gains of $4.4 million and $4.6 million, respectively).
NGX – Energy Contracts
The NGX clearing balances include the following:
Energy contracts receivable and energy contracts payable -- These balances represent the
amounts receivable and payable where physical delivery of energy trading contracts has
occurred and/or settlement amounts have been determined but payments have not yet
been made. There is no impact on the consolidated income statement as an equivalent
amount is recognized in both the assets and the liabilities.
Fair value of open energy contracts – These balances represent the fair value at the
balance sheet date of the undelivered physically settled energy trading contracts and the
forward cash settled energy trading contracts. Fair value is determined based on the
difference between the trade price when the contract was entered into and the settlement
price. The settlement price is a price designated by NGX for each trading instrument in
each trading hub at market close and is used in conjunction with published market price
bands. Depending on the term and type of instrument, some settlement prices can be
derived from actual trading data from NGX’s trading system, basis values for NGX markets
compared to NYMEX, daily market surveys and/or industry reports. There is no impact on
the consolidated income statement as an equivalent amount is recognized in both the
assets and the liabilities.
NGX requires each contracting party to sign the Contracting Party’s agreement; a standardized
agreement that allows for netting of positive and negative exposures associated with a single
contracting party. The following table sets out the carrying amounts of recognized financial
instruments that are subject to the agreement:
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69
(in millions of dollars)
Financial assets
Energy contracts receivable
Fair value of open energy contracts receivable
Financial liabilities
Energy contracts payable
Fair value of open energy contracts payable
Net amount
(in millions of dollars)
As at December 31, 2013
Gross amount
Amount offset in the
consolidated balance
sheet
Net amounts presented
in the consolidated
balance sheet
$
$
$
3,609.7
500.5
4,110.2
(3,609.7)
(500.5)
(4,110.2)
-
$
$
$
$
$
(2,844.8)
$
(413.6)
(3,258.4)
2,844.8
$
413.6
3,258.4
-
$
764.9
86.9
851.8
(764.9)
(86.9)
(851.8)
-
As at December 31, 2012
Gross amount
Amount offset in the
consolidated balance
sheet
Net amounts presented
in the consolidated
balance sheet
Financial assets
Energy contracts receivable
$
Fair value of open energy contracts receivable
3,919.4
349.3
4,268.7
Financial liabilities
Energy contracts payable
Fair value of open energy contracts payable
$
(3,919.4)
(349.3)
(4,268.7)
$
$
$
$
Net amount
$
-
$
(3,223.0)
$
(283.6)
(3,506.6)
3,223.0
283.6
3,506.6
-
$
$
696.4
65.7
762.1
(696.4)
(65.7)
(762.1)
-
The actual collateral pledged to NGX at December 31 is summarized below:
(in millions of dollars)
Cash collateral deposits
Letters of credit
December 31,
2013
719.3
1,794.1
2,513.4
$
$
December 31,
2012
672.0
1,596.5
2,268.5
$
$
These amounts are not included in the consolidated balance sheet.
The primary risks related to these financial instruments are credit risk, liquidity risk and market risk.
For a description of these risks, please refer to Credit Risk – NGX, Liquidity Risk – NGX and
Other Market Price Risk – NGX.
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FINANCIAL RISK MANAGEMENT
Credit Risk
Credit risk is the risk of financial loss associated with a counterparty’s failure to fulfill its financial
obligations and arises principally from the clearing operations of CDS, NGX and CDCC, cash and
cash equivalents, marketable securities, interest rate swaps, total return swaps, accounts
receivable and the brokerage operations of Shorcan, and Shorcan Energy Brokers.
Credit Risk – CDS
The primary credit risk of CDS and its subsidiaries is the risk of loss due to the failure of a
participant in CDS Clearing’s clearing and settlement services to honour its financial obligations.
To a lesser extent, CDS is exposed to credit risk through the performance of services in advance of
payment.
Through the clearing and settlement services operated by CDS Clearing, credit risk exposures are
created. During the course of each business day, transaction settlements can result in a net
payment obligation of a participant to CDS Clearing or the obligation of CDS Clearing to pay a
participant. The potential failure of the participant to meet its payment obligation to CDS Clearing
results in payment risk, a specific form of credit risk. Payment risk is a form of credit risk in
securities settlement whereby a seller will deliver securities and not receive payment, or that a
buyer will make payment and not receive the purchased securities. Payment risk is mitigated by
delivery payment finality in CDSX, CDS’s multilateral clearing and settlement system, as set out in
the CDS Participant Rules.
In the settlement services offered by CDS Clearing, payment risk is transferred entirely from CDS
Clearing to participants who accept this risk pursuant to the contractual rules for the settlement
services. This transfer of payment risk occurs primarily by means of participants acting as
extenders of credit to other participants through lines of credit managed within the settlement
system or, alternatively, by means of risk-sharing arrangements whereby groups of participants
cross-guarantee the payment obligations of other members of the group. Should a participant be
unable to meet its payment obligations to CDS Clearing, these surviving participants are required
to make the payment. Payment risk is mitigated on behalf of participants through the enforcement
of limits on the magnitude of payment obligations of each participant and the requirement of each
participant to collateralize its payment obligation. Both of these mitigants are enforced in real time
in the settlement system.
Through New York Link (NYL) and DTC Direct Link (DDL), credit risk exposures are created.
During the course of each business day, settlement transactions by NSCC/DTC can result in a net
payment obligation from NSCC/DTC to CDS Clearing or the obligation of CDS Clearing to make a
payment to NSCC/DTC. As a corollary result, CDS has a legal right to receive the funds from
sponsored participants in a debit position or has an obligation to pay the funds to sponsored
participants in a credit position.
The potential failure of the participant to meet its payment obligation to CDS Clearing in CDS
Clearing’s NYL or DDL services results in a payment risk. To mitigate the risk of default, CDS
Clearing has in place default risk mitigation mechanisms to minimize losses to the surviving
participants as set out in the CDS Participant Rules. The process includes participants posting
collateral with CDS Clearing and NSCC/DTC.
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The risk exposure of CDS Clearing in these central counterparty services is mitigated through a
daily mark-to-market of each participant’s obligations as well as risk-based collateral requirements
calculated daily. These mitigants are intended to cover the vast majority of market changes and
are tested against actual price changes on a regular basis. This testing is supplemented with
analysis of the effects of extreme market conditions on a collateral valuation and market risk
measurements. Should the collateral of a defaulter in a central counterparty service be insufficient,
either because the value of the collateral has declined or the loss to be covered by the collateral
exceeded the collateral requirement, the surviving participants in the service are required to cover
any residual losses.
As a result of calculations of participants’ exposure at December 31, 2013, the total amount of
collateral required by CDS Clearing was $3,237.8 million (2012 – $3,078.0 million).
CDS may receive payment from securities issuers for entitlements, for example, maturity or interest
payments, prior to the date of payment to the participants holding those securities. In rare
circumstances, due to the timing of receipt of these payments or due to market conditions, these
funds may be held with a major Canadian chartered bank. As a result, CDS could be exposed to
the credit risk associated with the potential failure of the bank.
See Other Credit and Liquidity Facilities for a description of CDS’s credit facilities.
Credit Risk – NGX
NGX is exposed to credit risk in the event that contracting parties default on their contractual
obligations to NGX resulting in the failure to settle on the amounts due.
NGX is the central counterparty to each transaction (whether it relates to natural gas, electricity or
crude oil contracts) cleared through its clearing operations. By providing a clearing and settlement
facility, NGX is subject to the risk of a counterparty default. NGX manages this risk by applying
standard rules and regulations, and using a conservative margining regime based on industry best
practices. This margining regime involves monitoring client portfolios in real-time and requiring
participants to deposit liquid collateral in excess of those valuations. NGX conducts market stress
scenarios, liquidation simulations, and backtesting regularly to test the ongoing integrity of its
clearing operation. NGX also manages and mitigates these risks through a framework of policies,
regulations and procedures.
NGX requires each contracting party to provide sufficient collateral, in the form of cash or letters of
credit, in excess of the outstanding credit exposure as determined by NGX in accordance with its
margining methodology. The cash collateral deposits and letters of credit are held by a major
Canadian chartered bank. This collateral may be accessed by NGX in the event of default by a
contracting party. NGX measures total potential exposure for both credit and market risk for each
contracting party on a real-time basis as the aggregate of:
outstanding energy contracts receivable;
“Variation Margin,” comprised of the aggregate “mark to market” exposure for all forward
purchase and sale contracts; and
“Initial Margin,” an amount that estimates the potential contracting party loss in their
portfolio under an adverse price movement to a 99.7% confidence interval during a
liquidation period.
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As a result of these calculations of contracting party exposure at December 31, 2013, NGX had
access to cash collateral deposits of $719.3 million and letters of credit of $1,794.1 million. These
amounts are not included in our consolidated balance sheet.
See Other Credit and Liquidity Facilities for a description of NGX’s credit facilities.
Credit Risk – CDCC
CDCC is exposed to credit risk in the event that Clearing Members fails to satisfy any of the
contractual obligations as stipulated within the CDCC’s Rules.
CDCC is exposed to the risk of default of its Clearing Members since it acts as the central
counterparty for all transactions carried out on MX’s markets and on certain OTC markets which
are serviced by CDCC. It primarily supports the credit risk of one or more counterparties defaulting
on their financial obligations, in which case, the obligations of those counterparties would become
the responsibility of CDCC.
The first line of defence in CDCC's credit risk management process is the adoption of strict
membership criteria which include both financial and regulatory requirements. In addition, CDCC
performs on-going monitoring of the financial viability of its Clearing Members against the relevant
criteria as a means of ensuring the on-going compliance of its Clearing Members. In the event that
a Clearing Member fails to continue to satisfy any of its membership criteria, CDCC has the right
through its Rules, to impose various forms of sanctions on such Clearing Members.
One of CDCC’s principal risk management practices with regards to counterparty credit risk is the
collection of risk-based margin deposits in the form of cash, equities and liquid government
securities. Should a Clearing Member fail to meet settlements and/or daily margin calls or
otherwise not honour its obligations under open futures and options contracts, margin deposits
would be seized and would then be available to apply against the costs incurred to liquidate the
Clearing Member’s positions. For additional details on the risk management practices in place at
CDCC to mitigate the market risk exposures that would result from a Clearing Member default,
please refer to section on Market Risk.
CDCC’s margining system is complemented by a Daily Capital Margin Monitoring (DCMM) process
that evaluates the financial strength of a Clearing Member against its margin requirements. CDCC
monitors the margin requirement of a Clearing Member as a percentage of its capital (net allowable
assets). CDCC will make additional margin calls when the ratio of margin requirement/net
allowable assets exceeds 100%. The additional margin is equal to the excess of the ratio over
100% and is meant to ensure that Clearing Member leverage in the clearing activities does not
exceed the value of the firm.
An additional component to CDCC’s overall credit risk is its exposure in the default management
process. CDCC holds $10.0 million of its cash and cash equivalents and marketable securities to
cover the potential loss incurred due to Clearing Member defaults. This $10.0 million would be
accessed in the event that a defaulting Clearing Members’ margin and clearing fund deposits are
insufficient to cover the loss incurred by CDCC. The $10.0 million is allocated into two separate
tranches. The first tranche of $5.0 million is intended to cover the loss resulting from the first
defaulting Clearing Member. If the loss incurred is greater than $5.0 million, and as such the first
tranche is fully depleted, CDCC will fully replenish the first tranche using the second tranche of
$5.0 million. This second tranche is in place to ensure there is $5.0 million available in the event of
an additional Clearing Member default.
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CDCC’s cash margin deposits and cash clearing fund deposits are held at the Bank of Canada
thereby alleviating the credit risk CDCC were to face with deposits held at commercial banks.
CDCC’s non-cash margin deposits and non-cash clearing fund deposits are pledged to CDCC
under irrevocable agreements and are held by approved depositories. This collateral may be
seized by CDCC in the event of default by a Clearing Member. At December 31, 2013, non-cash
margin deposits of $3,713.6 million and non-cash clearing fund deposits of $287.0 million had been
pledged to CDCC, held in government and equity securities. These amounts are not included in
our consolidated balance sheet.
See Other Credit and Liquidity Facilities for a description of CDCC’s credit facilities.
Credit Risk – Cash and cash equivalents and Restricted cash and cash equivalents
We manage our exposure to credit risk on our cash and cash equivalents and restricted cash and
cash equivalents by holding the majority of our cash and cash equivalents with major Canadian
chartered banks.
Credit Risk – Marketable Securities
We manage exposure to credit risk arising from investments in marketable securities by holding
investment funds that actively manage credit risk or by holding high-grade individual fixed income
securities with credit ratings of AA/R1-Middle or better. In addition, when holding individual fixed
income securities, we will limit our exposure to any non-government security. Our investment policy
will only allow excess cash to be invested within money market securities or fixed income
securities.
The majority of the portfolio is held within a money market fund and a specific short-term bond and
mortgage fund. The money market fund manages credit risk by limiting investments to government
or government-guaranteed treasury bills, and high-grade corporate notes. The short term bond and
mortgage fund manages credit risk by limiting investments to high-quality Canadian corporate
bonds, government bonds and up to 40% of the fund's net assets in conventional first mortgages
and mortgages guaranteed under the National Housing Act (Canada). Corporate bonds held must
have a minimum credit rating of BBB by DBRS at the time of purchase. Mortgages may not
comprise more than 40% of the portfolio and must be either multi-residential conventional first
mortgages or multi-residential government guaranteed mortgages. TMX Group does not have any
investments in non-bank asset-backed commercial paper.
Credit Risk – Total Return Swaps (TRS)
To manage credit risk, we entered into these TRS with a major Canadian chartered bank.
Credit Risk – Interest Rate Swaps (IRS)
To manage credit risk, we entered into IRS with major Canadian chartered banks.
Credit Risk – Shorcan and Shorcan Energy Brokers
Shorcan and Shorcan Energy Brokers are exposed to credit risk in the event that customers fail to
settle on the contracted settlement date. This risk is limited by their status as agents, in that they
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85
do not purchase or sell securities for their own account. As agents, in the event of a failed trade,
Shorcan or Shorcan Energy Brokers has the right to withdraw its normal policy of anonymity and
advise the two counterparties to settle directly.
Credit Risk – Equity Transfer
Equity Transfer is exposed to credit risk on foreign exchange transactions processed for clients in
the event that either the client or the financial counterparty fails to settle contracts for which foreign
exchange rates have moved unfavourably. The risk of a financial counterparty failing to settle a
transaction is considered remote as Equity Transfer deals only with reputable financial institutions
comprised of major Canadian chartered banks.
Credit Risk – Accounts Receivable
Our exposure to credit risk resulting from uncollectable accounts is influenced by the individual
characteristics of our customers, many of whom are banks and financial institutions. We invoice
our customers on a regular basis and maintain a collections team to monitor customer accounts
and minimize the amount of overdue receivables. There is no concentration of credit risk arising
from accounts receivable from a single customer. In addition, customers that fail to maintain their
account in good standing risk loss of listing, trading, clearing and data access privileges.
Market Risk
Market risk is the risk that changes in market price, such as foreign exchange rates, interest rates,
commodity prices and equity prices will affect our income or the value of our holdings of financial
instruments.
Equity Price Risk – RSUs, DSUs, TRS
We are exposed to market risk when we grant DSUs and RSUs to our directors and employees,
respectively, as our obligation under these arrangements are partly based on our share price. We
have entered into TRSs as a partial fair value hedge to the share appreciation rights of these RSUs
and DSUs.
Interest Rate Risk – Marketable Securities
We are exposed to interest rate risk on our marketable securities. We have engaged external
investment fund managers to manage the asset mix and the risks associated with the majority of
these investments. At December 31, 2013, TMX Group held $67.0 million in marketable securities
of which 39% were held in a short-term bond and mortgage fund, 17% were held in treasury bills,
40% were held in a money market fund, and 4% were held in other term deposits.
Interest Rate Risk – Loans Payable and Debentures
We are exposed to interest rate risk on our Loans Payable and Series C Debentures. The
approximate impact on income before income taxes of a 1% rise and a 1% fall in interest rates with
respect to these financial instruments is a decrease of $6.9 million and an increase of $6.9 million,
respectively.
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Foreign Currency Risk
We are exposed to foreign currency risk on cash and cash equivalents, trade receivables and trade
payables, principally denominated in U.S. dollars. We are also exposed to foreign currency risk on
revenue and expenses where we invoice or procure in a foreign currency, principally in U.S.
dollars. The approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared
with the U.S. dollar on these cash flows is a $6.3 million decrease or increase in cash. At
December 31, 2013, cash and cash equivalents and trade receivables, net of current liabilities,
excluding BOX, include US$23.2 million, which is exposed to changes in the U.S.-Canadian dollar
exchange rates. The approximate impact of a 10% rise or a 10% decline in the Canadian dollar
compared with the U.S. dollar, AUD, and Euro on these balances as at December 31, 2013 is a
$2.5 million decrease or increase in income before income taxes, respectively. In addition, net
assets related to BOX, Finexeo S.A., which operates TMX Atrium, and Razor Risk are
denominated in U.S. dollars, Euros, and Australian dollars, respectively, and the effect of exchange
rate movements on TMX Group’s share of these net assets is included in other comprehensive
income. The approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared
with the U.S. dollar, AUD, and Euro on these transactions as at December 31, 2013 is a $14.0
million decrease or increase in equity attributable to equity holders, respectively.
In 2013, to partially hedge our U.S. dollar assets, we also borrowed US$15.0 million under our
Credit Facility. Our interest payments and principal repayments are exposed to changes in U.S.-
Canadian dollar exchange rates. The approximate impact of a 10% rise or a 10% decline in the
Canadian dollar compared with the U.S. dollar is a $1.6 million increase or decrease in income
before income taxes, respectively.
NGX offers contracts denominated in both Canadian and U.S. dollars and accepts collateral in
either currency. Settlement always occurs in the contracted currency. Foreign exchange risk could
be created if there is a default and the currency of the required payment obligation is different from
the currency of the collateral supporting that payment obligation. This risk is mitigated by
converting the foreign denominated collateral at current foreign exchange rates and then adjusting
collateral positions to mitigate any foreign exchange risk present.
Settlements in the clearing and settlement services offered by CDS occur in both Canadian and
U.S. dollars. Foreign exchange risk could be created if there is a default and the currency of the
payment obligation is different from the currency of the collateral supporting that payment
obligation. This risk is mitigated by discounting the collateral value of securities where these
mismatches occur.
We do not currently employ currency hedging strategies and therefore significant moves in
exchange rates, specifically a strengthening of the Canadian dollar against the U.S. dollar can
have an adverse affect on the value of our revenue or assets in Canadian dollars.
Other Market Risk – CDS, NGX, CDCC, Shorcan, and Shorcan Energy Brokers
We are exposed to market risk factors from the activities of CDS, NGX, CDCC, Shorcan, and
Shorcan Energy Brokers if a customer, contracting party or clearing member, as the case may be,
fails to take or deliver either securities, energy products or derivatives products on the contracted
settlement or delivery date where the contracted price is less favourable than the current market
price.
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CDS is exposed to market risk as a result of its role as central counterparty in its continuous net
settlement services. In these services, CDS is obligated to fulfill security delivery and receipt and
payment obligations to participants who are members of those services. The potential for security
prices to change between trade execution and settlement creates replacement cost risk, a form of
market risk. Should a participant counterparty to a transaction be ultimately unable to meet its
security receipt and payment obligation or security delivery, the surviving counterparty can be
exposed to replacement cost risk by having to execute a replacement transaction at a less
favourable price.
Replacement cost risk exposure of CDS in these central counterparty services is mitigated through
a daily mark-to-market of each participant’s obligations as well as risk-based collateral
requirements calculated daily. These mitigants are intended to cover the vast majority of market
changes and are tested against actual price changes on a regular basis. This testing is
supplemented with analysis of the effects of extreme market conditions on a collateral valuation
and market risk measurements. Should the collateral of a defaulter in a central counterparty
service be insufficient, either because the value of the collateral has declined or the loss to be
covered by the collateral exceeded the collateral requirement, the surviving participants in the
service are required to cover any residual losses.
Settlements in the clearing and settlement services occur in both Canadian and U.S. dollars.
Foreign exchange risk is created when the currency of the payment obligation is different from the
valuation currency of the collateral supporting that payment obligation. This risk is mitigated by
discounting the collateral value of securities where these mismatches occur.
CDCC is exposed to market risk only in the event of a Clearing Member default and has risk
management strategies in place to mitigate the potential to loss due to changing market conditions.
The primary mitigation to the market risk that CDCC would be facing further to a Clearing Member
default is the collection of margin fund deposits that aim to cover any liabilities that a Clearing
Member may incur by using CDCC’s CCP services. Replacement Cost risk is managed by
ensuring that the mark-to-market exposure of all open trade positions are covered daily. In
addition, CDCC collects additional risk-based margin collateral that is representative of the worst-
case liquidating value, under normal market conditions, that CDCC would be exposed to in the
default management process.
CDCC also maintains a clearing fund of deposits of cash and securities from all Clearing Members.
The aggregate level of clearing funds required from all Clearing Members must cover the worst
loss that CDCC could face if one counterparty were to fail under various extreme but plausible
market conditions. Each Clearing Member contributes to the clearing fund in proportion to the
residual risk that it brings to the clearing system. If, by a Clearing Member’s default, further funding
is necessary to complete a liquidation, CDCC has the right to require other Clearing Members to
contribute additional amounts equal to their previous contribution to the clearing fund. From a legal
perspective, the maximum loss that we could face is limited to CDCC’s net worth. CDCC is
currently the sole clearer for MX contracts and MX would need to develop alternative
arrangements if CDCC were unable to operate.
NGX is exposed to market price risk as a result of its role as a central counterparty to natural gas,
electricity and crude oil transactions. NGX requires each contracting party to provide sufficient
collateral, in the form of cash or letters of credit, in excess of the outstanding credit exposure which
include measures for market risk.
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Shorcan and Shorcan Energy Brokers’ risk is limited by their status as an agent, in that they do not
purchase or sell securities or commodities for their own account, the short period of time between
trade date and settlement date, and the defaulting customer’s liability for any difference between
the amounts received upon sale of, and the amount paid to acquire, the securities or commodities.
We are also exposed to other market price risk on a portion of our sustaining listing fee revenue,
which is based on the quoted market values of listed issuers as at December 31 of the previous
year.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We
manage liquidity risk through the management of our cash and cash equivalents and marketable
securities, all of which are held in short term instruments, and our credit and liquidity facilities. In
the clearing and depository services, liquidity risk results from the requirement to convert collateral
to cash in the event of the default of a participant.
Balances with Clearing Members and participants
The margin deposits of CDCC and CDS and clearing fund margins of CDCC are held in liquid
instruments. Cash margin deposits and cash clearing fund deposits from Clearing Members, which
are recognized on the consolidated balance sheet, are held by CDCC with the Bank of Canada.
Non-cash margin deposits and non-cash clearing fund deposits pledged to CDCC under
irrevocable agreements are in government securities and other securities and are held with
approved depositories. Cash collateral from CDS’s participants, which is recognized on the
consolidated balance sheet, is held by CDS at the Bank of Canada and NSCC/DTC. Non-cash
collateral, which is not recognized on the consolidated balance sheet, pledged by participants
under Participant Rules is held by CDS in liquid government and fixed income securities.
New York Link service – CDS
The design of CDS's New York Link service does not apply strict limits to a participant's end-of-day
payment obligation, creating the potential for unlimited liquidity risk exposure to CDS if a user of
the service were to default on its obligation. CDS manages this risk through active monitoring of
payment obligations and a committed liquidity facility which covers the vast majority of potential
participant default scenarios.
Fair value of open energy contracts and Energy contracts payable – NGX
NGX requires each contracting party to provide sufficient collateral, in the form of cash or letters of
credit, to exceed its outstanding credit exposure, including contract replacement costs at current
market prices, as determined by NGX in accordance with its margining methodology. The cash
collateral deposits and letters of credit are held by a major Canadian chartered bank.
Credit and liquidity facilities – Clearing operations
In response to the liquidity risk that CDS and CDCC are exposed to through their clearing
operations, they have arranged various facilities (see Other Credit and Liquidity Facilities).
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CDS maintains unsecured operating demand loans to support short-term operating requirements.
To support processing and settlement activities of participants, an unsecured overdraft facility and
demand loans of $15.0 million and an overnight facility of US$5.5 million are available.
CDS maintains secured standby credit arrangement that can be drawn in either U.S. or Canadian
currencies. This arrangement is available to support processing and settlement activities in the
event of a participant default. Borrowings under the secured facility are obtained by pledging or
providing collateral pledged by participants primarily in the form of debt instruments issued or
guaranteed by federal, provincial and/or municipal governments in Canada or U.S. treasury
instruments.
In addition, CDS has signed agreements that would allow the Bank of Canada to provide
emergency last-resort liquidity to CDS at the discretion of the Bank of Canada. This liquidity facility
is intended to provide end of day liquidity for payment obligations arising from CDSX, and only in
the event that CDS is unable to access liquidity from its standby liquidity facility or in the event that
the liquidity under such facilities is insufficient. Use of this facility would be on a fully collateralized
basis.
CDCC has daylight liquidity facilities in place to provide liquidity on the basis of collateral in the
form of securities that have been received by CDCC. The daylight liquidity facilities must be
cleared to zero at the end of each day.
The revolving standby credit facility is in place to provide end of day liquidity in the event that
CDCC is unable to clear the daylight liquidity facilities to zero as well as to provide a source of
overnight funding for securities that are not eligible to be pledged at the Bank of Canada.
Advances under the facility will be secured by collateral in the form of securities that have been
received by CDCC. The syndicated REPO facility is also in place to provide end of day liquidity in
the event that CDCC is unable to clear the daylight liquidity facilities to zero. The facility will provide
liquidity in exchange for securities that have been received by CDCC. CDCC also maintains a
$12,300.0 million repurchase facility with a syndicate of six major Canadian chartered banks. This
facility is comprised of $1,200.0 million in committed liquidity and $11,100.0 million in uncommitted
liquidity and is in place to provide end of day liquidity in the event that CDCC is unable to clear the
daylight liquidity facilities to zero. The facility will provide liquidity in exchange for securities that
have been received by CDCC.
Finally, the Bank of Canada liquidity facility is intended to provide end of day liquidity only in the
event that CDCC is unable to access liquidity from the revolving standby liquidity facility and the
syndicated REPO facility or in the event that the liquidity under such facilities is insufficient. Use of
this facility would be on a fully collateralized basis.
Similarly, in response to the liquidity risk that NGX is exposed to through its clearing and settlement
operations, it maintains an unsecured clearing backstop fund in the form of a letter of credit
maintained with a custodian in an amount of US$100.0 million, a $300.0 million daylight facility,
and an unsecured operating facility of $20.0 million.
Credit and liquidity facilities – Corporate
Our capital structure includes approximately $1.3 billion of indebtedness. As highlighted in the
Capital Structure Risk, we rely on our credit facilities and Debentures as a source of financing. If
our indebtedness under either the credit facilities or Debentures was to become due prior to the
maturity dates as a result of not meeting covenants under the relevant credit agreements or trust
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indentures, we could be required to seek more costly sources of financing, or potentially would not
be able to obtain an alternative form of financing.
Cash and cash equivalents and Restricted cash and cash equivalents
Cash and cash equivalents and restricted cash and cash equivalents consist of cash and highly
liquid investments.
Marketable securities
Our investment policy will only allow excess cash to be invested within money market securities or
fixed income securities. The majority of the portfolio is held within a money market fund and a
specific short-term bond and mortgage fund. The money market fund limits our investments to
government or government-guaranteed treasury bills, and high-grade corporate notes. The short-
term bond and mortgage fund limits our investments to high-quality Canadian corporate bonds,
government bonds and up to 40% of the fund's net assets in conventional first mortgages and
mortgages guaranteed under the National Housing Act (Canada). Fund units can be redeemed on
any day that Canadian banks are open for business. Funds will be received the day following the
redemption.
Individual fixed income securities held will have credit ratings of AA/R1-Middle or better and are
highly liquid.
CDS marketable securities are composed of Canadian and U.S. government-issued or
government-backed xed income securities with maturities of less than one year.
Contractual Obligations
(in millions of dollars)
Debt
Debentures
Financial Lease Obligation
Operating Leases
Clearing and Other Obligations18
Total
$336.8
1,007.7
5.9
160.2
Less than
1 year
$1.3
7.7
2.5
17.1
11,145.0
$12,655.6
11,108.7
$11,137.3
1 – 3
years
335.5
350.0
3.0
30.3
20.1
$738.9
4 – 5
years
$ -
400.0
0.4
25.7
14.0
$440.1
5+
years
$ -
250.0
-
87.1
2.2
$339.3
18 Clearing Obligations represents amounts related to our energy and derivatives clearing operations. There are
offsetting assets in these clearing operations.
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ACCOUNTING AND CONTROL MATTERS
Critical Accounting Estimates
Goodwill and Intangible Assets – Valuation and Impairment Testing
We recorded goodwill and intangible assets valued at $1,293.8 million and $3,513.1 million,
respectively, as at December 31, 2013. Management has determined that the testing for
impairment for some of these assets involves making critical accounting estimates.
Goodwill is recognized at cost on acquisition less any subsequent impairment in value. We
measure goodwill arising on a business combination as the fair value of the consideration
transferred less the fair value of the identifiable assets acquired and liabilities assumed, all
measured as of the acquisition date.
Intangible assets are recognized at cost less accumulated amortization, where applicable, and any
impairment in value. Cost includes any expenditure that is directly attributable to the acquisition of
the asset. The cost of internally developed assets includes the cost of materials and direct labour,
and any other costs directly attributable to bringing the assets to a working condition for their
intended use.
In accounting for the Maple Transaction, all of our assets were recorded based on fair value in
Q3/12. The purchase price for TMX Group Inc. was based on a TMX Group Inc. share price of
$50.00 per share. This resulted in a significant amount of goodwill and intangible assets.
Assets are considered to have indefinite lives where management believes that there is no
foreseeable limit to the period over which the assets are expected to generate net cash flows.
We test for impairment as follows:
The carrying amounts of our goodwill and intangible assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful
lives or that are not yet available for use, are tested for impairment at least annually even if there is
no indication of impairment, and the recoverable amount is estimated each year at the same time.
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the cash-generating
unit, or CGU). For the purposes of goodwill impairment testing, goodwill acquired in a business
combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the
synergies of the combination and reflects the lowest level at which that goodwill is monitored for
internal reporting purposes.
The recoverable amount of an asset or cash-generating unit (CGU) is based on its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset.
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An impairment loss is recognized if the carrying amount of an asset, or its CGU, exceeds its
estimated recoverable amount. Impairment losses recognized in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the
carrying amounts of the other assets in the unit on a pro rata basis. Impairment losses along with
any related deferred income tax effects are recognized in the consolidated income statement.
Derivative Markets – BOX
Goodwill and indefinite life intangible assets
Included with the BOX CGU carrying value are $42.1 million of goodwill and indefinite life
intangible assets and $145.0 million of definite life intangible assets (based on 100% values for
BOX) recognized as a result of the acquisitions under the Maple Transaction in 2012.
Volumes on BOX, our U.S. equity options market, in which MX has a 53.8% ownership interest,
decreased by 38% in 2013 compared with 2012. BOX operates in a highly competitive
environment in the U.S. During 2013, the volume of equity and index options traded in the U.S.
grew by 3% over 2012. BOX’s management team continues to look for additional means of
expanding the product offering, introducing new pricing structures, and involving an increased
number of market participants.
In 2013, management updated its growth projections. The terminal growth rate was also updated
to reflect our current outlook for the U.S. options market. The cash flow projections cover a period
of five years.
Based on current assumptions, the recoverable amount for BOX remains above carrying value,
and as such no impairment has been identified. However, management has identified three key
assumptions, the pre-tax discount rate, the terminal growth rate, and the cash flow projections,
where it would be reasonably possible that an individual change could cause the carrying amount
to exceed the recoverable amount. Changes in these assumptions that would cause the carrying
value to equal the recoverable amount are a 0.4% increase in the pre-tax discount rate, a 0.4%
reduction in the terminal growth rate, or a 3.3% decrease in cash flow.
SIGNIFICANT CGUs – Toronto Stock Exchange, TSX Venture Exchange and MX
Further discussion regarding significant CGUs is as follows:
Cash Markets – Toronto Stock Exchange and TSX Venture Exchange
Goodwill and Indefinite Life Intangible Assets
Included with the Toronto Stock Exchange and TSX Venture Exchange CGU carrying values are
$1,854.8 million and $518.3 million, respectively, of goodwill and indefinite life intangible assets
recognized as a result of the acquisitions under the Maple Transaction in 2012.
Overall, Canadian equities markets experienced lower trading volumes in 2013 compared with
2012. Total financings on TSX Venture Exchange decreased by 37% and the year-end market
capitalization of listed issuers decreased by 18%. Total financings on Toronto Stock Exchange
decreased by 21% in 2013 over 2012; however, the year-end market capitalization of listed issuers
increased by 8% from the end of 2012 to the end of 2013.
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In 2013, management updated its growth projections and discount rates. The discount rates were
updated to reflect a lower weighted average cost of capital; however, the terminal growth rate was
unchanged from 2012. The cash flow projections cover a period of five years.
Management ran sensitivities for the pre-tax discount rate, terminal growth rate and decreases in
cash flow based on the ranges in the table Sensitivities for Key Assumptions below. Based on
testing within these ranges, the recoverable amount for Toronto Stock Exchange and TSX Venture
Exchange remains above carrying value.
No impairment was identified.
Derivative Markets – MX
Goodwill and indefinite life intangible assets
Included with the MX CGU carrying value are $937.2 million of goodwill and indefinite life intangible
assets recognized as a result of the acquisitions under the Maple Transaction in 2012.
Although the Bank of Canada acknowledged that the global economy is expanding at a modest
rate, it has continued to leave the overnight interest rate unchanged, citing that business
investment spending continues to recover at a pace slower than anticipated and that there is no
reason to change its expectation of a gradual return to full production capacity around the end of
2015. The low and stable interest rate environment has somewhat limited the growth in fixed
income derivatives volumes and overall derivatives activity. However, the view of management is
that this reduction is temporary and that the fundamental growth opportunities that were included in
the original valuation of MX are still valid. There was a 3% increase in volumes for 2013 on MX,
largely driven by volume increases in bond and interest rate futures. In addition, the size of the
Canadian derivatives market relative to the size of the underlying cash market is still substantially
below that of global peers, thus leaving much room for growth if new technology, products and
participants are added to the marketplace. Lastly, the global push from regulators and market
participants to move over-the-counter derivatives products to exchange traded and/or centrally
cleared models suggests further upside potential.
In 2013, management updated its growth projections and discount rate. The discount rate was
updated to reflect a lower weighted average cost of capital; however, the terminal growth rate was
unchanged from 2012. The cash flow projections cover a period of eight years, which is consistent
with the original acquisition economics, and reflects the stage of its product life cycle with
significant long-term growth potential remaining beyond a five-year forecast.
Management ran sensitivities for the pre-tax discount rate, terminal growth rate and decreases in
cash flow based on the ranges in the table Sensitivities for Key Assumptions below. Based on
testing within these ranges, the recoverable amount for MX remains above carrying value.
No impairment was identified.
Sensitivities for Key Assumptions
The sensitivities for key assumptions for each significant CGU are set out in the following table
(holding other assumptions constant):
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SENSITIVITIES FOR KEY ASSUMPTIONS
CGU
TSX
TSXV
MX
Pre-tax discount rate
Terminal Growth rate*
Cash flow decrease**
13.5% – 15.5%
14.0% – 16.0%
11.5% – 13.5%
0 – 2.0%
0 – 2.0%
3.0 – 4.5%
0 – 12.0%
0 – 12,0%
0 – 15.0%
Terminal growth rate after tax.
*
** Cash flow reduction represents percentage reduction in annual cash flows versus forecast.
Changes in Accounting Policies
Effective January 1, 2013, we adopted the following standards and amendments to IFRS:
IFRS 7, Financial instruments – disclosure (“IFRS 7”)
IAS 1, Presentation of financial statements
IAS 19, Employee benefits
IFRS 13, Fair Value Measurement
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36,
Impairment of Assets)
The above policies are described in Note 2 – Significant accounting policies of our annual financial
statements.
Future Changes in Accounting Policies
A number of other new standards and amendments to standards and interpretations are not yet
effective for the year ending December 31, 2013, and have not been applied in preparing the
financial statements. These new and amended standards and interpretations are required to be
implemented for financial years beginning on or after January 1, 2014, unless otherwise noted:
Investment Entities (Amendments to IFRS 10, Consolidated Financial Statements, IFRS 12,
Disclosure of Interests in Other Entities and IAS 27, Separate Financial Statements) – The
amendments require qualifying investment entities to account for investments in controlled
entities at fair value through profit or loss (FVTPL). The consolidation exception is
mandatory—not optional. The amendments are effective for annual periods beginning on or
after January 1, 2014.
Amendments to IAS 32, Financial Instruments: Presentation – The amendments clarify that
an entity currently has a legally enforceable right to set-off if that right is not contingent on a
future event, and enforceable both in the normal course of business and in the event of
default, insolvency or bankruptcy of the entity and all counterparties. Also, the amendments
clarify when a settlement mechanism provides for a net settlement or gross settlement that
is equivalent to net settlement. The amendments are effective for annual periods beginning
on or after January 1, 2014.
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Novation of derivatives and continuation of hedge accounting (Amendments to IAS 39,
Financial Instruments: Recognition and Measurement) – The amendments add a limited
exception to provide relief from discontinuing a hedge relationship when a novation that
was not contemplated in the original hedging documentation meets specific criteria. The
amendments are effective for annual periods beginning on or after January 1, 2014.
IFRIC 21, Levies – IFRIC 21 provides guidance on accounting for levies in accordance with
the requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The
interpretation defines a levy as an outflow from an entity imposed by a government in
accordance with legislation and confirms that a liability for a levy is recognized only when
the triggering event specified in the legislation occurs. The interpretation is effective for
annual periods beginning on or after January 1, 2014.
IFRS 9, Financial Instruments – IFRS 9 replaces the guidance in IAS 39 Financial
Instruments: Recognition and Measurement, on the classification and measurement of
financial assets and financial liabilities. Financial assets will be classified into one of two
categories on initial recognition: amortized cost or fair value. For financial liabilities
measured at fair value under the fair value option, changes in fair value attributable to
changes in credit risk will be recognized in other comprehensive income, with the remainder
of the change recognized in profit or loss. The mandatory effective date has yet to be
determined; however it will be deferred beyond annual periods beginning on or after
January 1, 2015.
We intend to adopt each of the above standards, as applicable, in the year in which they are
effective. We are reviewing these new standards and amendments to determine the potential
impact, if any, on our financial statements once they are adopted. At this time, no significant impact
is expected.
In June 2010, the IASB issued an Exposure Draft (ED) on Revenue from Contracts from
Customers and requested comments by October 2010. The IASB issued a revised ED in
November 2011 based on feedback received and requested comments by March 2012. In
February 2013, the technical staff of the IFRS Foundation and Financial Accounting Standards
Board (FASB) issued a paper indicating changes to the proposals in the November 2011 ED
arising from decisions made by the IASB and FASB. The IASB expects to issue a standard in the
first quarter of 2014.The paper proposes an effective date for the revised standard of no earlier
than annual reporting periods beginning on or after January 1, 2017; however, it proposes that the
amendments be applied retrospectively. We are currently considering the impact that this ED
would have on our recognition of issuer services revenue in particular. It is possible that the final
revised standard once released may result in changes to our current revenue recognition policies.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Disclosure Controls and Procedures
TMX Group’s disclosure controls and procedures as defined in National Instrument 52-109 –
Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109) are designed to
provide reasonable assurance that information required to be disclosed in our filings under
securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation. They are also designed to provide reasonable assurance that all
information required to be disclosed in these filings is accumulated and communicated to
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management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as
appropriate, to allow timely decisions regarding public disclosure. We regularly review our
disclosure controls and procedures; however, they cannot provide an absolute level of assurance
because of the inherent limitations in control systems to prevent or detect all misstatements due to
error or fraud.
Our management, including the CEO and CFO, conducted an evaluation of the effectiveness of
our disclosure controls and procedures as of December 31, 2013. Based on this evaluation, the
CEO and CFO have concluded that our disclosure controls and procedures were effective as of
December 31, 2013.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in NI 52-109. Internal control over financial reporting means a
process designed by or under the supervision of the CEO and CFO, and effected by our board of
directors, management and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with GAAP, and includes those policies and procedures that: (1) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of TMX Group; (2) are designed to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that receipts and expenditures of TMX Group are being made only in accordance
with authorizations of management and directors of TMX Group; and (3) are designed to provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of TMX Group’s assets that could have a material effect on the financial statements.
All internal control systems have inherent limitations and therefore our internal control over
financial reporting can only provide reasonable assurance and may not prevent or detect
misstatements due to error or fraud.
Our management, including the CEO and CFO, conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2013 using the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) framework (1992). Based on this
evaluation, the CEO and CFO have concluded that our internal control over financial reporting was
effective as of December 31, 2013.
Changes in Internal Control over Financial Reporting
There were no changes to internal control over financial reporting during the quarter and year
ended December 31, 2013 that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
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Related Party Relationships and Transactions
Parent
The shares of TMX Group are widely held and, as such, there is no ultimate controlling party of
TMX Group. While in aggregate the Nominating Investors19 own a significant portion of the
common shares outstanding of TMX Group, under the OSC and AMF recognition orders, no
person or combination of persons, acting jointly or in concert, is permitted to beneficially own or
exercise control of direction over more than 10% of any class or series of voting shares of TMX
Group without prior approval of the OSC and the AMF.
Key management personnel compensation
Compensation for key management personnel, including TMX Group’s Board of Directors, was as
follows for the year:
(in millions of dollars)
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
2013
201220
$9.7
$ 2.9
1.5
9.8
0.5
6.1
$21.0
$ 9.5
Related party transactions
In aggregate, the Nominating Investors hold a significant proportion of our common shares
outstanding. TMX Group and its subsidiaries transact with a number of the Nominating Investors
on a regular basis through their normal operations. Transactions are conducted at prevailing
market prices and on general market terms and conditions.
19 “Nominating Investors” consist of Alberta Investment Management Corporation, Caisse de dépôt et placement du
Québec, Canada Pension Plan Investment Board, CIBC World Markets Inc., National Bank Financial & Co. Inc., Ontario
Teachers’ Pension Plan Board, Scotia Capital Inc. and TD Securities Inc., either directly or through an affiliate.
20 Reflects information from August 1, 2012.
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RISKS AND UNCERTAINTIES
We have in place an integrated risk management framework in which the Board assumes overall
stewardship responsibility. It oversees the adequacy and effectiveness of TMX Group’s risk
management framework. The Finance & Audit Committee of the Board assesses the adequacy of
risk management policies and procedures; and the Risk Management Committee (comprised of
senior management) oversees the implementation of risk management policies and processes.
The management framework supporting the risk management objectives includes regular
assessments of principal risks, and implementation of risk management tactics, which are
monitored and adjusted as required.
We have identified the most significant risks to which we are exposed to be the following:
Competition
Economic
Currency
Credit – External
Strategic and Execution
Credit – Model
Product/Service Relevance and
Liquidity
Marketing
Geopolitical/Business Continuity
Human Resources
Regulatory
Technology
Clearing Operations
Capital Structure
Interface/Dependency
Integration
Litigation/Legal Proceedings
Intellectual Property
Corporate Structure
These risks are taken into account when developing and implementing TMX Group strategies,
tactics, policies, operating procedures and governance processes, including the design and
implementation of compensation policies and practices.
The risks and uncertainties described below are not the only ones facing TMX Group. Additional
risks and uncertainties not presently known to us or that we currently believe are immaterial may
also adversely affect our business. If any of the following risks actually occur, our reputation,
business, financial condition, or operating results could be materially adversely affected.
Competition Risk
We face competition from other exchanges, ATSs, OTC markets, and other sources
Our listing and trading cash equities, derivatives, energy and fixed income markets face
competition from other exchanges as well as from other marketplaces, the OTC markets and other
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sources. If we cannot maintain and enhance our ability to compete or respond to competitive
threats, this will have an adverse impact on our business, financial condition and operating results.
Our equity exchanges face competition from other exchanges, other marketplaces and
trading mechanisms
We face competition for business from other exchanges, especially those in the U.S. as they
continue to consolidate and investing becomes more global. We face competition from foreign
exchanges for listings of Canadian-based issuers and trading in their securities. In addition, the
variety of other marketplaces and trading venues in the U.S. that trade Canadian securities,
including dark markets and internalization facilities, places increasing competitive pressure on our
business. If we are unable to continue to provide competitive trade execution, the volume traded in
Canadian-based interlisted issuers on our equity exchanges could decrease in the future and
adversely affect our operating results. In Canada, there is currently one exchange competing for
junior listings. Our listing operations compete with institutions and various market participants that
offer alternative forms of financing that are not necessarily traded in public markets including
private venture capital and various forms of debt financing.
Domestic competition in our cash equities trading business has intensified with the establishment
of ATSs in Canada. Technological advances have lowered barriers to entry and have created a
multiple marketplace environment for trading Toronto Stock Exchange and TSX Venture Exchange
listed securities. There are 12 Canadian equity marketplaces which trade, or intend to trade,
Toronto Stock Exchange and TSX Venture Exchange listed securities, including dark and visible
trading venues. There are also sophisticated mechanisms to internalize order flow, liquidity
aggregators and smart order routers that also facilitate trading on other venues. New market
entrants have fragmented domestic equities market share and we continue to face significant
competitive pressure from existing venues, and potential new entrants.
In Q2/13, a group consisting of money managers, pension fund managers, and institutional and
retail brokers, including a bank-owned dealer, announced plans to create a new stock exchange
expected to launch in late 2014.
These new entrants may, among other things, respond more quickly to competitive pressures,
develop similar or alternative products and services to those Toronto Stock Exchange and TSX
Venture Exchange offer that are preferred by customers, develop and expand their network
infrastructures and offerings more efficiently, adapt more swiftly to new or emerging technologies
and changes in customer requirements, and adopt better, more user friendly and reliable
technology. If these trading venues attract significant order flow, or other market structure changes
occur in the marketplace which negatively impacts our ability to effectively compete, our trading
and information services revenue could be materially adversely affected.
There is also intense price competition in the cash equities markets where competitors may price
their trading and data products more competitively. While we have developed a pricing mix to
attract greater liquidity to our markets, the competitive environment in which we operate places
significant pricing pressures on our trading and market data offerings. Some competitors may seek
to increase their share of trading by reducing their transaction fees, by offering larger liquidity
payments, by offering inverted pricing or by offering other forms of financial or other incentives. We
have in the past lowered our equity trading fees and we may, in the future, be required to adjust
our pricing to respond to competitive pricing pressure. If we are unable to compete successfully
with respect to the pricing of our offerings, our business, financial condition and results of
operations could be materially adversely affected.
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Our derivatives markets and clearing house face competition from other venues
MX and BOX are in direct competition with, among others, securities, options and other derivatives
exchanges as well as ATSs or Electronic Crossing Networks (ECNs) and other trading and
crossing venues, some of our Clearing Members and interdealer brokerage firms. This competition
exists particularly in the U.S., but also in Europe and Asia. In Canada, MX’s competition in
derivatives trading is the OTC market. In addition, OTC regulatory reform that is underway in
Canada could encourage the formation of another clearing house in Canada. OTC alternative
trading platforms (dark pools) represent increased competitive risk to MX with their lookalike
futures products that are centrally cleared. We may in the future also face competition from other
Canadian marketplaces. In the U.S., BOX will continue to face increased competition in the U.S.
equity options market. These competitors may, among other things, respond more quickly to
competitive pressures, develop similar products to those MX and BOX offer that are preferred by
customers or they may develop alternative competitive products, they may price their products
more competitively, develop and expand their network infrastructures and offerings more
efficiently, adapt more swiftly to new or emerging technologies and changes in customer
requirements and use better, more user friendly and reliable technology. Increased competition
could lead to reduced interest in MX’s and BOX’s products which could materially adversely affect
our business and operating results.
The Canadian exchange business is seeing more foreign entrants. CME, Board of Trade of the
City of Chicago, Inc., Commodity Exchange, Inc., and New York Mercantile Exchange, Inc., each
of which is a wholly-owned subsidiary of CME Group Inc. and each of which provides trading and
execution services for a range of exchange-traded futures and options on futures, as well as a
number of swap execution facilities, all received exemption orders from the OSC to operate as
exchanges this past year.
In the U.S., MX competes for market share of trading single stock options based on Canadian-
based interlistings, or dual listings. However, options traded in the U.S. are not fungible with those
traded in Canada.
The Canadian clearing services market may become more competitive. In 2013, Canada's central
bank designated SwapClear, a global system for clearing over-the-counter interest rate swaps, as
subject to its regulatory oversight, citing the potential to pose systemic risk to the Canadian
financial system. SwapClear is operated by LCH, a U.K.-based company that operates several
central counter-party services. In addition, CME (which operates CME Clearing) and ICE Clear
Credit LLC, which clear other OTC products, as well as LCH, have all recently received exemption
orders from the OSC to operate as clearing agencies. CDCC is regulated as a clearing house in
Quebec and British Columbia and in Ontario under a temporary exemption order but is in the
process of applying to be recognized as a clearing agency.
The derivatives trading industry is characterized by intense price competition. While our derivatives
markets have developed a pricing mix to attract greater liquidity to these markets while maintaining
our average price per contract, market conditions may result in increased competition which, in
turn, may place significant pricing pressures in the future. Some competitors may seek to increase
their share of trading by reducing their transaction fees, by offering larger liquidity payments or by
offering other forms of financial or other incentives. Our business, financial condition and results of
operations could be materially adversely affected as a result of these developments.
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Our energy markets face competition from OTC markets and other sources
The NGX business faces trading competition in Canada and in the U.S. from competing
exchanges, OTC electronic trading platforms, and from the OTC voice and bilateral markets.
NGX’s clearing business faces competition from recognized clearing facilities as well as bilateral
credit lines between counterparties in the OTC markets. In the U.S. physical power and gas
markets, our competition comes from the bilateral markets.
Shorcan Energy Brokers faces competition primarily from other brokerage firms. If NGX or Shorcan
Energy Brokers is unable to compete with these platforms and markets, they may not be able to
maintain or expand their businesses, which could materially affect their business and operating
results.
Our fixed income markets face competition from OTC markets and other sources
Shorcan has several competitors in the fixed income IDB market. If Shorcan fails to attract
institutional dealer order flow from this market, it would adversely affect its operating results.
Economic Risk
We depend on the economy of Canada
Our financial results are affected by the Canadian economy. If the profit growth of Canadian-based
companies is generally lower than the profit growth of companies based in other countries, the
markets on which those other issuers are listed may be more attractive to investors than our equity
exchanges. A prolonged economic downturn may also have a negative impact on investment
performance, which could materially adversely affect the number of new listed issuers, the market
capitalization of our listed issuers, additional securities being listed or reserved, trading volumes
across our markets, the number of transactions related to our equity and fixed income clearing and
settlement, depository, custodial and entitlement services and market data sales.
Our operating results may be adversely impacted by global economic conditions
The economic and market conditions in Canada, the United States, Europe and the rest of the
world impact the different aspects of our business and our revenue drivers. Because listing,
financing, trading and clearing activities are significantly affected by economic, political and market
conditions and the overall level of investor confidence, they impact the level of listing activity
(including IPOs), the market capitalization of our issuers, trading volumes and sales of data across
our markets. In addition, our clearing customers face higher credit costs associated with complying
with margining regimes which could result in lower volumes.
Global market and economic conditions have fluctuated in recent years and we have witnessed
both high and low levels of volatility. While higher volatility in markets can generate increased
transaction volume, prolonged negative economic conditions can adversely affect trading volumes
and the demand for market data and can lead to slower collections of accounts receivable as well
as increased counterparty risk which, in turn, could adversely affect our business, financial
condition, and operating results. In addition, a low-volatility environment can result in lower levels
of trading, particularly for derivative products.
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We depend on market activity that is outside of our control
Our revenue is highly dependent upon the level of activity on our exchanges and clearing houses,
including: the volume of securities traded on our cash markets; the number of transactions, volume
of contracts or products traded and cleared on our derivatives and energy markets; the number
and market capitalization of listed issuers; the number of new listings; the number of active traders
and brokerage firms the number of transactions related to our equity and fixed income clearing and
settlement, depository services; and the number of subscribers to market data.
We do not have direct control over these variables. Among other things, these variables depend
upon the relative attractiveness of securities traded on our exchanges and the relative
attractiveness of our exchanges as a place to trade those securities as compared to other
exchanges and other trading mechanisms. Those variables are in turn influenced by:
the overall economic conditions and monetary policies in Canada, the United States,
Europe, and in the world in general (especially growth levels, political stability and debt
crisis);
broad trends in business and corporate finance, including trends in the exchange industry,
capital market trends and the mergers and acquisitions environment;
the condition of the resource sector;
the level and volatility of interest rates and resulting attractiveness of alternative asset
classes;
the regulatory environment for investment in securities, including the regulation of
marketplaces and other market participants;
the relative activity and performance of global capital markets;
investor confidence in the prospects and integrity of our listed issuers, and the prospects of
Canadian-based listed issuers in general;
pricing volatility of global commodities and energy markets; and
changes in tax legislation that would impact the relative attractiveness of certain types of
securities.
We may be able to indirectly influence the volume and value of trading by providing efficient,
reliable and low-cost trading; maximizing the availability of timely, reliable information upon which
research, advice and investment decisions can be based; and maximizing the ease of access to
trading facilities. However, those activities may not have a positive effect on or effectively
counteract the factors that are outside of our control.
Our cost structure is largely fixed
Most of our expenses are fixed and cannot be easily lowered in the short-term if our revenue
decreases, which could have an adverse effect on our operating results and financial condition.
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Strategic and Execution Risk
We may not be successful in implementing our strategy
We invest significant resources in the development and execution of our corporate strategy to grow
profitability and maximize shareholder returns. We may not succeed in implementing our
strategies. We may have difficulty executing our strategies because of, among other things,
increased global competition, difficulty developing and introducing products or introducing new
products on a timely basis, barriers to entry in other geographic markets, and changes in
regulatory requirements. In addition, we may have difficulty obtaining financing for new business
opportunities, due to financial restrictions that currently or may in the future be placed on TMX
Group under credit facilities and the Debentures, our Final Recognition Orders and under our
regulatory oversight agreements. Any of these factors could materially adversely affect the success
of our strategies.
New business activities may adversely affect income
We may enter new business activities which, while they could provide opportunities for us, may
also impose restrictions on us and/or have an adverse effect on our existing profitability. While we
would expect to realize new revenue from these new activities, there is a risk that this new revenue
would not be greater than the associated costs or any related decline in existing revenue sources.
Expansion of our operations internationally involves unique challenges that we may not be
able to meet
technology and other systems
We continue to expand our operations internationally, including opening offices and acquiring
jurisdictions, obtaining regulatory
distribution,
authorizations or exemptions to allow remote access to our markets by approved participants
outside Canada. We expect that the expansion of access to our electronic markets will continue to
increase the portion of our business that is generated from outside Canada. We face certain risks
inherent in doing business in international markets, particularly in the regulated exchange and
clearing businesses. These risks include:
foreign
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restrictions on the use of trading terminals or the contracts that may be traded;
reduced protection for intellectual property rights;
difficulties in staffing and managing foreign operations;
potentially adverse tax consequences;
enforcing agreements and collecting receivables through certain foreign legal systems; and
foreign currency fluctuations for international business.
We would be required to comply with the laws and regulations of foreign governmental and
regulatory authorities of each country in which we obtain authorizations or exemptions for remote
access to our markets. These may include laws, rules and regulations relating to any aspect of the
business. International expansion may expose TMX Group to geographic regions that may be
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subject to greater political, economic and social uncertainties than countries with developed
economies.
Any of these factors could have a material adverse effect on the success of our plans to grow our
international presence and market products and services and consequently on our business,
financial condition and results of operations.
Product/Service Relevance and Marketing Risk
Our exchanges depend on the development, marketing and acceptance of new products
and services
We are dependent to a great extent on developing and introducing new investment trading and
clearing products and services and their acceptance by the investment community. While we
continue to review and develop new products and services that respond to the needs of the
marketplace, we may not continue to develop successful new products and services or we may not
effectively promote and sell our products and services. Our current offerings may become outdated
or lose market favour before we can develop adequate enhancements or replacements. Other
exchanges, ATSs or ECNs may introduce new products or services or enhancements that make
our offerings less attractive. Even if we develop an attractive new product, we could lose trading
activity to another marketplace that introduces a similar or identical offering which offers greater
liquidity or lower cost. We also may not receive regulatory approval (in a timely manner or at all) for
our new offerings. Any of these events could materially adversely affect our business, financial
condition and operating results.
Geopolitical/Business Continuity Risk
Geopolitical and other factors could interrupt our critical business functions
The continuity of our critical business functions could be interrupted by geopolitical upheaval,
including terrorist, criminal, political and cyber, or by other types of external disruptions, including
human error, natural disasters, power loss, telecommunication failures, theft, sabotage and
vandalism. Given our position in the Canadian capital markets, we may be more likely than other
companies to be a target of such activities.
We have a series of integrated disaster recovery and business continuity plans for critical business
functions to mitigate the risk of an interruption. We currently maintain duplicate facilities to provide
redundancy and back-up to reduce the risk and recovery time of system disruptions for key
systems at Toronto Stock Exchange, TSX Venture Exchange, MX, CDCC, CDS, BOX, and NGX.
However, not all systems are duplicated, and any major disruption may affect our existing and
back-up facilities. Any interruption in our key services could impair our reputation, damage our
brand name, and negatively impact our financial condition and operating results.
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Human Resources Risk
We need to retain and attract qualified personnel
Our success depends to a significant extent upon the continued employment and performance of a
number of key management personnel whose compensation is partially tied to vested share
options and long-term incentive plans that mature over time. The value of this compensation is
dependent upon total shareholder return performance factors, which includes appreciation in our
share price. The loss of the services of key personnel could materially adversely affect our
business and operating results. We also believe that our future success will depend in large part on
our ability to attract and retain highly skilled technical, managerial and marketing personnel. There
can be no assurance that we will be successful in retaining and attracting the personnel we
require.
Regulatory Risk
We are subject to significant regulatory constraints
We operate in a highly regulated industry and are subject to extensive government regulation and
we could be subject to increased regulatory scrutiny in the future. Federal and provincial securities
regulators in Canada, as well as regulators in other jurisdictions where we do business such as the
U.S., regulate us, our exchanges, and clearing houses. Regulators in other jurisdictions may
regulate our future operations. MX is regulated as an SRO in Québec and CDCC is regulated as a
clearing house in Quebec and British Columbia and is regulated in Ontario under a temporary
exemption order but is in the process of applying to be recognized as a clearing agency. In
addition, MX carries on activities in accordance with the regulations of securities and commodities
regulators in the United States as an FBOT and in France and the U.K. CDCC is also subject to
regulatory requirements of the SEC and various U.S. state securities regulators. NGX also
operates as a Foreign Board of Trade and is registered as a Derivatives Clearing Organization by
the CFTC. BOX is an electronic equity options market and is regulated by the SEC. CDSX and
CDCS have been designated by the Bank of Canada (BOC) as being of systemic importance
under the Payment Clearing and Settlement Act (Canada). Under such designation, the BOC has
broad powers relating to the regulation and oversight of CDS Clearing and CDCC.
The Canadian securities regulators, regulating our cash equities, derivatives and energy
exchanges and clearing operations, the SEC, which regulates BOX, and the CFTC, which
regulates NGX, have broad powers to audit, investigate and enforce compliance with their
regulations and impose sanctions for non-compliance.
Those Canadian and American regulators are vested with broad powers to prohibit us from
engaging in certain business activities or suspend or revoke approval as a recognized exchange,
ATS or clearing agency, as the case may be, and, in the case of MX, as an SRO. In the case of
actual or alleged non-compliance with legal or regulatory requirements, our marketplaces or
clearing agencies could be subject to investigations and administrative or judicial proceedings that
may result in substantial penalties, including revocation of our approval as a recognized exchange,
ATS, clearing agency and SRO, as applicable. Any such investigation or proceeding, whether
successful or not, would result in substantial costs and diversions of resources and might also
harm our reputation, any of which may have a material adverse effect on our business, financial
condition and results of operations.
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There may be a conflict, real or perceived, between our regulatory responsibilities and the interests
of some of our participants or our own business activities. Given our ownership structure, there
may be conflicts or potential conflicts arising from the involvement of, among others, directors,
officers or employees of certain original Maple shareholders (Investors) in the management or
oversight of our exchanges or clearing houses or in the interaction between certain Investors and
certain of our marketplaces, either directly or indirectly. While we have implemented stringent
governance measures and have and will continue to put into place policies and procedures to
manage conflicts and potential conflicts, any failure to diligently and fairly manage conflicts or
potential conflicts could significantly harm our reputation, prompt regulatory action and materially
adversely affect our business, financial condition and results of operations.
This regulation may impose barriers or constraints which limit our ability to build an efficient,
competitive organization and may also limit our ability to expand foreign and global operations.
Securities and other regulators also impose financial and corporate governance restrictions on us
and our equity, derivatives and energy exchanges and clearing houses and operations. Some of
our regulators must approve or review our exchanges’ listing rules, trading rules, clearing,
settlement and depository rules, fee structures and features and operations of, or changes to, our
systems. These approvals or reviews may increase our costs and delay our plans for
implementation. There could also be regulatory changes that impact our customers and that could
materially adversely affect our business and results of operations.
TMX Group could be subject to increased regulatory scrutiny in the future. The multi-market
environment in Canada and the impact of global economic conditions continue to lead to more
aggressive regulation of our businesses by securities and other regulatory agencies in Canada, the
U.S., and abroad and could extend to areas of our businesses that to date have not been
regulated. NGX and CDCC have applied to the European Commission to be recognized as foreign
clearing houses under European Market Infrastructure Regulation.
A number of regulatory initiatives and changes, for example the CPSS-IOSCO Principles for
Financial Market Infrastructures (PFMIs), have been identified or proposed or are being
implemented by regulators, including in Canada, the U.S., and Europe. In some cases we cannot
be certain whether or in what form, regulatory changes will take place, and cannot predict with
certainty their impact on our businesses and operations. Changes in, and additions to, the rules
affecting our exchanges and clearing houses could require us to change the manner in which we
and our members conduct business or govern ourselves. Failure to make the required changes on
a timely basis could result in material reductions to activity or revenue, sanctions and/or restrictions
by the applicable regulatory authorities.
Expanding U.S. and European regulation and proposed initiatives will increase the regulation of
and cost of compliance for our markets whose business is impacted by U.S. and European
regulatory developments. Implementation of certain regulatory changes may have a cost and other
impacts on participants, who may as a result, choose to restructure their trading and clearing
activity. Market reaction may present opportunities for market infrastructures such as exchanges
and clearing houses. However, any opportunities will depend on, in addition to other factors,
market infrastructures' ability to align their products and services with these market changes in
order to retain liquidity.
In Canada, the provincial securities regulators are in the process of releasing a series of rule
proposals regarding the regulation of the Canadian OTC derivatives markets which could lead to
expanded regulation and increase the cost of compliance for our markets whose business is
impacted by these developments.
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CDS Clearing, NGX, and CDCC operate financial market infrastructures including central
counterparties for cash and derivative markets, commodity markets, securities settlement systems
and central securities depositories which are subject to PFMIs for these types of services which are
reflected
the requirements of CDS’s, NGX’s, and CDCC’s regulators. The ongoing
implementation of PFMIs by regulators of these businesses will continue to impact the cost of
regulatory compliance.
in
Unexpected and new regulatory requirements could make it more costly to comply with relevant
regulations and for affected markets to operate their existing businesses or to enter into new
business areas. In addition, high levels of regulation may stifle growth and innovation in capital
markets generally and may adversely affect our business, financial condition, and results of
operations.
Equity Transfer is in the process of applying for the requisite trust licenses to continue to provide
certain transfer agency and corporate trust services. These services must be provided by a trust
company. We will continue to operate the transfer agent and trust business with Equity providing
services that must be provided by a trust company until we obtain the requisite trust licenses.
Our recognition orders impose significant regulatory constraints on our ongoing business
Under the Final Recognition Orders, TMX Group and its regulated subsidiaries are subject to
extensive additional regulation and regulatory oversight. The Final Recognition Orders impose
significant regulatory constraints on our ongoing business. The additional regulatory and oversight
provisions provided for in the Final Recognition Orders provide the applicable regulators with broad
powers that could, depending on how such powers are exercised in the future, impose barriers or
constraints which limit TMX Group’s ability to build an efficient, competitive organization which
could have a material adverse effect on TMX Group’s business, financial condition and results of
operations.
With respect to fees charged by TSX Inc., TMX Select Inc. and Alpha Exchange Inc., the OSC has,
under the Final Recognition Orders, the right to require those marketplaces to submit a fee, fee
model or incentive that has previously been approved by the OSC for re-approval. In such
circumstances, if the OSC decides not to re-approve the fee, fee model or incentive, the previous
fee model or incentive must be revoked. This power extends to fees, fee models and incentives
that are currently in place for TSX Inc., TMX Select Inc. and Alpha Exchange Inc. and, accordingly,
could result in existing fees, fee models and incentives being revoked in the future, which could
have a material adverse effect on our business, financial condition and results of operations.
With respect to the fees charged by all of our equity marketplaces (TSX Inc., TMX Select Inc.,
Alpha Exchange Inc., and TSX Venture Exchange Inc.), the Final Recognition Orders also impose
prohibitions on arrangements or volume-based discounts or incentives that are accessible only to a
particular marketplace participant and also impose restrictions on arrangements or volume-based
discounts or incentives that are accessible only to a class of marketplace participants. Such
prohibitions and restrictions may limit the ability of our equity marketplaces to introduce new
products in the future or to introduce them on a timely basis, which could materially adversely
affect the success of our future strategies, financial condition and results of operations.
With respect to CDS, under the applicable Final Recognition Orders, all fees are subject to
approval of the applicable regulators. In addition, we may only seek approval for fee increases on
clearing and other core CDS Clearing services (which services are outlined in the OSC and AMF
recognition orders) where there has been a significant change from circumstances as at August 1,
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2012, the effective date of the recognition orders, and approval may or may not be granted.
Accordingly, even where CDS costs may be rising in the future (including as a result of trading
volumes falling in the future), we would only be permitted to seek a fee increase on such services if
we could establish to the applicable regulators that there has been a significant change. Such
constraints on the ability to raise CDS fees could have a material adverse impact on our business,
financial condition and results of operations in the future.
We will also incur increased costs to comply with the additional regulatory requirements that are
imposed pursuant to the Final Recognition Orders. The AMF’s Final Recognition Order for CDS
also requires CDS to reimburse the AMF for the costs and fees incurred by the AMF for the
analysis of applications for approval related to fees for CDS Clearing services. In addition, TMX
Group and its subsidiaries are now subject to new OSC participation and activity fees. The overall
scope of the additional regulatory costs may have a material adverse effect on our business,
financial condition, and results of operations.
Pursuant to the Final Recognition Orders, prior regulatory approval is also required before we can
implement changes to a number of aspects of our operations. This includes prior regulatory
approval of (a) changes to internal cost allocation models and any transfer pricing between
affiliated entities, (b) significant integration, combination or reorganization of businesses,
operations or corporate functions between TMX Group entities, (c) non-ordinary course changes to
TSX Venture Exchange Inc.’s operations, and (d) any outsourcing of key services or systems by a
marketplace. Regulatory approvals for the Alpha and CDS integrations have been received. The
requirement to obtain the other approvals may restrict or delay our ability to make planned
changes to these aspects of our operations in the future which could have a material adverse
effect on our business, financial condition and results of operations.
Technology Risk
We depend heavily on information technology, which could fail or be subject to disruptions,
including cyber attack
We are extremely dependent on our information technology systems. Trading and data on our
cash equities markets, trading and clearing on our derivatives and energy markets and clearing,
settlement and depository activity are conducted exclusively on an electronic basis. SOLA, the MX
proprietary trading system, is currently in use at BOX and other venues. In addition, we provide the
technical operations services related to BOX’s trading and surveillance platforms.
We have incident and disaster recovery and contingency plans as well as back-up procedures to
manage, mitigate and minimize the risk of an interruption, failure or disruption due to cyber attack
on the critical information technology of Toronto Stock Exchange, TSX Venture Exchange, TMX
Select, TMX Datalinx, NGX, MX, CDCC, CDS and BOX. We also test and exercise our disaster
recovery plans for trading on Toronto Stock Exchange, TSX Venture Exchange, MX and CDCC,
CDS, and, in the case of our cash equities markets, include customers in that process. However,
depending on an actual failure or disruption, those plans may not be adequate as it is difficult to
foresee every possible scenario and therefore we cannot entirely eliminate the risk of a system
failure or interruption. We have experienced occasional information technology failures and delays
in the past, and we could experience future information technology failures, delays or other
interruptions.
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The current technological architecture for our cash equities, energy, derivatives trading and
clearing, and market data information technology systems may not effectively or efficiently support
our changing business requirements. Over the past several years, we have made hardware and
software upgrades in response to increases in order message and quote message volumes and to
reduce overall average response time to optimize execution speeds of our cash equities,
derivatives, energy, and market data platforms.
We are continually improving our information technology systems so that we can handle increases
and changes in our trading, clearing, settlement and depository activities and market data volumes
to respond to customer demand for improved performance. This requires ongoing expenditures
which may require us to expend significant amounts of resources in the future. While system
changes may introduce risk, we have and follow, standard deployment processes for managing
and testing these changes.
If the TSX Quantum or, as applicable, TMX Quantum XA, trading enterprise, the SOLA derivatives
trading enterprise, the SOLA Clearing platform or NGX’s clearing system fails to perform in
accordance with expectations, our business, financial condition and operating results may be
materially adversely affected.
If our systems are significantly compromised or disrupted or if we suffer repeated failures, this
could interrupt our cash equities trading services, MX’s trading and CDCC’s and NGX’s clearing
services, CDS’s clearing, settlement and depository services, as well as the services we provide to
BOX; cause delays in settlement; cause us to lose data; corrupt our trading and clearing
operations, data and records; or disrupt our business operations, including BOX’s operations. This
could undermine confidence in our exchanges and materially adversely affect our reputation or
operating results, and may lead to customer claims, litigation and regulatory sanctions. Failure of
CDS’s systems could also affect other systemically important financial infrastructures such as the
Large Value Transfer System operated by the Canadian Payments Association.
Our networks and those of our third-party service providers may be vulnerable to security
risks
Our networks and those of our third-party service providers, our POs and approved participants
and our customers may be vulnerable to cyber risks, including unauthorized access, computer
viruses, denial of service attacks, and other security issues. Persons who circumvent security
measures could wrongfully use our information or cause interruptions or malfunctions in our
operations which could damage the integrity of our markets and data provision, any of which could
have a material adverse effect on our business, financial condition and results of operations. We
may be required to expend significant resources to protect against the threat of security breaches
or to alleviate problems, including reputational harm and litigation, caused by any breaches.
Although we intend to continue to implement industry-standard security measures, these measures
may prove to be inadequate and result in system failures and delays that could lower trading
volume and have a material adverse effect on our business, financial condition and results of
operations.
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Clearing Operations Risk
Our clearing and depository businesses could be exposed to loss due to operational
failures
The operational processes at CDS, which provides its participants with clearing, settlement, and
depository services, are subject to the risk of operational failure for which CDS may be held liable.
This risk is mitigated through a comprehensive set of internal controls and limits of liability provided
in CDS’s participant rules which limit CDS’s liability to the amount recoverable from third parties.
However, losses could be material given the value of transactions processed by CDS.
CDS holds securities on behalf of its participants in safe keeping. A portion of this securities
inventory is held in physical form. This risk is mitigated through layers of physical security
arrangements as well as insurance coverage. However, CDS may be exposed to the risk of the
loss or theft of these securities.
The operational processes at CDCC, which provides its Clearing Members with clearing and
central-counterparty services, are subject to the risk of failure for which CDCC may be held liable.
These process failures may result in material financial losses. To mitigate this risk, CDCC has
instituted a comprehensive set of internal controls, which are audited by an external party on at
least an annual basis.
Currency Risk
(See Foreign Currency Risk under the heading Financial Risk Management)
Credit Risk – External
(See Credit Risk under the heading Financial Risk Management)
Our derivatives and cash markets clearing businesses may be harmed by a systemic
market event
In the case of sudden, large price movements, certain market participants may not be able to meet
their obligations to brokers who, in turn, may not be able to meet their obligations to their
counterparties. The impact of such an event could have a material adverse effect on CDCC and
CDS’s businesses. In such cases, it could be possible that Clearing Members and/or participants
default with CDCC and/or CDS. As referred to in the section Financial Risk Management – Credit
Risk – CDS and Credit Risk – CDCC sections, CDCC and/or CDS would use its risk management
mechanisms to manage such a default. In extreme situations such as large-scale market price
moves or multiple defaults occurring at the same time, all these mechanisms may prove insufficient
and could result in significant losses.
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Credit Risk – Model
We are dependent on the accuracy and effective implementation of models
CDS, CDCC, and NGX use financial models to estimate risk exposures and the value of margin
and collateral to mitigate those exposures. These models are subject to risks including the
incorrect use of variables input into the models, the misspecification of the model or errors in the
implementation and/or use of models and their results. The model risks are mitigated through
model testing prior to implementation and ongoing internal controls to regularly assess the
adequacy of the models. Failure of the models may result in under or over estimation of financial
risk exposures and may create systemic risks.
Liquidity Risk
(See Liquidity Risk under the heading Financial Risk Management)
Capital Structure Risk
We have approximately $1.3 billion of indebtedness and are subject to ongoing covenants
under the Amended and Restated Credit Agreement and Trust Indentures governing the
Debentures
Under the Amended and Restated Credit Agreement and the Debenture offering, we have
approximately $1.3 billion of indebtedness ($0.3 billion outstanding on the credit agreement and
$1.0 billion issued and outstanding Debentures) as at December 31, 2013.
The Amended and Restated Credit Agreement requires us to satisfy and maintain an interest
coverage ratio and a leverage ratio, among other covenants, including the timely payment of
principal and interest when due.
The Trust Indentures governing the Debentures also impose various restrictions on TMX Group
and its subsidiaries, including restrictions on the ability of TMX Group and each of its material
subsidiaries (as defined in the Trust Indentures) to create a lien on these entities’ assets,
limitations on the ability of material subsidiaries of TMX Group to enter into certain types of
indebtedness, and requirements to repurchase outstanding Debentures on change of control of
TSX Inc. or MX coupled with a triggering event (i.e., rating of the Debentures is lowered to below
investment grade).
Our ability to meet the financial ratios under the Amended and Restated Credit Agreement and
other covenants, including the timely payment of principal and interest when due, under the
Amended and Restated Credit Agreement and Trust Indentures are dependent on our cash flows
and earnings, level of indebtedness and other financial performance measures, which are affected
by prevailing interest rates and general economic, market, financial, competitive, regulatory and
other factors, such as the volume of securities traded on our equity markets, the number of
transactions cleared and settled in our cash market clearing, settlement and depository services,
the number of transactions, volume of contracts or products traded and cleared on our cash,
derivatives and energy markets, the number of new and additional listings on our equity markets,
the number and market capitalization of listed issuers, the number of subscribers to market data,
fee regulation by securities regulatory authorities, and increased competition from other exchanges
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and marketplaces, all of which are beyond our control, as well as on our ability to control our
expenses.
Based on the current level of operations and anticipated growth, we believe that our cash flows
from operations and our available cash are adequate to meet our current liquidity needs. However,
we cannot guarantee that our businesses will generate sufficient earnings or cash flows from
operations or that anticipated growth will be realized or that we will be able to control our expenses
in an amount sufficient to enable us to satisfy the financial ratios and other covenants, or pay our
indebtedness or fund our other liquidity needs. If we do not have sufficient funds, we may be
required to renegotiate the terms of, restructure, or refinance all or a portion of our indebtedness
on or before our stated maturity, reduce or delay capital investments and acquisitions, reduce or
eliminate our dividends, or sell assets. Our ability to renegotiate, restructure, or refinance our
indebtedness would depend on the condition of the financial markets and our financial condition at
that time. Failure to comply with the financial ratios as well as covenants of the Amended and
Restated Credit Agreement could result in a default under the Trust Indentures, which, if not cured
or waived, could result in TMX Group being required to repay outstanding borrowings under both
the Amended and Restated Credit Agreement and the Debentures before their due dates. In
addition, an event of default under the Trust Indentures governing the Debentures that would result
in an acceleration of maturity of the applicable series of Debentures could lead to an acceleration
of the maturity of the Amended and Restated Credit Agreement.
In addition, if we fail to comply or are reasonably likely to fail to comply with any financial covenant
or ratio contained in any Final Recognition Order, such failure could result in a default under the
Amended and Restated Credit Agreement as well, if a governmental authority issues a decision or
orders restrictions on us or any of our subsidiaries as a result of the non-compliance where a
requisite majority of the lenders determine that the restrictions have or will have a material adverse
effect as defined in the Amended and Restated Credit Agreement. It will also be a default under
the Amended and Restated Credit Agreement if a governmental authority issues a decision or
orders restrictions on our or any of our subsidiaries’ ability to move cash or cash equivalents
among TMX Group and our subsidiaries, where a requisite majority of the lenders determine that
the restrictions have or will have a material adverse effect. If these events of default under the
Amended and Restated Credit Agreement were to result in an acceleration of maturity under the
Amended and Restated Credit Agreement, the event(s) could constitute an event of default under
the Trust Indentures, which in turn would result in the acceleration of maturity of the outstanding
Debentures. If we are forced to refinance these borrowings on less favourable terms or cannot
refinance these borrowings, our business, results of operations, and financial condition would be
adversely affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our
indebtedness service obligations to increase significantly / Our hedging arrangements
could also increase indebtedness
Borrowings under the Amended and Restated Credit Agreement and floating rate Series C
Debentures incur interest at variable rates and expose us to interest rate risk. If interest rates
increase, our debt service obligations on our variable rate indebtedness would increase even
though the amount borrowed remained the same, and our net income and cash flows, including
cash available for servicing the indebtedness, would correspondingly decrease. Although we have
entered into various interest rate hedging arrangements to partially mitigate this risk, there is no
assurance that such hedging arrangements will be effective. In addition, if interest rates decrease,
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we would accrue indebtedness in connection with these hedging arrangements, which may impact
our ability to meet our financial ratios under the Amended and Restated Credit Agreement.
Our ability to incur additional indebtedness could be impacted by adverse changes to our
credit rating
In connection with the Debenture offering, we obtained an issuer rating of A (high) from DBRS and
the Debentures obtained the same credit rating from DBRS.
DBRS will regularly evaluate and monitor our rating and the rating of our Debentures outstanding.
A downgrade from our existing rating could adversely affect our cost of borrowing and/or our ability
to access sources of liquidity and capital and reduce financing options available to us.
Interface/Dependency Risk
We depend on an adequate number of clients
If we determine that there is not a fair market, the markets will be shut down. There will not be a
fair market if too few POs, or approved participants are able to access our cash equity or
derivatives exchanges, including market data information generated from these exchanges, or if
too few contracting parties are able to access NGX’s market. If trading on our exchanges is
interrupted or ceases, it could materially adversely affect our equity, derivatives or energy
operations, our financial condition and our operating results.
Our trading operations depend primarily on a small number of clients
During 2013, approximately 48% of our trading and related revenue, net of rebates, on Toronto
Stock Exchange and approximately 62% of our trading and related revenue on TSX Venture
Exchange were accounted for by the top ten POs on each exchange based on volumes traded.
Approximately 38% of CDS’s revenue, net of rebates, in 2013 was accounted for by the top ten
customers (excluding securities regulators).
Approximately 58% of MX and CDCC’s trading and clearing revenue, net of rebates, in 2013 was
accounted for by the top ten participants based on volume of contracts traded.
We depend on third-party suppliers and service providers
We depend on a number of third parties, such as IIROC, data processors, software and hardware
suppliers, communication and network suppliers, suppliers of electricity, and many other vendors,
for elements of our businesses including trading, clearing, routing, providing market data and other
products and services. These third parties may not be able to provide their services without
interruption, or in an efficient, cost-effective manner. In addition, we may not be able to renew our
agreements with these third parties on favourable terms or at all. These third parties also may not
be able to adequately expand their services to meet our needs. If a third party suffers an
interruption in or stops providing services and we cannot make suitable alternative arrangements,
or if we fail to renew certain of our agreements on favourable terms or at all, our business, financial
condition or operating results could be materially adversely affected.
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Integration Risk
We face risks associated with integrating the operations, systems, and personnel of new
acquisitions
As part of our strategy to sustain growth, we have and expect to continue to pursue appropriate
acquisitions of other companies and technologies. An acquisition will only be successful if we can
integrate the acquired businesses’ operations, products and personnel; retain key personnel; and
expand our financial and management controls and our reporting systems and procedures to
accommodate the acquired businesses. It is possible that integrating an acquisition could result in
less management time being devoted to other parts of our core business. In addition, pursuant to
the Final Recognition Orders, prior regulatory approval is required before TMX Group can
implement significant integration, combination or reorganization of businesses, operations or
corporate functions among TMX Group entities. The requirement to obtain these approvals may
restrict or delay TMX Group’s ability to make planned changes to these aspects of its operations in
the future which could have a material adverse effect on TMX Group’s business, financial condition
and results of operations. If an investment, acquisition or other transaction does not fulfill
expectations, we may have to write down its value in the future and/or sell at a loss.
Litigation/Legal Proceedings Risk
We are subject to risks of litigation and legal proceedings
Some aspects of our business involve risks of litigation. Dissatisfied customers, among others, may
make claims with respect to the manner in which we operate or they may challenge our regulatory
actions, decisions or jurisdiction. Although we benefit from certain contractual indemnities and
limitations on liabilities, these rights may not be sufficient. In addition, with the introduction of civil
liability for misrepresentations in our continuous disclosure documents and statements and the
failure to make timely disclosures of material changes in Ontario and certain other jurisdictions,
dissatisfied shareholders can more easily make claims against us. We could incur significant legal
expenses defending claims, even those without merit. If a lawsuit or claim is resolved against us, it
could materially adversely affect our reputation, business, financial condition and operating results.
Intellectual Property Risk
We may be unable to protect our intellectual property
To protect our intellectual property rights, we rely on a combination of trade-mark laws, copyright
laws, patent laws, trade secret protection, confidentiality agreements, and other contractual
arrangements with our affiliates, customers, strategic partners, and others. This protection may not
be adequate to deter others from misappropriating our proprietary information. We may not be able
to detect the unauthorized use of, or take adequate steps to enforce, our intellectual property
rights. We have registered, or applied to register, our trade-marks in Canada and in some other
jurisdictions. If we fail to protect our intellectual property adequately, it could harm our brand, affect
our ability to compete effectively and may limit our ability to maintain or increase information
services revenue. It could also take significant time and money to defend our intellectual property
rights, which could adversely affect our business, financial condition, and operating results.
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We license a variety of intellectual property from third parties. Others may bring infringement
claims against us or our customers in the future because of an alleged breach of such a license. If
someone successfully asserts an infringement claim, we may be required to spend significant time
and money to develop or license intellectual property that does not infringe upon the rights of that
other person or to obtain a license for the intellectual property from the owner. We may not
succeed in developing or obtaining a license on commercially acceptable terms, if at all. In
addition, any litigation could be lengthy and costly and could adversely affect us even we are
successful.
Corporate Structure Risk
We may not be able to meet cash requirements because of our holding company structure
and restrictions on paying dividends
As a holding company, our ability to meet our cash requirements and pay dividends on our shares
depends in large part upon our subsidiaries paying dividends and other amounts to us. Our
subsidiaries must comply with corporate and securities laws and with their agreements before they
can pay dividends to us. In particular, the recognition orders of TSX Inc. and Alpha Exchange Inc.
provide that if either TSX Inc. or Alpha Exchange Inc. fails to maintain or anticipates that it will fail
any of its financial viability tests, the OSC can impose additional terms and conditions. This could,
for example, include a requirement that TSX Inc. or Alpha Exchange Inc. may not without the prior
approval of the Director of the OSC, pay dividends (among other things) until the deficiencies have
been eliminated for at least six months or a shorter period of time as agreed by OSC staff. In
addition, the recognition order of MX imposes similar restrictions on the payment of dividends. If
MX fails to meet the financial viability ratios for more than three months, MX will not, without the
prior approval of Quebec’s AMF, pay dividends (among other things) until the deficiencies have
been eliminated for at least six months.
Restrictions on ownership of TMX Group shares may restrict trading and transactions
Under the Securities Act (Ontario) and related regulations and orders, and pursuant to the AMF
recognition order of TMX Group, no person or company may own or exercise control or direction
over more than 10% of any class or series of our voting shares, without obtaining the prior
approval of the OSC and the AMF. Each of the OSC and the AMF will have complete discretion to
grant its approval and may also change the 10% threshold in the future. A shareholder (or
shareholders acting together) who contravenes these provisions may have its shares redeemed
and have dividend and voting entitlements on its shares suspended. These restrictions may
discourage trading in and may limit the market for our shares, may discourage potential acquisition
and strategic alliance proposals, and may prevent transactions in which our shareholders could
receive a premium for their shares.
The shareholdings of the investors may adversely affect the liquidity of TMX Group shares
In aggregate the Investors hold a significant proportion of the common shares outstanding of TMX
Group. In addition, each of CIBC World Markets, National Bank Financial & Co. Inc., Scotia Capital
Inc. and 1802146 Ontario Limited, an affiliate of TD Securities Inc., has agreed to maintain a
specified minimum ownership interest in TMX Group Limited for a period of five years following
completion of the Maple Acquisition. The substantial number of common shares that are held by
these investors may adversely affect the liquidity of the common shares held by the public. Based
116
105
on the criteria for eligibility in the S&P/TSX Composite Index, there is a risk that we could be
removed from the index if there is no improvement in the liquidity for our common shares which
could make our shares less attractive to certain investors, particularly index funds.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD&A of TMX Group contains “forward-looking information” (as defined in applicable
Canadian securities legislation) that is based on expectations, assumptions, estimates, projections
and other factors that management believes to be relevant as of the date of this MD&A. Often, but
not always, such forward-looking information can be identified by the use of forward-looking words
such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “targeted”, “estimates”, “forecasts”,
“intends”, “anticipates”, “believes”, or variations or the negatives of such words and phrases or
statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken,
occur or be achieved or not be taken, occur or be achieved. Forward-looking information, by its
nature, requires us to make assumptions and is subject to significant risks and uncertainties which
may give rise to the possibility that our expectations or conclusions will not prove to be accurate
and that our assumptions may not be correct.
In particular, this MD&A contains information regarding integration of the business of TMX Group
Inc. with CDS and Alpha and the anticipated benefits and synergies from these acquisitions. There
are costs associated with achieving these synergies. This is forward-looking information as defined
in applicable Canadian securities legislation and is subject to the assumptions (under the heading
“Integration”), risks, and uncertainties outlined in the following paragraphs. In addition to the risk
factors outlined below, this information is subject to the following risks: the inability to successfully
integrate TMX Group Inc.’s operations with those of Alpha and CDS including, without limitation
incurring and/or experiencing unanticipated costs and/or delays or difficulties; inability to effectively
reduce headcount, eliminate or consolidate contracts, technology, physical accommodations or
other operating expenses; and the failure to realize the anticipated benefits from the acquisitions of
TMX Group Inc., Alpha and CDS, including the fact that synergies are not realized in the amount or
the time frame anticipated or at all.
Additional examples of forward-looking information in this MD&A include, but are not limited to,
factors relating to stock, derivatives and energy exchanges and clearing houses and the business,
strategic goals and priorities, market condition, pricing, proposed technology and other initiatives,
financial condition, operations and prospects of TMX Group which are subject to significant risks
and uncertainties. These risks include: competition from other exchanges or marketplaces,
including alternative trading systems and new technologies, on a national and international basis;
dependence on the economy of Canada; adverse effects on our results caused by global economic
uncertainties including changes in business cycles that impact our sector; failure to retain and
attract qualified personnel; geopolitical and other factors which could cause business interruption;
dependence on information technology; vulnerability of our networks and third party service
providers to security risks; failure to implement our strategies; regulatory constraints; constraints
imposed by our level of indebtedness, risks of litigation or regulatory proceedings; dependence on
adequate numbers of customers; failure to develop, market or gain acceptance of new products;
currency risk; adverse effect of new business activities; not being able to meet cash requirements
because of our holding company structure and restrictions on paying dividends; dependence on
third party suppliers and service providers; dependence of trading operations on a small number of
clients; risks associated with our clearing operations; challenges related to international expansion;
restrictions on ownership of TMX Group common shares; inability to protect our intellectual
property; adverse effect of a systemic market event on certain of our businesses; risks associated
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117
with the credit of customers; cost structures being largely fixed; dependence on market activity that
cannot be controlled; the regulatory constraints that apply to the business of TMX Group and its
regulated subsidiaries, costs of on exchange clearing and depository services, trading volumes
(which could be higher or lower than estimated) and revenues; future levels of revenues being
lower than expected or costs being higher than expected.
Forward-looking information is based on a number of assumptions which may prove to be
incorrect, including, but not limited to, assumptions in connection with the ability of TMX Group to
successfully compete against global and regional marketplaces; business and economic conditions
generally; exchange rates (including estimates of the U.S. dollar–Canadian dollar exchange rate),
the level of trading and activity on markets, and particularly the level of trading in TMX Group’s key
products; business development and marketing and sales activity; the continued availability of
financing on appropriate terms for future projects; productivity at TMX Group, as well as that of
TMX Group’s competitors; market competition; research & development activities; the successful
introduction and client acceptance of new products; successful introduction of various technology
assets and capabilities; the impact on TMX Group and its customers of various regulations; TMX
Group’s ongoing relations with its employees; and the extent of any labour, equipment or other
disruptions at any of its operations of any significance other than any planned maintenance or
similar shutdowns.
While we anticipate that subsequent events and developments may cause our views to change, we
have no intention to update this forward-looking information, except as required by applicable
securities law. This forward-looking information should not be relied upon as representing our
views as of any date subsequent to the date of this MD&A. We have attempted to identify
important factors that could cause actual actions, events or results to differ materially from those
current expectations described in forward-looking information. However, there may be other factors
that cause actions, events or results not to be as anticipated, estimated or intended and that could
cause actual actions, events or results to differ materially from current expectations. There can be
no assurance that forward-looking information will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking information. These factors are not
intended to represent a complete list of the factors that could affect us. A description of the above-
mentioned items is contained under the heading Risks and Uncertainties.
118
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119
MANAGEMENT STATEMENT
Management is responsible for the preparation, integrity and fair presentation of the consolidated financial
statements, management’s discussion and analysis, and other information in this annual report. The
consolidated financial statements were prepared in accordance with International Financial Reporting
Standards and, in the opinion of management, fairly reflect the financial position, results of operations and
changes in the financial position of TMX Group Limited. Financial information contained throughout this
annual report is consistent with the consolidated financial statements.
Acting through the Finance and Audit Committee, comprised of non-management directors, all of whom are
independent directors within the meaning of Multilateral Instrument 52-110-Audit Committees, the Board of
Directors oversees management’s responsibility for financial reporting and internal control systems. The Finance
and Audit Committee is responsible for reviewing the consolidated financial statements and management’s
discussion and analysis and recommending them to the Board of Directors for approval. To discharge its duties
the Committee meets with management and external auditors to discuss audit plans, internal controls over
accounting and financial reporting processes, auditing matters and financial reporting issues.
TMX Group’s external auditors appointed by the shareholders, KPMG LLP, are responsible for auditing the
consolidated financial statements and expressing an opinion thereon. The external auditors have full and free
access to, and meet periodically with, management and the Finance and Audit Committee to discuss the audit.
Thomas A. Kloet
Chief Executive Officer
TMX Group Limited
February 4, 2014
Michael Ptasznik
Chief Financial Officer
TMX Group Limited
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INDEPENDENT AUDITORS’ REPORT
To the Shareholders of TMX Group Limited:
We have audited the accompanying consolidated financial statements of TMX Group Limited, which comprise
the consolidated balance sheets as at December 31, 2013 and 2012, the consolidated income statements, and
the consolidated statements of comprehensive income, changes in equity and cash flows for the years then
ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the assessment
of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.
In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of TMX Group Limited as at December 31, 2013 and 2012, and its financial performance and its
cash flows for the years then ended in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 4, 2014
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CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
123
TMX GROUP LIMITED
Consolidated Balance Sheets
(In millions of Canadian dollars)
Assets
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Marketable securities
Trade and other receivables
Energy contracts receivable
Fair value of open energy contracts
Balances with Clearing Members and participants
Other current assets
Current income tax assets
Non-current assets:
Fair value of open energy contracts
Goodwill
Intangible assets
Other non-current assets
Deferred income tax assets
Total Assets
Liabilities and Equity
Current liabilities:
Trade and other payables
Participants’ tax withholdings
Energy contracts payable
Fair value of open energy contracts
Balances with Clearing Members and participants
Credit and liquidity facilities drawn
Other current liabilities
Current income tax liabilities
Non-current liabilities:
Fair value of open energy contracts
Loans payable
Debentures
Fair value of interest rate swaps
Other non-current liabilities
Deferred income tax liabilities
Total Liabilities
Equity:
Share capital
Retained earnings (deficit)
Contributed surplus – share option plan
Accumulated other comprehensive income (loss)
Total Equity attributable to equity holders of the Company
Non-controlling interests
Total Equity
Commitments and contingent liabilities
Total Liabilities and Equity
Note
December 31, 2013
December 31, 2012
7
7
7
8
24
24
24
9
24
11
11
12
23
16
7
24
24
24
14
20
24
14
14
15
20
23
21
22
$
$
$
212.2
102.9
67.0
83.6
764.9
72.7
10,164.7
11.2
6.0
11,485.2
14.2
1,293.8
3,513.1
129.0
60.2
16,495.5
104.9
102.9
764.9
72.7
10,164.7
1.3
23.2
2.2
11,236.8
14.2
331.4
996.4
0.4
45.0
900.5
13,524.7
2,849.2
27.4
5.2
6.0
2,887.8
83.0
2,970.8
$
$
$
156.5
67.9
89.0
89.1
696.4
62.9
7,773.9
15.0
11.8
8,962.5
2.8
1,320.4
3,630.8
58.1
67.6
14,042.2
82.0
67.9
696.4
62.9
7,773.9
-
26.6
1.5
8,711.2
2.8
1,453.1
-
1.7
45.0
929.0
11,142.8
2,833.7
(20.4)
4.0
(1.1)
2,816.2
83.2
2,899.4
17&19
$
16,495.5
$
14,042.2
See accompanying notes which form an integral part of these consolidated financial statements.
Approved on behalf of the Board on February 4, 2014:
“Charles Winograd”
Chair
“William Linton”
Director
124
1
TMX GROUP LIMITED
Consolidated Income Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Note
2013
Revenue:
Issuer services
Trading, clearing, depository and related
Information services
Technology services and other
REPO interest:
Interest income
Interest expense
Net REPO interest
Total revenue
Expenses:
Compensation and benefits
Information and trading systems
General and administration
Depreciation and amortization
Total operating expenses
Income from operations
Share of net income of equity accounted investees
Gain on sale of PC-Bond
Maple transaction and integration costs
Finance income (costs):
Finance income
Finance costs
Credit facility refinancing expenses
Net finance costs
Income before income taxes
Income tax expense
Net income
Net income (loss) attributable to:
Equity holders of the Company
Non-controlling interests
10
3
5
5
5
23
Earnings per share (attributable to equity holders of the Company):
6
Basic
Diluted
$
$
$
$
$
$
189.3
303.1
181.5
26.6
73.4
(73.4)
-
700.5
204.8
74.2
91.2
72.6
442.8
257.7
2.6
5.4
(7.2)
3.1
(60.6)
(16.4)
(73.9)
184.6
60.9
123.7
123.9
(0.2)
123.7
2.29
2.29
$
$
$
$
$
$
See accompanying notes which form an integral part of these consolidated financial statements.
2012
81.3
124.5
77.4
11.3
18.6
(18.6)
-
294.5
75.7
33.7
36.7
33.3
179.4
115.1
2.0
-
(49.9)
2.4
(27.9)
-
(25.5)
41.7
21.2
20.5
15.1
5.4
20.5
0.72
0.72
125
2
TMX GROUP LIMITED
Consolidated Statements of Comprehensive Income
(In millions of Canadian dollars)
Year ended December 31, 2013 and 2012
Net income
$
123.7
$
20.5
Note
2013
2012
Other comprehensive income:
Items that will not be reclassified to the
consolidated income statements:
Actuarial gains (losses) on defined benefit pension and other post-
retirement benefit plans (net of tax expense of $3.7,
2012 – tax benefit of $1.6)
Total items that will not be reclassified to the
consolidated income statements
Items that may be reclassified subsequently to the
consolidated income statements:
Unrealized gain (loss) on translating financial statements of foreign
operations (net of tax expense of $1.5, 2012 – $nil)
Unrealized fair value gain (loss) on interest rate swaps designated as
cash flow hedges (net of tax benefit of $0.6,
2012 – tax benefit of $0.8)
Reclassification to net income of (gains) losses on interest rate swaps
(net of tax expense of $0.2, 2012 – tax benefit of $0.3)
Total items that may be reclassified subsequently to the
consolidated income statements:
Total comprehensive income
13
15
15
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
10.3
10.3
12.3
0.8
(0.7)
12.4
146.4
141.3
5.1
146.4
$
$
$
$
$
$
(4.8)
(4.8)
(1.0)
(2.1)
0.9
(2.2)
13.5
9.2
4.3
13.5
See accompanying notes which form an integral part of these consolidated financial statements.
126
3
TMX GROUP LIMITED
Consolidated Statements of Changes in Equity
(In millions of Canadian dollars)
Year ended December 31, 2013 and 2012
Attributable to equity holders of the Company
Note
Share
capital
Contributed
surplus –
share
option plan
Accumulated
other
comprehensive
(loss) income
Retained
earnings
(deficit)
Total
attributable
to equity
holders
Non-
controlling
interests
Total
equity
Balance at January 1, 2013
$ 2,833.7
$
4.0
$
(1.1)
$
(20.4)
$ 2,816.2
$
83.2
$ 2,899.4
Net income
Other comprehensive income:
Foreign currency translation
differences, net of taxes
Net change in interest rate
swaps designated as cash flow
hedges, net of taxes
Actuarial gains on defined
benefit pension and other post
retirement benefit plans,
net of taxes
Total comprehensive income
Dividends to equity holders
BOX dividend to non-controlling
interest
Proceeds from exercised share
options
Cost of exercised share options
15
13
28
Cost of share option plan
22
-
-
-
-
-
-
-
14.5
1.0
-
Balance at December 31, 2013
2,849.2
-
-
-
-
-
-
-
-
(1.0)
2.2
5.2
123.9
123.9
(0.2)
123.7
-
-
7.0
0.1
10.3
134.2
10.3
141.3
(86.4)
(86.4)
5.3
12.3
-
-
5.1
-
0.1
10.3
146.4
(86.4)
-
-
-
-
-
(5.3)
(5.3)
14.5
-
2.2
-
-
-
14.5
-
2.2
7.0
0.1
-
7.1
-
-
-
-
-
6.0
27.4
2,887.8
83.0
2,970.8
See accompanying notes which form an integral part of these consolidated financial statements.
127
4
TMX GROUP LIMITED
Consolidated Statements of Changes in Equity
(In millions of Canadian dollars)
Year ended December 31, 2013 and 2012
Attributable to equity holders of the Company
Note
Share
capital
Contributed
surplus –
share
option plan
Accumulated
other
comprehensive
loss
Deficit
Total
attributable
to equity
holders
Non-
controlling
interests
Total
(deficit)
equity
Balance at January 1, 2012
$
10.0
$
Net income
Other comprehensive loss:
Foreign currency translation
differences, net of taxes
Net change in interest rate swaps
designated as cash flow hedges,
net of taxes
Actuarial losses on defined
benefit pension and other post
retirement benefit plans, net of
taxes
Total comprehensive loss
-
-
-
-
-
Net issuance of common shares
2,822.0
Non-controlling interests arising on
the acquisition of TMX Group Inc.
Acquisition of remaining 20% of TMX
Group Inc.
Dividends to equity holders
Share options exchanged on
acquisition
Proceeds from exercised share
options
Cost of exercised share options
Cost of share option plan
-
-
-
-
1.6
0.1
-
Balance at December 31, 2012
$ 2,833.7
$
-
-
-
-
-
-
-
-
-
-
3.5
-
(0.1)
0.6
4.0
$
-
-
0.1
(1.2)
-
(1.1)
-
-
-
-
-
-
-
-
$
(37.3)
$
(27.3)
$
-
$
(27.3)
15.1
15.1
5.4
20.5
-
-
(4.8)
10.3
-
-
28.1
(21.5)
-
-
-
-
0.1
(1.1)
(1.0)
(1.2)
-
(1.2)
(4.8)
9.2
-
4.3
(4.8)
13.5
2,822.0
-
2,822.0
-
850.3
850.3
28.1
(21.5)
3.5
1.6
-
0.6
(771.4)
-
-
-
-
-
(743.3)
(21.5)
3.5
1.6
-
0.6
$
(1.1)
$
(20.4)
$ 2,816.2
$
83.2
$ 2,899.4
See accompanying notes which form an integral part of these consolidated financial statements.
128
5
TMX GROUP LIMITED
Consolidated Statements of Cash Flows
(In millions of Canadian dollars)
Year ended December 31, 2013 and 2012
Cash flows from (used in) operating activities:
Income before income taxes
Adjustments to determine net cash flows:
Depreciation and amortization
Net finance costs
Share of net income of equity accounted investees
Gain on sale of PC-Bond
Cost of share option plan
Unrealized foreign exchange (gain) loss
Maple transaction and integration costs
Maple transaction and integration related cash outlays
Trade and other receivables, and prepaid expenses
Other non-current assets
Trade and other payables
Modification and cash settlement of TMX Group Inc. share option plan
Provisions
Deferred revenue
Long-term accrued and other non-current liabilities
Net settlement on interest rate swaps
Cash received on unwind of interest rate swaps
Interest paid
Interest received
Income taxes paid
Cash flows from (used in) financing activities:
Reduction in obligations under finance leases
Proceeds from exercised options
Net issuance of common shares
Dividends paid to equity holders
Dividends paid to TMX Group Inc. equity holders
BOX dividend paid to non-controlling interest
Credit and liquidity facilities drawn, net
Financing and refinancing fees, expensed
Net repayment of loans payable, net of financing costs
Proceeds from loans payable, net of financing costs
Proceeds from debentures, net of financing costs
Cash flows from (used in) investing activities:
Additions to premises and equipment
Additions to intangible assets
Acquisitions, net of cash acquired
Proceeds from sale of PC-Bond
Dividends received from associate
Marketable securities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Unrealized foreign exchange gain on
cash and cash equivalents held in foreign currencies
Note
2013
2012
$
184.6
$
41.7
5
3
22
15
15
28
14
14
14
14
11
3
3
72.6
73.9
(2.6)
(5.4)
2.2
(1.4)
7.2
(14.1)
6.2
(12.0)
29.4
-
(1.3)
1.7
9.1
(2.0)
1.6
(47.8)
3.4
(54.9)
250.4
(2.6)
14.6
-
(86.4)
-
(5.3)
1.3
(0.8)
(1,146.6)
-
996.2
(229.6)
(8.1)
(20.3)
(64.0)
104.0
-
21.8
33.4
54.2
156.5
1.5
33.3
25.5
(2.0)
-
0.6
(0.2)
49.9
(105.0)
3.5
2.8
(93.7)
(15.9)
3.1
(33.5)
(6.0)
(1.2)
-
(28.4)
2.6
(21.1)
(144.0)
(1.5)
1.6
2,078.7
(21.5)
(29.9)
-
-
-
(430.0)
1,449.9
-
3,047.3
(1.6)
(11.7)
(2,677.1)
-
3.5
(65.0)
(2,751.9)
151.4
5.0
0.1
Cash and cash equivalents, end of the period
$
212.2
$
156.5
See accompanying notes which form an integral part of these consolidated financial statements.
129
6
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
General information
TMX Group Limited (formerly Maple Group Acquisition Corporation (“Maple”), renamed on August 10, 2012) is a company
domiciled in Canada and incorporated under the Business Corporations Act (Ontario). The registered office is located at
The Exchange Tower, 130 King Street West, Toronto, Ontario, Canada.
TMX Group Limited was formed on April 28, 2011, by a group of unrelated Canadian financial institutions (collectively, the
“Investors”), to acquire TMX Group Inc. and its subsidiaries (“TMX Group Inc.”), Alpha Trading Systems Inc. and Alpha
Trading Systems Limited Partnership and their subsidiaries (“Alpha”) and The Canadian Depository for Securities Limited
and its subsidiaries (“CDS”). Up to July 31, 2012, TMX Group Limited did not carry on any material business other than in
connection with the above acquisitions.
TMX Group Limited controls, directly or indirectly, a number of entities including: TSX Inc. (“TSX”), which operates Toronto
Stock Exchange, a national stock exchange serving the senior equity market, TSX Venture Exchange Inc. (“TSX Venture
Exchange”), which operates TSX Venture Exchange, a national stock exchange serving the public venture equity market,
Montréal Exchange Inc. (“MX”), which operates Montréal Exchange, Canada’s national derivatives exchange, Canadian
Derivatives Clearing Corporation (“CDCC”), the clearing house for options and futures contracts traded at MX and certain
over-the-counter (“OTC”) products and fixed income repurchase (“REPO”) agreements, Natural Gas Exchange Inc.
(“NGX”), which operates Natural Gas Exchange, an exchange for the trading and clearing of natural gas, electricity, and
crude oil contracts in North America, Shorcan Brokers Limited (“Shorcan”), a fixed income inter-dealer broker, CDS
Clearing and Depository Services Inc. (“CDS Clearing”), which operates the automated facilities for the clearing and
settlement of securities transactions and custody of securities in Canada and Alpha, which operates an exchange for the
trading of securities and provides ancillary services such as data dissemination.
The consolidated annual financial statements as at and for the year ended December 31, 2013 (the “financial
statements”), comprise the accounts of TMX Group Limited and its wholly owned subsidiaries, including TMX Group Inc.
from July 31, 2012, and CDS and Alpha from August 1, 2012, along with their wholly owned or controlled subsidiaries,
collectively referred to as “TMX Group” or the “Company”.
1.
Basis of preparation
(a)
Statement of compliance
The financial statements have been prepared by management in accordance with International Financial Reporting
Standards (“IFRS”) and IFRS Interpretations Committee (“IFRIC”) interpretations, as issued by the International
Accounting Standards Board (“IASB”).
The financial statements were approved by the Company’s Board of Directors on February 4, 2014.
130
7
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following items which are
measured at fair value:
•
•
•
•
Financial instruments (note 24);
Investments in privately-owned companies (note 12);
Liabilities arising from share-based payment plans (note 22); and
Legal obligations associated with the restoration costs on the retirement of premises and equipment (note 17).
The Company uses a fair value hierarchy to categorize the inputs used in its valuation of assets and liabilities carried
at fair value. Fair values are categorized into: Level 1 – to the extent of the Company’s use of unadjusted quoted
market prices; Level 2 – using observable market information as inputs; and Level 3 – using unobservable market
information.
(c)
Use of estimates and judgements
The preparation of the financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date
of the financial statements and the reported amounts of revenue and expenses during the reporting period. The
estimates and associated assumptions are based on historical experience and other factors that management
considers to be relevant. Actual results could differ from these estimates and assumptions.
Judgements, estimates and underlying assumptions are reviewed on an ongoing basis, and revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates that have a significant risk of resulting in a material adjustment in these financial statements have been
made in the following areas in the preparation of the financial statements:
•
Fair values of assets acquired and liabilities assumed – for the acquisition of TMX Equity Transfer Services
and the combination of the Company’s fixed income index business PC-Bond with FTSE, the provisional fair
values under the acquisition method are based on management’s best estimates using established
methodologies of the fair value of the assets and liabilities acquired and disposed (note 3);
•
•
Impairment of goodwill and indefinite life intangible assets – impairment tests are completed using the higher
of fair value less costs of disposal, where available, and value-in-use calculations, determined using
management’s best estimates of future cash flows, long-term growth rates and appropriate discount rates.
Purchased intangibles are valued on acquisition using established methodologies and amortized over their
estimated useful economic lives, except in those cases where intangibles are determined to have indefinite
lives, where there is no foreseeable limit over which these intangibles would generate net cash flows. These
valuations and lives are based on management's best estimates of future performance and periods over
which value from the intangible assets will be derived (note 11);
Measurement of defined benefit obligations for pensions, other post-retirement and post-employment benefits
– the valuations of the defined benefit assets and liabilities are based on actuarial assumptions made by
management with advice from TMX Group’s external actuary (note 13);
131
8
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
•
•
•
•
Provisions and contingencies – management judgement is required to assess whether provisions and/or
contingencies should be recognized or disclosed, and at what amount. Management bases its decisions on
past experience and other factors it considers to be relevant on a case by case basis (note 17);
Leases – the classification of leases between operating and finance leases is partly based on management’s
judgement regarding the substance of the agreement, supported by other indicators within the lease (note 19).
Income taxes – the accounting for income taxes requires estimates to be made, such as the recoverability of
deferred tax assets. Where differences arise between estimated income tax provisions and final income tax
liabilities, an adjustment is made when the difference is identified (note 23); and
Share-based payments – The liabilities associated with TMX Group’s share-based payment plans are
measured at fair value using a recognized option pricing model based on management’s assumptions.
Management’s assumptions are based on historical share price movements, dividend policy and past
experience for TMX Group Inc. as well as TMX Group Limited (note 22).
2.
Significant accounting policies
Except for the changes noted below, the accounting policies set out below have been applied consistently to all
periods presented in the financial statements, unless otherwise indicated.
The accounting policies have been applied consistently by all TMX Group entities.
Effective January 1, 2013, the Company adopted the following standard and amendments to IFRS:
•
IFRS 7, Financial instruments – disclosure (“IFRS 7”) – The amendments to IFRS 7 contain new disclosure
requirements for financial assets and liabilities that are either offset in the consolidated balance sheet or
subject to master netting arrangements or other similar arrangements. The amendments are to be applied
retrospectively. As a result of the amendments to IFRS 7, the Company has provided additional disclosures
about offsetting of financial assets and financial liabilities (note 24).
•
•
IAS 1, Presentation of financial statements: Presentation of items of other comprehensive income (“IAS 1”) –
The amendments to IAS 1 require separate presentation of items within other comprehensive income
between those that may be reclassified to profit or loss in the future and those that will never be reclassified to
profit or loss. The related income tax effects must also be allocated between these same two categories. The
amendments have been applied retrospectively and comparative information restated where necessary in the
financial statements to comply with the revised presentational requirements.
IAS 19, Employee benefits (“IAS 19”) – The amendments to IAS 19 require: the recognition of actuarial gains
and losses immediately in other comprehensive income; full recognition of past service costs immediately in
the consolidated income statement; recognition of the expected return on plan assets in the consolidated
income statement to be calculated using the rate used to discount the defined benefit obligation; and
enhanced annual disclosures. In addition, the amendments also affect the timing for the recognition of
termination benefits, which will now be recognized at the earlier of when the Company recognizes costs for a
restructuring under IAS 37, Provisions, Contingent Liabilities and Contingent Assets and when the Company
can no longer withdraw the offer of the termination benefits. The Company has adopted the amendments
retrospectively and comparative information has been restated where necessary for all periods presented.
There was no impact on the January 1, 2012 opening balance sheet accounts and as such those balances
132
9
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
•
•
were not included in the consolidated balance sheets. The impact of the amendments on the Company’s
financial statements was not significant.
IFRS 13, Fair Value Measurement (“IFRS 13”) – IFRS 13 establishes a single framework for the fair value
measurement and disclosure of financial and non-financial assets and liabilities. The new standard unifies the
definition of fair value and also introduces new concepts including ‘highest and best use’ and ‘principal
markets’ for non-financial assets and liabilities. As a result, the Company has provided additional disclosures
about fair value measurement (note 24). The Company has applied the standard prospectively and has not
provided any comparative information for the new disclosures.
Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36, Impairment of Assets) –
The amendments reverse the unintended requirement in IFRS 13 Fair Value Measurement to disclose the
recoverable amount of every cash-generating unit to which significant goodwill or indefinite life intangible
assets have been allocated. Under the amendments, the recoverable amount is required to be disclosed only
when an impairment loss has been recognized or reversed. The Company has early adopted the amendments
retrospectively, which had no impact on the periods presented.
(a)
Basis of consolidation
Subsidiaries are entities controlled by TMX Group, and they are consolidated from the date on which control is
transferred to TMX Group until the date that control ceases. Balances and transactions between TMX Group’s
subsidiaries have been eliminated on consolidation.
Equity accounted investees are entities in which TMX Group has determined it has significant influence, but not
control, over the financial and operating policies. Investments in these entities are recognized initially at cost and
subsequently accounted for using the equity method of accounting.
(b) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognized when the
service or supply is provided, when it is probable that the economic benefits will flow to TMX Group, and when the
revenue and the costs incurred in respect of the transaction can be reliably measured.
(i)
Issuer services
Issuer services revenue includes revenue from initial and additional listing fees, annual sustaining fees and other
issuer services. Initial and additional listing fees are recognized when the listing has taken place. Sustaining fees
for existing issuers are billed during the first quarter of the year and the amount is recorded as deferred revenue
and amortized over the year on a straight-line basis. Sustaining fees for new issuers are billed when the issuers’
securities are officially listed and the amount is recorded as deferred revenue and amortized over the remainder
of the year on a straight-line basis. Other issuer services revenue is recognized as the services are provided.
133
10
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(ii) Trading, clearing, depository and related
Trading and related revenues for cash markets, primarily through TSX, TSX Venture Exchange, Alpha and
Shorcan, are recognized in the month in which the trades are executed or when the related services are
provided.
Revenues related to cash markets clearing, settlement and depository services through CDS are recognized as
follows:
• Clearing services include the reporting and confirmation of all trade types within the multilateral clearing and
settlement system referred to as CDSX. Clearing services also include the netting and novation of exchange
trades through CDS’ Continuous Net Settlement (“CNS”) service prior to settlement. The related fees are
recognized as follows:
− Reporting fees are recognized when the trades are delivered to CDS,
− Netting and novation fees are recognized when the trades are netted and novated,
− Other clearing related fees are recognized when services are performed.
•
Settlement revenue is recognized on the settlement date of the related transaction.
• Depository fees are charged for custody of securities, depository related activities and processing of
entitlement and corporate actions and are recognized when the services are performed.
• Under the CDS recognition orders granted by the Ontario Securities Commission (“OSC”) and the Autorité
des marchés financiers (“AMF”), for the two month period starting November 1, 2012 and subsequent fiscal
years starting on January 1, 2013, CDS is required to share any annual revenue increases on clearing and
other core CDS Clearing services, as compared to revenues for the 12-month period ending October 31,
2012, on a 50:50 basis with participants. These rebates are recorded as a reduction in revenue in the
consolidated income statement in the period to which they relate.
•
International revenue consists of revenue generated through offering links as channels to participants to
effect cross border transactions and custodial relationships with other international organizations. The
related fees are recognized when the services are performed.
Trading and related revenues for derivatives markets, through MX and BOX Market, LLC (“BOX”), a subsidiary
of MX, are recognized in the month in which the trades are executed or when the related services are provided.
Revenue related to derivatives clearing through CDCC is recognized on the settlement date of the related
transaction. Fees earned by CDCC for providing the clearing service for the REPO clearing services are
included within trading, clearing, depository and related revenue and are recognized on the novation date of the
related transaction. Unrealized gains and losses on derivative contracts are equal and offsetting and hence have
no impact on the consolidated income statement.
Energy trading, clearing, settlement and related revenues relating to NGX are recognized over the period the
services are provided. Unrealized gains and losses on open energy contracts are equal and offsetting and
hence have no impact on the consolidated income statement.
134
11
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(iii) Information services
Real time market data revenue is recognized based on usage as reported by customers and vendors, less a
provision for sales adjustments from the same customers. TMX Group conducts periodic audits of the
information provided and records adjustments to revenues, if any, at the time that collectability of the revenue is
reasonably assured. Fixed income indices revenue is recognized over the period the service is provided. BOX
revenue from the Options Price Reporting Authority (“OPRA”) is received quarterly based on its pro-rata share of
industry trade (not contract) volume. Estimates of OPRA’s quarterly revenue are made and accrued each
month. Other information services revenue is recorded and recognized as revenue when the services are
provided.
(iv) Technology services and other
Technology services and other revenue is recorded and recognized as revenue over the period the service is
provided. This includes revenues related to the operation of the SEDAR, SEDI and NRD services through CDS,
which are based on the recovery of the cost of operating these services and the associated contracted
management fee for operating the services. These revenues are recognized when the services are performed.
Technology services and other also includes revenue from the sale of software and licensing. These revenues
are recognized based on the substance of the arrangement.
(v) REPO interest
As part of its REPO clearing service, CDCC earns interest income and incurs interest expense on all REPO
transactions that clear through CDCC. The interest income and interest expense are equal; however as CDCC
does not have a legal right to offset these amounts, they are recognized separately on the consolidated income
statement. The interest income is earned, and the interest expense incurred, over the term of the REPO
agreements.
(c)
Foreign currency
Items included in the financial statements of each of TMX Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (the “functional currency”). The financial statements are
presented in Canadian dollars, which is TMX Group’s functional and presentation currency.
The assets and liabilities of TMX Group’s foreign operations for which the Canadian dollar is not the functional
currency are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses are
translated at the relevant average monthly exchange rates. The resulting unrealized exchange gain or loss is
included in accumulated other comprehensive loss within equity.
Revenues earned, expenses incurred and capital assets purchased in foreign currencies are translated into the
functional currency at the prevailing exchange rate on the transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated at the period end rate or at the transaction rate when settled.
135
12
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Resulting unrealized and realized foreign exchange gains and losses are recognized within technology services and
other revenue in the consolidated income statement for the period.
(d)
Premises and equipment
Items of premises and equipment are recognized at cost less accumulated depreciation and any impairment losses.
Legal obligations associated with the restoration costs on the retirement of premises and equipment are recognized
as incurred. The obligations are initially measured at an estimated fair value of the future cost discounted to present
value, and a corresponding amount is capitalized with the related assets and depreciated in line with their useful
lives.
Assets are depreciated from the date of acquisition. Depreciation is recognized in the consolidated income
statement on a straight-line basis over the estimated useful life of the asset, or a major component thereof. The
residual values and useful lives of the assets are reviewed annually, and revised as necessary.
Depreciation is provided over the following useful lives of the assets:
Asset
Computers and electronic trading equipment
Computers and electronic trading equipment
under finance leases
Furniture, fixtures and other equipment
Leasehold improvements
Basis
Straight-line
Straight-line
Straight-line
Straight-line
Rate
3 - 5 years
Over the terms of the leases
5 years
Over terms of various leases to a
maximum of 15 years
(e) Goodwill and intangible assets
(i) Goodwill
Goodwill is recognized at cost on acquisition less any subsequent impairment in value.
TMX Group measures goodwill arising on a business combination as the fair value of the consideration
transferred less the fair value of the identifiable assets acquired and liabilities assumed, all measured as of the
acquisition date.
TMX Group elects on a transaction by transaction basis whether to measure non-controlling interests at fair
value or at their proportionate share of the recognized amount of the identifiable net assets acquired, at the
acquisition date.
Transaction costs, other than those associated with the issue of debt or equity securities as consideration, that
TMX Group incurs in connection with a business combination are expensed as incurred.
136
13
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(ii)
Intangible assets
Intangible assets are recognized at cost less accumulated amortization, where applicable, and any impairment
in value. Cost includes any expenditure that is directly attributable to the acquisition of the asset. The cost of
internally developed assets includes the cost of materials and direct labour, and any other costs directly
attributable to bringing the assets to a working condition for their intended use.
Costs incurred in research activities, undertaken with the prospect of gaining new technical knowledge, are
recognized in the consolidated income statement as incurred. Costs incurred in development activities are
capitalized when all of the following criteria are met:
•
•
•
•
•
•
It is technically feasible to complete the work such that the asset will be available for use or sale,
TMX Group intends to complete the asset for use or sale,
TMX Group will be able to use the asset once completed,
The asset will be useful and is expected to generate future economic benefits for TMX Group,
TMX Group has adequate resources available to complete the development of and to use the asset, and
TMX Group is able to reliably measure the costs attributable to the asset during development.
Definite life intangible assets are amortized from the date of acquisition or, for internally developed intangible
assets, from the time the asset is available for use. Amortization is recognized in the consolidated income
statement on a straight-line basis over the estimated useful life of the asset. Residual values and the useful lives
of the assets are reviewed at each year end, and revised as necessary. Amortization is provided over the
following useful lives of definite life intangible assets:
Asset
Customer relationships
Technology
Open interest
Canadian Securities Administrators contracts
Basis
Rate
Straight-line
Straight-line
Straight-line
Straight-line
17 - 34 years
1 - 6 years
6 months
2 years
Trade names, derivative products, regulatory designations, index license products and structured products are
considered to have indefinite lives as management believes that there is no foreseeable limit to the period over
which these assets are expected to generate net cash flows.
(f)
Impairment
The carrying amounts of TMX Group’s non-financial assets, other than deferred income tax assets and employee
future benefit assets, are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill, and intangible assets that
have indefinite useful lives or that are not yet available for use, are tested for impairment at least annually even if
there is no indication of impairment, and the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or cash-generating unit is the greater of its value-in-use and its fair value less
costs of disposal. In assessing value-in-use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
137
14
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). For the
purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the
group of CGUs, that is expected to benefit from the synergies of the combination and reflects the lowest level at
which that goodwill is monitored for internal reporting purposes.
An impairment loss is recognized if the carrying amount of an asset, or its CGU, exceeds its estimated recoverable
amount. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata
basis. Impairment losses are recognized in the consolidated income statement.
An impairment loss in respect of goodwill cannot be reversed. In respect of other non-financial assets, impairment
losses recognized in prior periods are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.
(g)
Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases and any lease incentives received are recognized in
the consolidated income statement on a straight-line basis over the term of the lease.
TMX Group has entered into leases for equipment where substantially all of the risks and rewards of ownership have
transferred to TMX Group, and these are classified as finance leases. The leased assets are capitalized on
inception of the lease at the lower of their fair value and the present value of the minimum lease payments, and then
amortized over their useful lives. Payments made under finance leases are apportioned between the finance
expense and a reduction in the outstanding liability, to achieve a constant periodic rate of interest on the remaining
liability.
(h)
Employee benefits
(i) Defined contribution and defined benefit pension plans
The Company has Group Registered Retirement Savings Plans (“RRSPs”) for CDS and Alpha employees and
registered pension plans with both a defined benefit tier and a defined contribution tier covering substantially all
other employees, as well as retirement compensation arrangements ("RCA") for senior management. The costs
of these programs are being funded currently, except for MX, where a portion is guaranteed by a letter of
guarantee, and the NGX RCA.
138
15
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
TMX Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by
estimating the amount of future benefit that employees have earned in return for their service in the current and
prior periods, and that benefit is discounted to determine its present value and the fair value of any plan assets
are deducted. The discount rates used are based on Canadian AA corporate bond yields. The calculation is
performed annually by an actuary based on management’s best estimates using the projected benefit method
pro-rated on service. If the calculation results in a surplus, accounting standards require that a limit is placed on
the amount of this surplus that can be recognized as an asset. The total amount of defined benefit asset that
can be recognized by TMX Group is limited to the present value of economic benefits available by way of future
refunds of plan surplus and/or reductions in future contributions to the plan. In the determination of the economic
benefit, minimum funding requirements resulting from the most recent actuarial funding valuations are also
taken into consideration. An economic benefit is considered available to TMX Group if it is realizable during the
life of the plan or on settlement of the plan obligations. The service cost, which represents the benefits accruing
to the employees, along with the interest cost and the expected return on plan assets, is recognized in the
consolidated income statement.
When the benefits of a plan are amended, the portion of the increased benefit relating to past service by
employees is recognized immediately in the consolidated income statement.
TMX Group recognizes all actuarial gains and losses arising from defined benefit plans immediately in other
comprehensive income.
For defined contribution plans, the expense is charged to the consolidated income statement as it is incurred.
(ii) Non-pension post-retirement and post-employment benefit plans
TMX Group also provides other post-retirement and post-employment benefits, such as supplementary medical
and dental coverage and a long-term disability plan, which are funded on a cash basis by TMX Group, and
contributions from plan members in some circumstances. TMX Group’s net obligation in respect of these plans
is the amount of future benefit that employees have earned in return for their service in the current and prior
periods, discounted to determine its present value. The discount rates used are based on Canadian AA
corporate bond yields. The calculation is performed annually by an actuary based on management’s best
estimates and it is performed using the projected benefit method pro-rated on service. For post-retirement plans,
any actuarial gains and losses are recognized immediately in other comprehensive income in the period in which
they arise. For the long-term disability plan, actuarial gains and losses are recognized within compensation and
benefits expense in the consolidated income statement.
When the benefits of a plan are amended, the portion of the increased benefit relating to past service by
employees is recognized immediately in the consolidated income statement.
(iii) Termination benefits
Termination benefits are recognized as an expense at the earlier of: (1) when TMX Group is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before
retirement or (2) when TMX Group recognizes costs related to a restructuring plan.
139
16
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(iv) Short-term employee benefits
Short-term employee benefit obligations, such as wages, salaries and annual vacation entitlements, are
measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for TMX Group’s annual short-term incentive plan if a present legal or constructive
obligation to pay this amount exists as a result of past service provided by the employee, and the obligation can
be estimated reliably.
(v) Share-based payments
TMX Group has both equity-settled and cash-settled share-based compensation plans.
TMX Group accounts for all share-based plans to eligible employees that call for settlement by the issuance of
equity instruments using the fair value based method. Under the fair value based method, compensation cost
attributable to options to employees is measured at fair value at the grant date, using a recognized option pricing
model, and amortized over the vesting period. The amount recognized as an expense is adjusted to reflect the
actual number of options expected to vest.
Compensation cost attributable to employee awards that call for settlement in cash is measured at fair value at
each reporting date, using a recognized option pricing model. Changes in fair value between the grant date and
the measurement date are recognized in the consolidated income statement over the vesting period, with a
corresponding increase in either current or non-current liabilities, depending on the period in which the award is
expected to be paid.
(i)
Income tax
Income tax expense comprises current and deferred income tax. Income tax expense is recognized in the
consolidated income statement except to the extent that it relates to items recognized directly in equity or in other
comprehensive income.
Current income tax is the expected income tax payable or receivable on the taxable income or loss for the period
using income tax rates enacted or substantively enacted at the reporting date in the countries where TMX Group has
a permanent establishment and generates taxable income, and any adjustments to income tax payable in respect of
previous years.
Deferred income tax is recognized in respect of certain temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income
tax is measured at the income tax rates that are expected to be applied to temporary differences when they reverse,
based on the laws that have been enacted or substantively enacted at the reporting date.
A deferred income tax asset is recognized only to the extent that it is probable that future taxable income will be
available against which it can be utilized. Deferred income tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
140
17
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Uncertain income tax positions are recognized in the financial statements using management’s best estimate of the
amount expected to be paid.
Income tax assets and liabilities are offset in the financial statements if there is a legally enforceable right to offset
them and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different
taxable entities but TMX Group intends to settle them on a net basis or where the income tax assets and liabilities
will be realized simultaneously.
(j)
Provisions
A provision is recognized if, as a result of a past event, TMX Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific to the
liability. The unwinding of the discount is recognized as a finance cost. For onerous leases, TMX Group provides for
the lower of the cost of meeting surplus property lease commitments, net of any sub-lease income, or the costs or
penalties it would incur on breaking its lease commitments.
(k)
Earnings per share
Basic earnings per share is determined by dividing net income (loss) attributable to the equity holders of the
Company by the weighted average number of common shares outstanding during the reporting period. Diluted
earnings per share is determined by dividing the net income (loss) attributable to the equity holders of the Company
by the weighted average number of common shares outstanding during the reporting period, adjusted for the effects
of all potential dilutive common shares arising from share options granted to employees.
(l)
Segment reporting
An operating segment is a component of TMX Group that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of TMX Group’s
other components. In addition, there are certain corporate costs and/or balances that are not allocated across the
group and these are included within the Corporate segment. All operating segments’ results are reviewed regularly
by the Executive Management Committee (“Executive Committee”) to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is available.
(m) Financial instruments
(i) Non-derivative financial assets
Financial assets are recognized on the trade date at which TMX Group becomes a party to the contractual
provisions of the instrument.
141
18
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Financial assets are generally derecognized when the contractual rights to the cash flows from the assets
expire, or when TMX Group transfers the rights to receive the contractual cash flows on the financial assets to
another party without retaining substantially all the risks and rewards of ownership of the financial assets.
Financial assets and liabilities are offset and the net amount presented in the consolidated balance sheet only
when TMX Group has a current legal right to offset the amounts and intends either to settle on a net basis or to
realize the asset and settle the liability simultaneously.
TMX Group classifies its non-derivative financial assets in the following categories, depending on the purpose
for which they were acquired:
•
Financial assets at fair value through profit or loss are classified as held for trading or assets designated as
fair value through profit or loss by management and TMX Group manages the asset, and makes purchase
and sale decisions, based on its fair value in accordance with TMX Group’s documented risk management
or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, with
changes recognized in the consolidated income statement. Transaction costs thereon are expensed as
incurred.
•
•
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. Such assets are recognized initially at fair value plus any incremental directly attributable
transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost
using the effective interest method, less any impairment losses. Short-term receivables with no stated
interest rate are measured at the original transaction amounts where the effect of discounting is immaterial.
Available for sale financial assets are non-derivative financial assets that are designated as available for
sale or that are not classified in any of the previous categories. These assets are measured at fair value,
both initially and subsequently, with changes in fair value, except for impairment losses and certain foreign
exchange gains and losses, recognized in other comprehensive income until the asset is sold. Impairment
losses are recognized in the consolidated income statement as incurred, as are foreign exchange gains and
losses arising on monetary items. Foreign exchange gains and losses arising on non-monetary items, such
as an investment in an equity instrument, are recognized in other comprehensive income. When an
investment is derecognized, the cumulative gain or loss in accumulated other comprehensive income is
reclassified to the consolidated income statement.
(ii) Non-derivative financial liabilities
TMX Group initially recognizes its financial liabilities on the trade date at which TMX Group becomes a party to
the contractual provisions of the instrument. TMX Group derecognizes a financial liability when its contractual
obligations are discharged, cancelled or expired.
Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective
interest method. Short-term payables with no stated interest rate are measured at the original transaction
amounts where the effect of discounting is immaterial.
142
19
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(iii) Derivative financial instruments, including hedge accounting
TMX Group enters into certain derivative financial instrument contracts, including interest rate swaps to partially
hedge interest rate exposure on its Credit Facilities and Debentures (note 14) and total return swaps to partially
hedge its share price exposure on its cash-settled share-based compensation plans (note 22). Derivatives are
recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and
changes therein are accounted for as described below.
• Hedge accounting – Where hedge accounting can be applied, a hedge relationship is designated and
documented at its inception detailing the relationship between the hedging instrument(s) and hedged
item(s), including the risk management objectives and strategy in undertaking the hedge transaction,
together with the methods that will be used to assess the effectiveness of the hedging relationship. TMX
Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing
basis, whether the hedging instruments are expected to be “highly effective” in offsetting changes in the fair
value or cash flows of the hedged items over the life of the hedge. Hedge accounting is discontinued
prospectively when the hedging instrument is no longer effective as a hedge, the hedging instrument is
terminated or sold, or upon the sale or early termination of the hedged item.
• Cash flow hedges – For cash flow hedges, the effective portion of the changes in the fair value of the
hedging derivative, net of taxes, are recognized in other comprehensive income while any ineffective portion
is recognized immediately in the consolidated income statement within net finance costs. Interest arising on
the derivative is transferred from accumulated other comprehensive income within equity to net settlement
on interest rate swaps within net finance costs in the consolidated income statement as it is incurred.
• Similarly, if hedge accounting is discontinued, the cumulative gain or loss previously recognized in other
comprehensive income is transferred to the consolidated income statement in the same period as the
hedged item affects net income.
• Other derivatives – TMX Group holds total return swaps which, while providing a partial economic hedge
against its share price exposure on its cash-settled share-based compensation plans (note 22), are not
designated as hedges for accounting purposes. As such, these derivatives are recognized at fair value both
initially and subsequently, with changes in the fair value recognized in the consolidated income statement.
(n) Cash and cash equivalents and restricted cash and cash equivalents
Cash and cash equivalents consist of cash and liquid investments having an original maturity of three months or
less.
Cash and cash equivalents also include restricted cash. MX operates a separate regulatory division, responsible for
the approval of participants and market regulation, which operates on a cost recovery basis. Restricted cash
includes the surplus of this regulatory division. An equivalent and off-setting amount is included in trade and other
payables.
Restricted cash and cash equivalents contains tax withheld by CDS on entitlement payments made by CDS on
behalf of CDS participants. The restricted cash and cash equivalents related to this withheld tax is ultimately under
the control of CDS; however, the amount is payable to various taxation authorities within a relatively short period of
143
20
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
time and so is restricted from use in normal operations. An equivalent and off-setting amount is included in the
consolidated balance sheet under the caption participants’ tax withholdings.
(o) Marketable securities
Marketable securities consist of pooled fund investments in Canadian money market funds and short-term bond and
mortgage funds in addition to Canadian and US government-issued or government-backed fixed income securities,
treasury bills and certain term deposits. They are carried at their estimated fair values, with changes in fair value
being recorded within finance income in the consolidated income statement in the period in which they occur.
Estimated fair values are determined based on quoted market values or are based on observable market
information.
(p)
Trade and other receivables
Trade receivables generally have terms of 30 days. The recoverability of the trade receivables is assessed at each
reporting date and an allowance for doubtful accounts is deducted from the asset’s carrying value if the asset is not
considered fully recoverable. Any change in the allowance is recognized within general and administration costs in
the consolidated income statement.
(q)
Finance income and finance costs
Finance income comprises interest income on funds invested, and changes in the fair value of marketable
securities.
Finance costs comprise interest expense on borrowings and finance leases.
Any realized gains or losses on interest rate swaps are also included within net finance costs in the consolidated
income statement.
(r)
Future accounting changes
A number of other new standards and amendments to standards and interpretations are not yet effective for the year
ending December 31, 2013, and have not been applied in preparing the financial statements. These new and
amended standards and interpretations are required to be implemented for financial years beginning on or after
January 1, 2014, unless otherwise noted:
•
Investment Entities (Amendments to IFRS 10, Consolidated Financial Statements, IFRS 12, Disclosure of
Interests in Other Entities and IAS 27, Separate Financial Statements) – The amendments require qualifying
investment entities to account for investments in controlled entities at fair value through profit or loss (FVTPL).
The consolidation exception is mandatory—not optional. The amendments are effective for annual periods
beginning on or after January 1, 2014.
•
Amendments to IAS 32, Financial Instruments: Presentation – The amendments clarify that an entity currently
has a legally enforceable right to set-off if that right is not contingent on a future event, and enforceable both in
the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all
144
21
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
•
•
•
•
counterparties. Also, the amendments clarify when a settlement mechanism provides for a net settlement or
gross settlement that is equivalent to net settlement. The amendments are effective for annual periods
beginning on or after January 1, 2014.
Novation of derivatives and continuation of hedge accounting (Amendments to IAS 39, Financial Instruments:
Recognition and Measurement) – The amendments add a limited exception to provide relief from
discontinuing a hedge relationship when a novation that was not contemplated in the original hedging
documentation meets specific criteria. The amendments are effective for annual periods beginning on or after
January 1, 2014.
IFRIC 21, Levies – IFRIC 21 provides guidance on accounting for levies in accordance with the requirements
of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an
outflow from an entity imposed by a government in accordance with legislation and confirms that a liability for
a levy is recognized only when the triggering event specified in the legislation occurs. The interpretation is
effective for annual periods beginning on or after January 1, 2014.
IFRS 9, Financial Instruments – IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition
and Measurement, on the classification and measurement of financial assets and financial liabilities. Financial
assets will be classified into one of two categories on initial recognition: amortized cost or fair value. For
financial liabilities measured at fair value under the fair value option, changes in fair value attributable to
changes in credit risk will be recognized in other comprehensive income, with the remainder of the change
recognized in profit or loss. The mandatory effective date has yet to be determined; however it will be deferred
beyond annual periods beginning on or after January 1, 2015.
IFRS 14, Regulatory Deferral Accounts – IFRS 14 permits first-time adopters to continue to recognize
amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt
IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such
amounts, the standard requires that the effect of rate regulation must be presented separately from other
items. An entity that already presents IFRS financial statements is not eligible to apply the standard. IFRS 14
is effective from January 1, 2016, with early application permitted.
The Company intends to adopt each of the above standards, as applicable to the Company, in the year in which they
are effective, The Company is reviewing these new standards and amendments to determine the potential impact on
the Company’s financial statements once they are adopted. At this time, no significant impact is expected on the
Company’s results.
3.
Acquisitions and disposals
(a)
Acquisition of the Transfer Agent and Corporate Trust Business of Equity Financial Holdings
On April 5, 2013, TMX Group completed the acquisition of the transfer agent and corporate trust services business
of Equity Financial Holdings Inc. by acquiring certain of its assets constituting a business. The business, named
TMX Equity Transfer Services Inc. (“Equity Transfer”), offers corporate trust, registrar, transfer agency, and foreign
exchange services to reporting issuers and private companies. Equity Transfer is part of the Company’s Cash
reporting segment.
145
22
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Consideration of $64.0 was paid in cash. The Company expensed certain acquisition-related costs of $0.5. These
costs have been included within the general and administration line item in the consolidated income statement.
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed as of the
acquisition date:
Trade and other receivables
Premises and equipment
Technology
Customer list
Trade name
Goodwill
Total net assets
Amortization period
n/a
3 - 5 years
5 years
15 years
n/a
n/a
As at April 5, 2013
$
$
0.7
0.9
0.2
16.8
1.6
43.8
64.0
Any changes in facts and circumstances that existed as of the acquisition date will result in revisions to the
provisional amounts recognized at the acquisition date.
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and
the provisional fair values assigned to the assets acquired and liabilities assumed. The goodwill recognized
represents intangible assets that do not qualify for separate recognition and revenue synergies and other benefits
expected to result from the acquisition of Equity Transfer. Goodwill recognized is expected to qualify as an eligible
capital expenditure and therefore will be deductible for tax purposes.
(b) Agreement with FTSE Group (“FTSE”) and the sale of the fixed income index business
On April 5, 2013, the Company completed the transaction to combine its fixed income index business, PC-Bond,
with the international fixed income index business of FTSE. FTSE is part of the London Stock Exchange Group.
FTSE owns a 75% interest and TMX Group holds a 25% interest in this new enterprise, called FTSE TMX Global
Debt Capital Markets Limited.
As a result of the transaction, the Company received $155.1 in consideration, which included $103.8 in cash and
250 Ordinary B shares of FTSE TMX Global Debt Capital Markets Limited, representing a 25% interest, which have
been valued at $51.3. The Company disposed of net assets of $149.7. The disposed assets were previously
revalued from a book value of $34.6 to a fair value of $149.7 upon the acquisition of TMX Group Inc. by Maple,
resulting in an increase of $115.1 in intangibles and goodwill.
On a consolidated basis, the Company realized a gain before tax of $5.4 which is recognized in the income
statement. The accounting gain before income tax differs substantially from the taxable capital gain due to the
increase in the value of the intangibles and goodwill which has no tax basis. For the year ended December 31, 2013,
the Company recognized deferred income tax expense of $11.3.
The Company used $100.0 of the cash proceeds to pay down the TMX Group Limited revolving credit facility on
April 12, 2013.
146
23
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(c) Operating agreements with the Canadian Securities Administrators (“CSA”)
CDS Inc. operates the SEDAR, NRD and SEDI services (the “CSA Services”) on behalf of the CSA. The current
contract with the CSA was originally set to expire on October 31, 2013 as a new service provider has been secured
to take over these services. On October 31, 2013, an arrangement was negotiated between CDS and securities
regulators that could extend services up to January 31, 2014. The CSA Services were transitioned on January 13,
2014 and the contract terminated on January 31, 2014. At December 31, 2013, the Company has accrued $1.8 for
termination and related costs associated with the wind down of this operation.
4.
Segmented information
Following the acquisition of TMX Group Inc. on July 31, 2012, and the acquisitions of CDS and Alpha on August 1,
2012, TMX Group assessed its operations in terms of segment reporting. As a result, TMX Group determined that it
operates in four reportable segments along with a Corporate segment: the Cash Markets (“Cash”) segment, the
Derivatives Markets (“Derivatives”) segment, the Energy Markets (“Energy”) segment and the CDS segment.
In the Cash segment, TMX Group owns and operates two of Canada’s national stock exchanges, Toronto Stock
Exchange and TSX Venture Exchange, Alpha, which also operates an exchange for the trading of securities,
Shorcan, a fixed income inter-dealer broker, The Equicom Group Inc., an investor relations and corporate
communications services provider, Finexeo S.A. (“Finexeo”), which operates TMX Atrium, Equity Transfer and
Razor Risk Technologies Limited (“Razor”), a provider of risk management technology solutions.
The Derivatives segment provides markets for trading derivatives and clearing options and futures contracts, certain
OTC products and REPO agreements through MX and its subsidiaries, including CDCC and BOX.
The Energy segment provides a marketplace for the trading and clearing of natural gas, electricity and crude oil
contracts through NGX, and includes the brokering of crude oil contracts through Shorcan Energy Brokers Inc.
(“Shorcan Energy Brokers”), a wholly-owned subsidiary of Shorcan.
The CDS segment contains CDS Clearing, which operates the automated facilities for the clearing and settlement of
securities transactions and custody of securities in Canada. The CDS segment also includes CDS Inc., which
operates the CSA Services (note 3). This segment includes CDS Innovations Inc., which creates and disseminates
information products on Canadian securities.
In addition, TMX Group has certain corporate costs and other balances not allocated across the group. These
balances, along with certain consolidation adjustments, are presented in the Corporate segment.
147
24
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Up to July 31, 2012, TMX Group Limited did not carry on any material business other than in connection with the
above acquisitions.
TMX Group’s Executive Committee reviews internal management reports on a regular basis and performance is
measured based on revenue and net income attributable to equity holders of the Company.
The accounting policies of the reportable segments are consistent with the accounting policies described in note 2.
Year ended December 31
2013
Revenue:
Cash
Derivatives
Energy
CDS
Corporate
Total
Issuer services
Trading, clearing, depository and related
Information services
Technology services and other
REPO interest:
Interest income
Interest expense
Net REPO interest
$
186.4
90.2
157.6
16.2
-
-
-
$
-
109.2
17.4
2.6
73.4
(73.4)
-
$
Total revenue
$ 450.4
$ 129.2
$
Amortization of intangibles related to
the acquisition by Maple
Gain on sale of PC-Bond (note 3)
Deferred income tax expense related to
the sale of PC-Bond
Credit facility refinancing expenses
-
-
-
-
-
-
-
-
Net income (loss) attributable to
equity holders of the Company
Additions to intangible assets
2012
Revenue:
Issuer services
Trading, clearing, depository and related
Information services
Technology services and other
REPO interest:
Interest income
Interest expense
Net REPO interest
Total revenue
Net income (loss) attributable to
equity holders of the Company
Additions to intangible assets
$ 130.2
$
29.4
$
$
26.4
8.6
Cash
Derivatives
$
80.2
35.5
67.8
6.0
-
-
-
$ 189.5
$
$
48.1
4.4
$
$
$
$
-
44.0
7.1
1.4
18.6
(18.6)
-
52.5
13.3
6.2
$
$
$
$
$
$
-
41.9
0.7
0.5
-
-
-
43.1
-
-
-
-
8.6
1.4
Energy
-
18.4
0.1
0.1
-
-
-
18.6
5.6
0.5
$
$
$
$
$
$
$
$
3.0
61.9
6.1
17.9
-
-
-
88.9
-
-
-
-
11.0
0.8
$
$
$
$
(0.1)
(0.1)
(0.3)
(10.6)
-
-
-
(11.1)
(35.5)
5.4
(11.3)
(16.4)
$ 189.3
303.1
181.5
26.6
73.4
(73.4)
-
$ 700.5
(35.5)
5.4
(11.3)
(16.4)
(52.3)
$ 123.9
(1.4)
$
38.8
CDS
Corporate
Total
1.1
26.7
2.5
6.8
-
-
-
37.1
-
-
$
$
$
$
-
(0.1)
(0.1)
(3.0)
-
-
-
(3.2)
$
81.3
124.5
77.4
11.3
18.6
(18.6)
-
$ 294.5
(51.9)
0.6
$
$
15.1
11.7
148
25
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
As at December 31
2013
Investments in equity accounted investees
Total assets
Total liabilities
2012
Investments in equity accounted investees
Total assets
Total liabilities
Cash
Derivatives
Energy
CDS
Corporate
Total
$
$
$
$
66.7
1,850.0
998.7
14.6
2,003.2
1,114.1
-
$
11,291.8
10,244.7
-
$
8,867.1
7,829.4
$
$
-
941.9
893.6
-
844.3
795.2
-
532.1
469.5
-
513.5
457.5
$
$
0.3
1,879.7
918.2
0.3
1,814.1
946.6
$
$
67.0
16,495.5
13,524.7
14.9
14,042.2
11,142.8
TMX Group’s geographical information is as follows:
For the year ended December 31
Revenue
Canada
US
Other
$
$
Revenue is allocated based on the country to which customer invoices are addressed.
As at December 31
Non-current assets
Canada
US
Other
$
$
2013
509.9
149.5
41.1
700.5
2013
4,706.5
190.1
21.8
4,918.4
2012
218.3
61.0
15.2
294.5
2012
4,790.7
186.0
28.2
5,004.9
$
$
$
$
Non-current assets above are primarily comprised of premises and equipment, investments in equity accounted
investees, goodwill and intangible assets.
149
26
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
5.
Finance income and finance costs
For the year ended December 31
Finance income
Interest income on funds invested
Fair value losses on marketable securities:
- unrealized
Finance costs
Interest expense on borrowings,
including amortization of financing fees
Net settlement on interest rate swaps
Interest expense on finance leases
Credit facility refinancing costs
Write-off of prepaid financing fees
Gain on unwind of interest rate swaps
Gain on de-designated interest rate swaps
Other expenses associated with refinancing
Note
$
15
14
15
15
2013
3.3
(0.2)
3.1
(58.4)
(2.0)
(0.2)
(60.6)
(18.5)
1.6
1.3
(0.8)
(16.4)
$
2012
2.6
(0.2)
2.4
(26.6)
(1.2)
(0.1)
(27.9)
-
-
-
-
-
Net finance costs
$
(73.9)
$
(25.5)
6.
Earnings per share
For the year ended December 31
Net income attributable to the equity holders of the Company
Weighted average number of common shares outstanding - basic
Effect of dilutive share options
Weighted average number of common shares outstanding - diluted
Basic earnings per share
Diluted earnings per share
2013
123.9
2012
$ 15.1
54,041,528
77,990
54,119,518
21,047,309
51,670
21,098,979
2.29
2.29
$ 0.72
$ 0.72
$
$
$
150
27
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
7.
Cash and cash equivalents, restricted cash and cash equivalents and marketable securities
Cash and cash equivalents, restricted cash and cash equivalents and marketable securities are comprised of:
Cash
Overnight money market
Treasury bills
Restricted cash – MX
Cash and cash equivalents
$
December 31, 2013
56.7
83.6
69.8
2.1
212.2
$
December 31,2012
$ 69.9
36.1
47.0
3.5
156.5
$
Restricted cash and cash equivalents – CDS Clearing
Restricted cash and cash equivalents
Money market funds
Bonds and bond funds
Treasury bills
Guaranteed Investment Certificates (“GICs”) and other deposits
Marketable securities
$
$
$
$
102.9
102.9
$
$
67.9
67.9
26.6
25.9
11.5
3.0
67.0
$ 34.9
33.6
11.0
9.5
$ 89.0
TMX Group’s exposure to interest rate risk and a sensitivity analysis for marketable securities is discussed in note
25.
8.
Trade and other receivables
Trade and other receivables are comprised of:
Trade receivables, gross
Less: Allowance for doubtful accounts
Trade receivables, net
Other receivables
Trade and other receivables
$
December 31, 2013
75.7
(4.4)
71.3
12.3
83.6
$
December 31, 2012
$ 88.5
(7.8)
80.7
8.4
$ 89.1
Trade and other receivables are regularly reviewed for objective evidence of impairment.
Trade receivables that are more than three months past due are considered to be impaired, and an allowance,
which varies depending on the age of the receivable, is recorded within general and administration costs. Other
specific trade receivables are also provided against as considered necessary.
The aging of the trade receivables was as follows:
Not due
Past due 1-90 days
More than 90 days past due
Trade receivables
$
$
As at December 31, 2013
Allowance
Gross
0.2
52.0
0.2
18.0
4.0
5.7
4.4
75.7
$
$
As at December 31, 2012
Allowance
Gross
0.1
51.7
0.2
28.3
7.5
8.5
7.8
88.5
$
$
$
$
151
28
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
The movement in TMX Group’s allowance for doubtful accounts is as follows:
Balance, beginning of the period
Allowance recognized through business combinations
Allowance recognized in the year, net of allowance released
Receivables written off as uncollectible
Balance as at December 31
$
$
2013
7.8
-
1.6
(5.0)
4.4
$
$
2012
-
8.5
(0.1)
(0.6)
7.8
No allowance for impairment is considered necessary for other receivables.
9.
Other current assets
Prepaid expenses
Total return swaps (note 24)
Other current assets
10.
Investments in equity accounted investees
Investment in FTSE TMX Global Debt Capital Markets Limited
Other
Investments in equity accounted investees
(a)
FTSE TMX Global Debt Capital Markets Limited
December 31, 2013
December 31, 2012
$
$
10.2
1.0
11.2
$ 14.9
0.1
$ 15.0
$
December 31, 2013
51.8
15.2
67.0
$
$
December 31, 2012
-
14.9
$ 14.9
As of April 5, 2013, TMX Group has an indirect 25% equity interest in FTSE TMX Global Debt Capital Markets
Limited (note 3). The investment is accounted for using the equity method.
Summary financial information for FTSE TMX Global Debt Capital Markets Limited is as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Revenue
Net income and comprehensive income (100%)
Share of profit and total comprehensive income (25%)
December 31, 2013
$
$
$
$
19.2
153.0
22.4
1.0
148.8
17.2
2.1
0.5
For the year ended December 31, 2013, TMX Group earned $1.1 from FTSE TMX Global Debt Capital Markets
Limited as part of its royalty program, which is included in information services revenue and the cash segment.
152
29
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
11. Goodwill and intangible assets
(a) Goodwill and intangible assets – indefinite life
A summary of the changes in goodwill is as follows:
Balance, beginning of the period
Additions through business combinations:
Acquisition of TMX Group Inc.
Acquisition of CDS
Acquisition of Alpha
Acquisition of Equity Transfer (note 3)
Sale of PC-Bond (note 3)
Effect of movements in exchange rates
$
2013
1,320.4
$
-
-
-
43.8
(74.3)
3.9
2012
-
1,053.4
99.8
166.9
-
-
0.3
Balance as at December 31
$
1,293.8
$
1,320.4
A summary of TMX Group’s indefinite life intangible assets, all acquired through business combinations (note 3), is
as follows:
Trade
names
Derivative
products
Regulatory
designations
$
-
$
-
$
-
$
Index
license
product
-
Structured
products
Total
$
-
$
-
253.0
-
1.9
254.9
632.0
-
-
632.0
$
1,386.0
22.0
1.0
$ 1,409.0
37.0
-
-
37.0
107.0
-
-
107.0
$
2,415.0
22.0
2.9
$ 2,439.9
$
Balance as at January 1, 2012
Additions through business
combinations:
Acquisition of TMX Group Inc.
Acquisition of CDS
Acquisition of Alpha
Balance as at December 31, 2012
$
Additions through business
combinations:
Acquisition of
Equity Transfer (note 3)
Sale of PC-Bond (note 3)
Effect of movements in
exchange rates
Balance as at December 31, 2013
$
256.8
$
632.0
$ 1,409.2
$
1.6
-
0.3
-
-
-
-
-
0.2
-
(37.0)
-
-
-
-
-
1.6
(37.0)
0.5
$
107.0
$ 2,405.0
These assets are considered to have indefinite lives as management believes that there is no foreseeable limit to
the period over which the assets are expected to generate net cash flows.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuous use and that are largely independent of the
cash inflows of other assets or groups of assets.
153
30
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
The carrying values of goodwill and indefinite life intangible assets allocated to each CGU are as follows:
CGU
TSX
MX
TSX Venture Exchange
CDS
PC-Bond
NGX
BOX
Other
$
Goodwill
December 31, 2013
Indefinite life
intangibles
Goodwill
December 31, 2012
Indefinite life
intangibles
$
659.8
269.2
126.3
89.5
-
9.6
36.0
103.4
1,195.0
668.0
392.0
22.0
-
112.0
6.1
9.9
$ 659.8
269.2
126.3
89.5
74.3
9.6
34.5
57.2
$ 1,195.0
668.0
392.0
22.0
37.0
112.0
5.7
8.2
$
1,293.8
$
2,405.0
$ 1,320.4
$ 2,439.9
The recoverable amounts of the above CGUs were determined based on value-in-use calculations, using
management’s discounted cash flow projections over periods of 5 to 8 years, depending on the CGU, along with a
terminal value. The terminal value is the value attributed to the CGUs’ operations beyond the projected time period.
Specifically for MX, a cash flow projection period of 8 years was used, which is consistent with the original
acquisition economics, and reflects the stage of its product life cycle with significant long-term growth potential
remaining beyond a 5 year forecast. The terminal value for the CGUs was determined using an estimated long-term
growth rate of 2% to 4.5%, which is based on TMX Group’s estimates of expected future operating results, future
business plans, economic conditions and a general outlook for the industry in which the CGU operates.
In calculating the recoverable amount of these CGUs, a pre-tax discount rate is used. The pre-tax discount rate
applied was 12.7% to 16.5%, which was set considering the weighted average cost of capital of TMX Group and
certain risk premiums, based on management’s past experience.
These assumptions are subjective judgements based on TMX Group’s experience, knowledge of operations and
knowledge of the economic environment in which it operates. It is possible that, if future cash flow projections, long-
term growth rates or pre-tax discount rates are different to those used, the outcome of future impairment tests could
result in a different outcome with a CGU’s goodwill and/or intangible assets being impaired.
No impairment was identified as a result of the tests discussed above for 2013.
Management has determined that the BOX CGU may be subject to a reasonably possible change to one or more of
the key assumptions used to determine recoverable amount that could cause the BOX CGU to become impaired.
The following table sets out the change required in each key assumption used, on a stand-alone basis, that would
cause the recoverable amount of the BOX CGU to equal its carrying value.
CGU
BOX
Headroom*
Key assumptions used
Terminal
growth
rate
Discount
rate
Cash flow
decrease
Break-even sensitivities
Discount
rate
increase
Terminal
growth rate
decrease
$
3.2
15.7%
4.5%
3.3%
0.4%
0.4%
*Headroom represents the amount by which the recoverable amount of the CGU exceeds its carrying value.
154
31
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(b)
Intangible assets – definite life
A summary of TMX Group’s definite life intangible assets is as follows:
Cost:
Balance as at January 1, 2012
Additions through business combinations:
Acquisition of TMX Group Inc.
Acquisition of CDS
Acquisition of Alpha
Additions through general operations
Adjustments
Effect of movements in exchange rates
Balance as at December 31, 2012
Additions through business combinations:
Acquisition of Equity Transfer (note 3)
Additions through general operations
Adjustments
Disposals/write-offs
Effect of movements in exchange rates
Balance as at December 31, 2013
$
$
Technology
Customer
relationships
CSA
contracts
Open
interest
Total
$
-
$
-
$
-
$
-
$
-
48.2
2.2
-
11.9
3.8
(0.3)
65.8
0.2
20.2
(2.7)
-
2.3
85.8
1,143.0
-
8.0
-
-
(1.1)
$ 1,149.9
$
16.8
-
-
(66.4)
9.5
-
2.0
-
-
-
-
2.0
-
-
-
-
-
2.0
-
-
-
-
-
1,193.2
4.2
8.0
11.9
3.8
(1.4)
$ 2.0
$ 1,219.7
-
-
-
-
-
17.0
20.2
(2.7)
(66.4)
11.8
$
1,109.8
$
2.0
$
2.0
$
1,199.6
Accumulated amortization:
Balance as at January 1, 2012
Charge for the period
Adjustments
Effect of movements in exchange rates
Balance as at December 31,2012
Charge for the year
Adjustments
Disposals/write-offs
Effect of movements in exchange rates
Balance as at December 31, 2013
$
-
7.0
2.3
(0.1)
$ 9.2
16.2
(2.4)
-
1.5
24.5
$
Net book values:
At December 31, 2013
At December 31, 2012
$
61.3
$ 56.6
$
$
$
$
-
17.6
-
(0.1)
$ 17.5
41.2
3.4
0.9
63.0
$
-
0.4
-
-
$ 0.4
1.6
-
-
-
2.0
$
$
$
$
-
1.7
-
-
1.7
0.3
-
-
-
2.0
$
-
26.7
2.3
(0.2)
$ 28.8
59.3
(2.4)
3.4
2.4
91.5
$
1,046.8
1,132.4
$
-
$ 1.6
$
-
$ 0.3
$
1,108.1
$ 1,190.9
At the end of each reporting period, TMX Group assesses whether there is any indication that any of its definite life
intangible assets may be impaired, and performs an impairment analysis where indicators are noted. An impairment
loss is recognized when the carrying amount of an asset exceeds its recoverable amount, which is the higher of the
asset’s fair value less costs of disposal and its value-in-use.
No impairment was identified as a result of the assessment discussed above for 2013.
155
32
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
12. Other non-current assets
Investment in equity accounted investees (note 10)
Accrued employee benefit assets (note 13)
Investments in privately-owned companies (note 24)
Premises and equipment
Other
Other non-current assets
13. Employee future benefits
(a)
Defined contribution plans
December 31, 2013
December 31, 2012
$
$
67.0
16.7
0.8
43.4
1.1
129.0
$
$
14.9
4.3
0.8
36.8
1.3
58.1
The total expense recognized in respect of TMX Group’s defined contribution plans for the year ended December
31, 2013, was $5.9 (2012 - $2.1), which represents the employer contributions for the period.
(b) Defined benefit plans
TMX Group measures the present value of its defined benefit obligations and the fair value of plan assets for
accounting purposes as at the balance sheet date of each fiscal year. The most recent actuarial valuation of the
registered pension plan for funding purposes was as at December 31, 2012, and the next required valuation is as at
December 31, 2015. For the TMX Group Inc. RCA plans, the most recent actuarial valuations for funding purposes
were as at December 31, 2012, and the next required valuations are as at December 31, 2013. For the CDS RCA
plan, the funding valuation is performed annually with the most recent actuarial funding valuation completed as of
January 1, 2013.
The accrued benefit assets and accrued benefit obligations related to TMX Group’s defined benefit pension and
non-pension post-retirement plans are included in TMX Group’s consolidated balance sheet as follows:
As at December 31
Accrued employee benefit assets
Accrued employee benefits payable
$
$
Pension and RCA
plans
2012
2013
16.7
(2.2)
14.5
$ 4.3
(6.0)
(1.7)
$
Other post-retirement
benefit plans
2012
2013
-
(10.6)
(10.6)
$
-
(10.9)
$ (10.9)
$
$
156
33
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Accrued employee benefits payable on the consolidated balance sheet also includes the obligation under the post-
employment benefit plan of $1.3 (2012 - $1.4).
Pension and RCA
plans
2012
2013
Other post-retirement
benefit plans
2012
2013
Accrued benefit obligation:
Balance, beginning of the year
Recognized through business combinations
Current service cost
Past service cost
Loss (gain) on settlement/curtailment
Interest cost
Benefits paid
Settlements paid
Employee contributions
Actuarial losses (gains)
$
$ 100.2
-
3.1
(0.3)
0.7
4.2
(3.6)
(3.2)
0.2
(7.8)
-
92.3
1.4
(0.3)
0.5
1.8
(1.7)
-
0.1
6.1
Balance as at December 31
$
93.5
$ 100.2
$
$ 10.9
$
-
0.5
-
-
0.5
(0.3)
-
-
(1.0)
10.6
-
-
-
0.3
-
(0.3)
-
-
$
$
-
10.7
0.2
-
(0.3)
0.2
(0.1)
-
-
0.2
10.9
-
-
-
0.1
-
(0.1)
-
-
-
$
$
$ 98.5
-
4.3
6.7
0.2
(6.7)
(0.4)
5.4
-
93.2
1.8
5.1
0.1
(1.7)
0.1
(0.1)
$
$
108.0
$ 98.5
$
-
$
14.5
$ (1.7)
$
(10.6)
$ (10.9)
December 31, 2013
Percentage of plan assets
December 31, 2012
49.0%
31.7%
19.3%
100.0%
49.4%
37.7%
12.9%
100.0%
Plan assets:
Fair value, beginning of the year
Recognized through business combinations
Interest income
Employer contributions
Employee contributions
Benefits paid
Plan administration cost
Actuarial gains (losses)
Fair value as at December 31
Accrued benefit asset (liability)
as at December 31
Plan assets consist of:
Asset category
Equity securities
Debt securities
Other
The plan assets include units held in a pooled fund investment which holds less than 0.071% shares in TMX Group
Limited as at December 31, 2013.
157
34
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
The elements of TMX Group’s defined benefit plan costs recognized in the year are as follows. The full cost is
recognized within compensation and benefits in the consolidated income statement.
For the year ended December 31
Current service cost
Past service cost
Loss (gain) on settlement/curtailment
Net interest cost
Plan administration cost
Net benefit plan expense recognized in the
consolidated income statement
$
Pension and RCA plans
2013
3.1
(0.3)
0.7
(0.1)
0.1
2012
$ 1.4
(0.3)
0.5
-
-
$
$
3.5
$ 1.6
$
Other post-retirement benefit
plans
2012
2013
0.5
-
-
0.5
-
1.0
$ 0.2
-
(0.3)
0.2
-
$ 0.1
TMX Group recognizes experience adjustments and the effects of changes in actuarial assumptions immediately in
other comprehensive income. The aggregate actuarial gains and losses and effects of asset limits recognized in
other comprehensive income are as follows:
Effect due to demographics
Effect due to financial assumptions
Effect due to experience adjustments
Return on plan assets (excluding interest income)
Actuarial (gains) losses recognized in
other comprehensive income
Pension and RCA plans
$
$
2013
1.9
(8.1)
(1.7)
(5.1)
$
2012
-
-
6.2
(0.1)
Other post-retirement benefit
plans
2012
2013
$
(0.2)
(0.8)
-
-
-
0.2
-
-
$
(13.0)
$
6.1
$
(1.0)
$ 0.2
The significant actuarial assumptions adopted in measuring the obligation are as follows (weighted average):
As at December 31
Discount rate
Commuted value
Rate of compensation increase
Pension and RCA plans
2012
Other post-retirement benefit plans
2012
2013
4.90%
4.00%
3.50%
4.35%
3.10%
3.50%
2013
4.90%
n/a
n/a
4.35%
n/a
n/a
Assumptions regarding mortality rates are based on published statistics and mortality tables. The mortality tables
used in 2013 for the pension, RCA and other post-retirement plans was the Canadian Pensioner Mortality
Experience RPP2014 private sector mortality table (2012 – Uninsured Pensioner 1994 Mortality Table).
The assumed health care cost trend rate at December 31, 2013 was 6.75% decreasing to 4.50% over 16 years
(2012 – 6.9% decreasing to 4.5% over 17 years).
Decreasing the discount rate by 0.5% or increasing the mortality rate would increase the accrued benefit obligation
related to the pension and RCA plans by $5.4 and $1.3, respectively. Increasing or decreasing the assumed health
care cost trend rates by one percentage point would have a minimal effect on the accrued benefit obligation related
to the non-pension post-retirement plan.
158
35
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
MX has provided a letter of guarantee in the amount of $0.6 (2012 – $0.7) to the benefit of the trustee of the MX
supplementary pension plan, using a part of the operating line of credit in place with its bank (note 14).
In 2014, TMX Group expects to contribute approximately $4.6 to its pension and other post-retirement benefit plans.
Additional amounts to be contributed to the Company’s RCA plans will be determined by management once the
valuations have been prepared.
159
36
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
14. Debentures, credit and liquidity facilities
TMX Group has the following debentures, credit and liquidity facilities in place as at December 31:
Interest rate
Maturity date
Authorized/
Carrying value
Carrying value
Principal
at December 31
at December 31
2013
2012
$
$
$
$
$
$
$
Series A Debentures
Series B Debentures
3.253%
October 3, 2018
$
4.461%
October 3, 2023
Series C Debentures
3 month B.A. + 70 bps
October 3, 2016
400.0
250.0
350.0
Total debentures
TMX Group Limited
term facility
1 month B.A. + 150 bps
July 31, 2016
$
309.5
TMX Group Limited
revolving facility
1 month B.A. + 150 bps
July 31, 2016
150.0
1 month LIBOR + 150 bps
Less: unamortized financing costs
Total loans payable
MX operating line of credit
CDS Limited operating demand loan
CDS Inc. operating demand loan
CDS Clearing operating demand loan
CDS Clearing overdraft facility
CDS Clearing overnight loan facility
Total credit facilities
CDS Clearing secured standby
liquidity facility
-
-
-
-
-
-
-
CDCC syndicated revolving standby
Bank of Canada
liquidity facility
rate of 1.25%
CDCC daylight liquidity facilities
CDCC syndicated REPO facility
Bank of Canada liquidity facilities
NGX letter of credit
NGX overdraft facility
NGX EFT daylight liquidity facility
Shorcan overdraft facility
Total liquidity facilities
Total credit and liquidity facilities
-
-
-
-
-
-
-
160
n/a
n/a
n/a
n/a
n/a
n/a
$
3.0
6.0
5.0
10.0
5.0
US$5.5
n/a
$
200.0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
200.0
700.0
12,300.0
n/a
US$100.0
20.0
300.0
50.0
398.5
248.9
349.0
996.4
$
$
-
-
-
-
309.5
$
1,410.0
10.0
16.0
(4.1)
71.0
-
(27.9)
331.4
$
1,453.1
$
$
$
-
-
-
-
-
-
-
-
1.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,453.1
37
$
$
1.3
1,329.1
$
$
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(a)
Debentures
On September 30, 2013, the Company completed a private placement offering of $1,000.0 aggregate principal
amount of senior unsecured debentures (the “Debentures”) to accredited investors.
The following is a summary of certain terms of the Debentures as defined in the relevant Supplemental Indenture:
Principal amount
Term
Maturity date
Coupon
Series A
$400.0
5 years
Series B
$250.0
10 years
Series C
$350.0
3 years
October 3, 2018
October 3, 2023
October 3, 2016
3.253% per annum, payable in
4.461% per annum, payable in
3 month B.A. + 70 bps, payable
arrears in equal semi-annual
arrears in equal semi-annual
quarterly in arrears based
instalments of $6.5
(long first coupon)
instalments of $5.6
actual number of days elapsed
(long first coupon)
in the period divided by 365
(long first coupon)
The Debentures are direct, senior, unsecured obligations of the Company and rank equally with all other senior
unsecured and unsubordinated indebtedness. The Debentures have received a rating of A (high) with Stable trend
from DBRS Limited.
The Company has the right, at its option, to redeem, in whole or in part, each of the Series A and Series B
Debentures at any time prior to their respective maturities and the Series C Debentures on any interest payment
date. For the Series A and Series B Debentures, the redemption price is equal to the greater of the applicable
Canada Yield Price (as defined in the relevant Supplemental Indenture) and 100% of the principal amount of the
Debentures being redeemed to the date fixed for redemption. For the Series C Debentures, the redemption price is
equal to the greater of the Canadian Dealer Offered Rate Yield Price (as defined in the relevant Supplemental
Indenture) and 100% of the principal amount of the Debentures being redeemed. Accrued and unpaid interest will be
paid to the holder of the Series C Debentures on the relevant record date of the interest payment.
The Company incurred financing costs of $1.6, $1.1, and $1.1 for the initial issuance of the Series A, Series B and
Series C Debentures, respectively and these costs are included in the initial carrying value of the Debentures. The
Debentures are carried at amortized cost and are measured using the effective interest rate method.
The Company used $995.5 of the net cash proceeds to pay down the TMX Group Limited term facilities on
September 30, 2013.
(b)
TMX Group Limited facilities
In connection with the acquisitions of TMX Group Inc., CDS, and Alpha, the Company established credit facilities
with a syndicate of Canadian and global financial institutions comprising term facilities of $1,410.0 and a revolving
facility of $150.0, all expiring on July 31, 2016 (the “Credit Facilities”). On August 1, 2012, the Company drew
$1,538.0 under the Credit Facilities and paid $31.1 of related financing fees which are amortized over the term of the
loan. The Company may draw on these facilities in Canadian dollars by way of letters of credit, prime rate loans
161
38
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
and/or Bankers’ Acceptances (“B.A.”) or in United States (“US”) dollars by way of LIBOR loans and/or US base rate
loans. As at December 31, 2012, the balance of financing fees prepaid was $27.9 which, after repayments, left a net
loan payable of $1,453.1.
During the year ended December 31, 2013, the Company paid down $1,100.5 of the TMX Group Limited term
facilities (the “term facilities”) and paid down $45.0 of the TMX Group Limited revolving facility (2012 – paid down
$57.0 and advanced $71.0, respectively). As a result of using the net cash proceeds from the issuance of the
Debentures to pay down a portion of the term facilities, the Company recognized $18.5 of unamortized financing
costs and $0.8 in additional refinancing costs within the credit facility refinancing expenses line item in the income
statement.
During the year ended December 31, 2013, the Company incurred and capitalized $1.0 of financing fees to amend
the terms of the TMX Group Limited facilities which included the release of various guarantees provided by certain of
TMX Group’s subsidiaries as well as significantly more favourable pricing terms and less restrictive financial
covenants (note 26). The Company was in compliance with these covenants at December 31, 2013.
As at December 31, 2013, the balance of financing fees prepaid was $4.1 which left a net loan payable of $331.4.
For the year ended December 31, 2013, the Company recognized interest expense on the Credit Facilities of $50.2
(2012 – $26.6), which included $6.7 of amortized financing fees (2012 – $3.2).
(c) MX facility
MX has an outstanding letter of guarantee for $0.6 issued against the MX operating line of credit (2012 – $0.7). This
letter of guarantee has been issued as a guarantee to the trustee under the MX supplementary pension plan in
respect of accrued future employee benefits.
(d) CDS facilities
CDS maintains unsecured operating demand loans totalling $11.0 to support short-term operating requirements. To
support processing and settlement activities of participants, an unsecured overdraft facility and demand loan of
$15.0 and an overnight facility of US$5.5 are available. The borrowing rates for these facilities, if drawn, are the
Canadian prime or the US base rate, depending on the currency drawn.
CDS also maintains a US$200.0, or Canadian dollar equivalent, secured standby liquidity facility that can be drawn
in either US or Canadian currency. This arrangement is available to support processing and settlement activities in
the event of a participant default. Borrowings under the secured facility are obtained by pledging or providing
collateral pledged by participants primarily in the form of debt instruments issued or guaranteed by federal, provincial
and/or municipal governments in Canada, or US treasury instruments. Depending upon the currency drawn, the
borrowing rate for the secured standby credit arrangement is the US base rate or the Canadian prime rate.
In addition, CDS has signed agreements that would allow the Bank of Canada to provide emergency last-resort
liquidity to CDS at the discretion of the Bank of Canada. This liquidity facility is intended to provide end of day
liquidity for payment obligations arising from CDSX, and only in the event that CDS is unable to access liquidity from
162
39
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
its standby liquidity facility or in the event that the liquidity under such facilities is insufficient. Use of this facility would
be on a fully collateralized basis.
(e)
CDCC facilities
CDCC maintains daylight liquidity facilities for a total of $700.0 to provide liquidity on the basis of collateral in the
form of securities that have been received by, or pledged to, CDCC. The daylight liquidity facilities must be cleared
to zero at the end of each day.
CDCC also maintains a $200.0 syndicated revolving standby liquidity facility to provide end of day liquidity in the
event that CDCC is unable to clear the daylight liquidity facilities to zero. Advances under the facility will be secured
by collateral in the form of securities that have been received by, or pledged to, CDCC. As at December 31, 2013,
CDCC had drawn $1.3 to facilitate a failed REPO settlement. The amount is fully offset by liquid securities included
in cash and cash equivalents and was fully re-paid subsequent to the reporting date. On January 31, 2014, the
CDCC Board approved, in addition to other amendments, a further increase in this facility to $300.0.
A $12,300.0 repurchase facility is also maintained with a syndicate of six major Canadian chartered banks (the
“syndicated REPO facility”). This facility is comprised of $1,200.0 in committed liquidity and $11,100.0 in
uncommitted liquidity and is in place to provide end of day liquidity in the event that CDCC is unable to clear the
daylight liquidity facilities to zero. The facility would provide liquidity in exchange for securities that have been
received by, or pledged to, CDCC.
In addition, CDCC has signed an agreement that would allow the Bank of Canada to provide emergency last-resort
liquidity to CDCC at the discretion of the Bank of Canada. This liquidity facility is intended to provide end of day
liquidity only in the event that CDCC is unable to access liquidity from the revolving standby liquidity facility and the
syndicated REPO facility or in the event that the liquidity under such facilities is insufficient. Use of this facility would
be on a fully collateralized basis.
(f)
NGX facilities
NGX maintains a daylight liquidity facility with a major Canadian chartered bank in the amount of $300.0. This facility
may be used on settlement day to effect payments through the settlement accounts and it is intended to cover any
intra-day shortfalls due to timing of payments and receipts. In the event that amounts drawn on settlement day do
not clear to zero by the end of the day, NGX must repay the deficiency on the following business day.
In addition, a $20.0 overdraft facility is in place with the same major Canadian chartered bank. This facility is only
available to repay the daylight liquidity facility as discussed above on the business day following a settlement day.
NGX has deposited with CIBC Mellon (the “Escrow Agent”) a letter of credit in the amount of US$100.0. Contracting
parties are entitled to file with the Escrow Agent in the event of a failure by NGX to deliver or take commodities, or a
failure by NGX to pay amounts owed. Where the claim by a contracting party is not resolved by NGX and is
determined to have met the terms of the Contracting Party’s Demand under the Deposit Agreement, the Escrow
Agent will present and draw upon these letters of credit to settle the claim.
163
40
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(g)
Shorcan facility
Shorcan maintains a facility with a major chartered bank to provide end of day liquidity to cover any shortfalls due to
timing of payments and receipts. Utilization of this facility is secured by collateral in the form of securities.
15.
Interest rate swaps
TMX Group has entered into a series of interest rate swap agreements to partially manage its exposure to interest
rate fluctuations associated with the initial amount drawn on the Credit Facilities and Debentures (note 14). The
interest rate swaps in place as of December 31 are as follows:
Swap
Maturity
Interest rate
Interest rate
Notional value
Fair value liability
date
the Company
the Company
will receive
will pay
2013
2012
Series 1
September 30, 2013
1 month B.A.
Series 2
September 30, 2014
1 month B.A.
Series 3
September 30, 2015
1 month B.A.
Series 4
July 31, 2016
1 month B.A.
1.232%
1.312%
1.416%
1.499%
$
-
$
200.0
$
200.0
50.0
350.0
200.0
300.0
700.0
$
600.0
$ 1,400.0
$
2013
-
(0.2)
(0.1)
(0.1)
(0.4)
$
$
2012
-
(0.1)
(0.3)
(1.3)
(1.7)
TMX Group has designated these interest rate swaps as cash flow hedges. TMX Group’s objective is to eliminate
the variability of cash flows from interest rate payments due to be paid by TMX Group on the Credit Facilities that are
based on the 1 month variable B.A. interest rate and the Series C Debentures that are based on the 3 month B.A.,
through the use of interest rate swaps over the term of the debt. Fair value is obtained from a pricing service based
on a discounted cash flow model, which includes a credit spread.
During the year ended December 31, 2013, interest rate swaps with a notional value of $153.5 matured (2012 – $nil)
and the Company unwound interest rate swaps with a notional value of $646.5 (2012 – $nil). As a result of the
repayment of a portion of the term facilities, the Company unwound interest rate swaps with a notional value of
$600.0. Consequently, the Company recognized a gain of $1.6 within the credit facility refinancing expenses line
item in the income statement.
On September 30, 2013, as a result of the repayment of a portion of the term facilities, the Company de-designated
interest rate swaps with a notional value of $350.0 used to hedge its interest rate exposure associated with the
amounts drawn on the term facilities. Consequently, the Company recognized a gain of $1.3 within the credit facility
refinancing expenses line item in the income statement. On the same day, the Company re-designated interest rate
swaps with a notional value of $350.0 to hedge the interest rate risk associated with the Series C Debentures.
During the year ended December 31, 2013, TMX Group has determined that the hedges were effective and has
recognized within other comprehensive income unrealized fair value gains on the swaps of $1.4 during the period
(2012 – effective and unrealized losses of $2.9). In addition, TMX Group recognized $2.0 within net finance costs in
the consolidated income statement, representing the net amount paid on the interest rate swaps (2012 – received
$1.2). This amount was reclassified from other comprehensive income to net income.
164
41
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
16. Trade and other payables
Trade and other payables are comprised of:
Trade payables
Sales taxes payable
Employee and director costs payable
Accrued expenses
Regulatory deficit surplus
Other payables
Trade and other payables
December 31,
2013
9.4
4.5
45.9
28.8
2.1
14.2
104.9
$
$
December 31,
2012
$ 13.7
3.7
46.6
13.1
3.5
1.4
82.0
$
The fair value of trade and other payables is approximately equal to their carrying amount given their short term until
settlement.
17. Provisions and contingencies
(a)
Provisions
A summary of TMX Group’s provisions is as follows:
Balance as at January 1, 2012
Provisions recognized through business
combinations
Additional provisions recognized during the period
Provisions used or reversed during the period
Onerous
leases
-
Decommissioning
liabilities
-
$
Commodity tax
provision
-
$
$
$
Total
-
0.1
4.4
-
2.2
7.3
5.0
0.6
(1.8)
-
5.0
-
(1.8)
Balance as at December 31, 2012
$ 4.5
$ 2.8
$ 3.2
$ 10.5
Current
Non-current
Balance as at December 31, 2012
Provisions recognized during the period
Provisions used or reversed during the period
Balance as at December 31, 2013
Current
Non-current
Balance as at December 31, 2013
$ 4.4
0.1
$ 4.5
0.9
(4.3)
$
-
2.8
$ 3.2
$ 7.6
2.9
-
$ 2.8
4.1
(0.2)
$
3.2
0.4
-
$ 10.5
5.4
(4.5)
$
$
1.1
1.0
0.1
1.1
$
$
6.7
-
6.7
6.7
$
$
3.6
3.6
-
3.6
$
$
11.4
4.6
6.8
11.4
Included within other current liabilities in the consolidated balance sheet is $1.8 for termination and related costs
associated with the transition of CSA Services (note 3).
165
42
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(b) Contingent liabilities
From time to time in connection with its operations, TMX Group or its subsidiaries are named as a defendant in
actions for damages and costs sustained by plaintiffs, or as a respondent in court proceedings challenging TMX
Group’s or its subsidiaries’ regulatory actions, decisions or jurisdiction. The outcomes of such matters are subject to
future resolution that includes uncertainties of litigation or other proceedings. Based on information currently known
to the Company, management believes that any payment in respect of any such action, claim or proceeding is
unlikely.
18. Deferred revenue
Deferred revenue is comprised of:
Current deferred revenue
Cash segment
Energy segment
CDS Segment
Long-term deferred revenue
Energy segment
December 31,
2013
December 31,
2012
$
7.9
5.2
1.2
14.3
0.8
$ 12.2
4.3
1.5
18.0
0.7
$
15.1
$ 18.7
Deferred revenue related to the cash segment includes initial and additional listing fees for TSX Venture Exchange,
which are paid in advance of the services being provided and which are deferred until the point at which the listing
occurs and the service is completed. The cash segment also includes deferred revenue arising from annual
information service subscriptions paid throughout the year and deferred over a twelve month period.
Energy segment deferred revenue relates to NGX, which recognizes trading, clearing and related revenue over the
trade, delivery and settlement months of each transaction.
CDS segment deferred revenue relates to annual information services subscription sales which are deferred over a
twelve month period. Also included in deferred revenue are customer advances for future management services
where the revenue is deferred over the period in which the services are provided.
Long-term deferred revenue is included within other non-current liabilities on the consolidated balance sheet (note
20).
166
43
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
19. Commitments and lease obligations
TMX Group is committed under long-term leases and licenses as follows:
•
•
•
The rental of office space, under various long-term operating leases with remaining terms of up to 10 years,
including certain asset retirement obligations with regards to these leases;
The rental of computer hardware and software for remaining terms of one to four years under operating
leases; and
The rental of computer hardware and software for remaining terms of one to three years under finance
leases.
(a) Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
December 31, 2013
December 31, 2012
$
$
17.1
56.0
87.1
160.2
$ 21.3
45.4
11.8
$ 78.5
TMX Group is responsible for additional taxes, maintenance and other direct charges with respect to its leases. The
additional amount will be approximately $13.9 for 2014 (2013 – $13.1).
The figures above do not include the Company’s obligations to restore certain leased premises to their original
condition (note 17).
TMX Group has entered into sub-lease agreements with third parties for the rental of office space, and rentals
receivable from these sub-leases are as follows:
Less than one year
Between one and five years
More than five years
December 31, 2013
December 31, 2012
$
$
1.8
5.0
-
6.8
$ 1.4
5.2
0.3
$ 6.9
Payments of $32.2 were charged to the consolidated income statement in relation to operating leases, net of sub-
lease income (2012 – $13.4).
167
44
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(b)
Finance leases
Finance lease liabilities that are payable in less than one year are included in trade and other payables and the
remaining liabilities are included in other non-current liabilities on the consolidated balance sheet. Finance lease
liabilities are payable as follows:
Future
minimum
lease
payments
Interest
December 31, 2013
Present
value of
minimum
lease
payments
Future
minimum
lease
payments
Interest
December 31, 2012
Present value
of minimum
lease
payments
Less than one year
Between one and five years
$
$
2.7
3.8
6.5
$
$
0.2
0.3
0.5
$
$
2.5
3.5
6.0
$ 1.0
0.5
$ 1.5
$
$
-
-
-
$ 1.0
0.5
$ 1.5
The fair value of the finance lease liabilities is approximately equal to their carrying amount.
(c)
CDS fee commitments and rebates
Under the CDS recognition orders granted by the OSC and the AMF, fees for services and products offered by CDS
Clearing will be those fees in effect on November 1, 2011 (“2012 base fees”). CDS Clearing cannot adjust fees
without the approval of the OSC, AMF and the British Columbia Securities Commission (“BCSC”). In addition, CDS
Clearing may only seek approval for fee increases on clearing and other core CDS Clearing services (which services
are outlined in the OSC and AMF recognition orders) where there has been a significant change from circumstances
existing as at August 1, 2012, the effective date of the recognition orders.
Under the CDS recognition orders granted by the OSC and the AMF, for the two month period starting November 1,
2012 and subsequent fiscal years starting January 1, 2013, CDS will share any annual revenue increases on
clearing and other core CDS Clearing services, as compared to revenues in fiscal year 2012 (the 12 month period
ending October 31, 2012), on a 50:50 basis with participants. The rebate payable for the period from November 1,
2012 to December 31, 2013 amounted to $1.0 (2012 – $nil).
In addition, CDS will rebate an amount to participants in respect of exchange clearing services for trades conducted
on an exchange or Alternative Trading System (“ATS”) as follows:
•
•
•
•
•
$2.8 in the 12 month period ending October 31, 2013
$3.3 in the 12 month period ending October 31, 2014
$3.8 in the 12 month period ending October 31, 2015
$4.0 in the 12 month period ending October 31, 2016
$4.0 annually thereafter.
These rebates are accrued and credited against revenue in the year to which they relate.
168
45
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
20. Other liabilities
Provisions (note 17)
Deferred revenue (note 18)
Obligations under finance leases (note 19)
Other current liabilities
Accrued employee benefits payable (note 13)
Provisions (note 17)
Deferred revenue (note 18)
Obligation under finance leases (note 19)
Long-term incentive plan and director compensation obligations (note 22)
Data license payable
Other
Other non-current liabilities
December 31, 2013
December 31, 2012
$
$
$
$
6.4
14.3
2.5
23.2
14.1
6.8
0.8
3.5
17.8
-
2.0
45.0
$
$
$
$
7.6
18.0
1.0
26.6
18.3
2.9
0.7
0.5
18.7
1.9
2.0
45.0
21. Share capital
The authorized capital of the Company consists of an unlimited number of common shares and an unlimited number
of preference shares, issuable in series. No preference shares have been issued.
Each common share of the Company entitles its holder to one vote at all meetings of shareholders subject to certain
restrictions with respect to the voting rights and the transferability of the shares. No person or combination of
persons acting jointly or in concert is permitted to beneficially own or exercise control or direction over more than
10% of any class or series of voting shares of the Company without the prior approval of the OSC and the AMF.
Each common share of the Company is also entitled to receive dividends if, as and when declared by the Board of
Directors of the Company. All dividends that the Board of Directors of the Company may declare and pay will be
declared and paid in equal amounts per share on all common shares, subject to the rights of holders of the
preference shares. Holders of common shares will participate in any distribution of the net assets of the Company
upon liquidation, dissolution or winding-up on an equal basis per share, but subject to the rights of the holders of the
preference shares.
There are no pre-emptive, redemption, purchase or conversion rights attaching to the common shares, except for
the compulsory sale of shares or redemption provision described in connection with enforcing the restriction on
ownership of voting shares of the Company.
Each of CIBC World Markets Inc., National Bank Financial & Co. Inc., Scotia Capital Inc., and TD Securities Inc.,
either directly or through an affiliate, has agreed to maintain a specified minimum ownership interest in the Company
for a period of five years from September 14, 2012. During the first year, each of these investors were required to
own at least 6.25% and for each of the four following years, at least 5.625%, of the Company’s common shares
outstanding as at September 14, 2012.
169
46
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
TMX Group has entered into a nomination agreement with each of Alberta Investment Management Corporation,
Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets Inc.,
National Bank Financial & Co. Inc., Ontario Teachers’ Pension Plan Board, Scotia Capital Inc. and TD Securities
Inc., either directly or through an affiliate, (the "Nominating Investors") under which each Nominating Investor is
granted the right to nominate one director for election to the TMX Group board of directors until the earlier of (a)
September 14, 2018; and (b) such time as the Nominating Investor ceases to own, directly or indirectly, 5.0% of
TMX Group's total issued and outstanding common shares as at September 14, 2012.
During the six years following September 14, 2012, should a Nominating Investor wish to sell 0.75% or more of the
outstanding common shares of the Company, it must be done in accordance with prescribed procedures as agreed
to by the Investors.
The following transactions occurred with respect to the Company’s common shares during the period:
Balance, beginning of the period
Issued on March 1
Repurchased for cancellation on July 17
Issued on August 1
Issued on September 14
Options exercised
Balance as at December 31
Number of common shares
issued and fully paid
Share capital
2013
53,763,464
-
-
-
-
352,559
54,116,023
2012
185,718
649,984
(7,722)
37,958,026
14,939,964
37,494
2013
2012
$
2,833.7
$ 10.0
-
-
-
-
15.5
35.0
(0.4)
2,044.1
743.3
1.7
53,763,464
$
2,849.2
$ 2,833.7
The Company’s shares began trading on Toronto Stock Exchange under the symbol “X” on September 19, 2012.
22. Share-based payments
At December 31, 2013, TMX Group had the following share-based payment arrangements in place:
Share option plan
•
• Restricted share unit and deferred share unit plans
•
Employee share purchase plan.
(a)
Share option plan
The Company has a share option plan whereby all employees of TMX Group and those of its designated
subsidiaries at or above the director level are eligible to be granted share options under the share option plan.
According to the terms of TMX Group’s plan, under no circumstances may any one person’s share options and all
other share compensation arrangements exceed 5% of the outstanding common shares issued of TMX Group. At
December 31, 2013, 2,242,519 common shares of TMX Group remain reserved for issuance upon exercise of share
options granted under the plan, representing approximately 4% of the outstanding common shares of TMX Group.
170
47
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
The fair value of share options exchanged or granted was estimated on the date of exchange or grant using the
Black-Scholes option pricing model with the following assumptions: a share price of $55.15 dollars (2012 – $48.20
dollars), and depending on the tranche, dividend yield of between 3.3% and 3.4% (2012 – 3.2% and 3.3%); expected
life of between 2 and 4 years (2012 – 1 and 3 years); an expected volatility of between 18.2% and 23.0% (2012 –
14.2% and 18.7%); risk-free interest rate of between 1.1% and 1.3% (2012 – 1.1% and 1.2%); and expected
forfeiture rates of between 9.3% and 26.2% (2012 – 9.3% and 26.2%). The assumptions are based on TMX Group
Inc.’s historical share price movements and historical dividend policy and the expected life is based on TMX Group
Inc. past experience. The resulting weighted average fair value calculated for share options exchanged or granted in
2013 was $5.87 dollars (2012 – $6.37 dollars).
Options outstanding at December 31, 2013 will expire in 2014, 2015, 2016, 2017, 2018 and 2019.
Movements in the number of share options outstanding are as follows:
Outstanding, beginning of the period
TMX Group Inc. options exchanged
Granted
Forfeited
Exercised
Outstanding as at December 31
Number of
share options
2013
Weighted average
exercise price
(in dollars)
Number of
share options
1,064,883
-
683,477
(40,216)
(352,559)
1,355,585
$ 43.60
-
55.15
49.67
41.30
49.84
$
-
1,103,618
30,000
(31,241)
(37,494)
1,064,883
2012
Weighted average
exercise price
(in dollars)
$
-
43.38
49.00
40.97
43.57
$ 43.60
Vested and exercisable as at December 31
302,118
$
43.83
248,482
$ 48.95
The range of exercise prices and weighted average remaining contractual life of options outstanding are as follows:
Exercise price range
Number of share
options
$28.67 - $29.99
$30.00 - $39.99
$40.00 - $49.99
$50.00 - $52.92
46,522
3,776
566,970
738,317
1,355,585
As at
December 31, 2013
Weighted average
remaining
contractual life
3
2
5
6
5
Number of share
options
144,946
3,776
783,833
132,328
1,064,883
As at
December 31, 2012
Weighted average
remaining
contractual life
4
3
5
2
5
For the year ended December 31, 2013, TMX Group recognized compensation and benefits expense of $2.2 in
relation to its share option plan (2012 – $0.6).
171
48
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(b) Restricted share unit (“RSU”) and deferred share unit (“DSU”) plans
TMX Group has a long-term incentive plan (“LTIP”) for certain employees and officers of the Company. The LTIP
provides for the granting of RSUs which vest over a maximum of three years and are payable provided the
employee is still employed by TMX Group at the end of the second calendar year following the calendar year in
which the RSUs were granted. The amount of the award payable at the end of this vesting period will be determined
by the total shareholder return over the period. Total shareholder return represents the appreciation in share price of
the Company plus dividends paid on a common share of the Company, measured at the time the RSUs vest.
The Company has a plan that gives officers who have not met their equity ownership requirements the opportunity to
convert all or part of their short-term incentive award into DSUs. In addition, members of the Board of Directors who
do not waive their compensation or direct that it be paid to their employer are granted DSUs annually and are also
given the opportunity to convert some of their annual remuneration into DSUs. These DSUs vest immediately. The
amount of the award payable is based on the number of units outstanding multiplied by the share price of the
Company at the date of the payout. The DSUs will only be paid out when the officer or the Board member retires or
otherwise ceases to hold any position with TMX Group or such of its subsidiaries as are designated from time to
time.
Legacy RSU and DSU plans previously existed within TMX Group Inc. These plans were amended as part of the
TMX Group Inc. acquisition, including to reference shareholder return to the shares of TMX Group Limited (rather
than TMX Group Inc.) and to provide for a fixed redemption value on the amended RSUs (“Fixed RSUs”) of $50.00
per unit upon maturity.
TMX Group records its obligation for the RSUs, if any, over the service period in which the award is earned. The
liability is measured at fair value on the date of grant and at each subsequent reporting date.
As at December 31, 2013, the total accrual for TMX Group’s RSUs and DSUs is $32.2 (2012 – $32.7), which
includes $14.6 (2012 – $14.0) included in trade and other payables and $17.6 (2012 – $18.7) which is included in
other non-current liabilities. Included within the above accrual is $12.8 (2012 – $17.2) related to the Fixed RSUs.
The maximum amount to be paid is not known, except for the Fixed RSUs, until the awards become payable and will
be based on total shareholder return from the date of grant to the time of payout. The accrual is based on expected
dividend yield, continuation of the most recent quarterly dividend and the closing price of TMX Group’s common
shares at the end of the reporting period. TMX Group has purchased total return swaps (“TRSs”) to partially
economically hedge against the impact of its share price fluctuations on the non-performance based portion of the
RSUs and the DSUs (note 24).
During the year ended December 31, 2013, TMX Group recognized compensation and benefits expense and
general and administration expense of $9.2 and $1.5, respectively, in relation to its RSUs and DSUs (2012 – $4.2
and $1.4, respectively).
172
49
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(c)
Employee share purchase plan
TMX Group has an employee share purchase plan for eligible employees of the Company. Under the employee
share purchase plan, contributions by TMX Group and by eligible employees will be used by the plan administrator,
to make purchases of common shares of the Company on the open market. Each eligible employee may contribute
up to 10% of the employee's salary to the employee share purchase plan. TMX Group will contribute to the plan
administrator the funds required to purchase one common share of the Company for each two common shares
purchased on behalf of the eligible employee, up to a maximum annual contribution. Shareholder approval is not
required for this plan or any amendments to the plan.
TMX Group accounts for its contributions as compensation and benefits expense when the amounts are contributed
to the plan. Compensation and benefits expense related to this plan was $1.6 for the year ended December 31,
2013 (2012 - $0.6).
23.
Income taxes
(a)
Income tax expense recognized in the consolidated income statement
Current income tax expense:
Income tax for the current period
Deferred income tax expense:
Origination and reversal of temporary differences
Adjustments in respect of prior years
Changes in substantively enacted income tax rates
Write-down of deferred income tax assets
Total income tax expense
2013
2012
61.3
$ 22.8
0.3
(3.9)
2.7
0.5
(1.6)
-
-
-
60.9
$ 21.2
$
$
Income tax expense attributable to income differs from the amounts computed by applying the combined federal and
provincial income tax rate of 26.5% (2012 – 26.5%) to income before income taxes as a result of the following:
Income before income taxes
Computed expected income tax expense
Rate differential due to various jurisdictions
Non-deductible expenses
Non-taxable income
Sale of PC-Bond (note 3)
Adjustments in respect of prior years
Changes in substantively enacted income tax rates
Current year losses not recognized in deferred income tax assets
Write-down of deferred income tax assets
Other
Income tax expense
$
$
$
2013
184.6
2012
$ 41.7
48.9
-
1.4
0.6
9.9
(3.9)
2.7
0.7
0.5
0.1
60.9
173
$ 11.1
0.5
10.4
(0.4)
-
-
-
0.7
-
(1.1)
$ 21.2
50
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
During the year ended December 31, 2013, the British Columbia general corporate income tax rate was increased to
11% from 10%, effective April 1, 2013. The Company recognized $2.7 in deferred income tax expense as a result of
the rate change, which became substantively enacted on June 27, 2013.
(b)
Income tax recognized in other comprehensive income
Before tax
Tax
benefit
(expense)
2013
Net of tax
Before tax
2012
Net of tax
Tax
benefit
Related to interest rate swaps designated as
cash flow hedges
Related to translation of foreign entities
Related to actuarial gains (losses) on
defined benefit pension and other
post-retirement benefit plans
Total
$
$
(0.3)
13.8
14.0
27.5
$
$
0.4
(1.5)
(3.7)
(4.8)
$
$
0.1
12.3
$ (1.7)
(1.0)
$ 0.5
-
$ (1.2)
(1.0)
10.3
22.7
(6.4)
$ (9.1)
1.6
$ 2.1
(4.8)
$ (7.0)
(c)
Deferred income tax assets and liabilities
Deferred income tax assets and liabilities are attributable to the following:
Premises and equipment
Cumulative eligible capital /
intangible assets
Tax loss carry-forwards
Employee future benefits
RSUs and DSUs
Other
Net deferred income tax assets
(liabilities)
2013
$ 4.3
Assets
2012
$ 4.8
2013
$ (2.1)
Liabilities
2012
$ (1.2)
2013
2.2
$
Net
2012
$ 3.6
22.9
13.8
2.6
8.7
7.9
25.6
20.9
4.6
8.5
3.2
(894.8)
-
(3.3)
-
(0.3)
(927.6)
-
(0.1)
-
(0.1)
(871.9)
13.8
(0.7)
8.7
7.6
(902.0)
20.9
4.5
8.5
3.1
$ 60.2
$ 67.6
$ (900.5)
$ (929.0)
$ (840.3)
$ (861.4)
174
51
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Movements in the deferred income tax balances in the year are as follows:
Premises
and
equipment
Cumulative
eligible
capital/
intangible
assets
Tax loss
carry-
forwards
Employee
future
benefits
RSUs and
DSUs
Other
Total
$ -
(0.3)
$ -
4.1
$ -
2.8
$ -
(0.3)
$
-
(2.1)
$ -
(2.6)
$ -
1.6
-
3.9
-
-
(906.6)
0.5
-
18.1
-
1.6
3.2
-
-
10.6
-
0.5
5.2
-
2.1
(865.6)
0.5
$ 3.6
$ (902.0)
$ 20.9
$ 4.5
$ 8.5
$ 3.1
$ (861.4)
0.3
-
4.4
(1.5)
(1.7)
27.2
(7.1)
-
-
(1.5)
(3.7)
-
0.2
-
-
4.1
0.4
-
0.4
(4.8)
25.5
$ 2.2 $ (871.9)
$ 13.8 $ (0.7) $
8.7
$ 7.6 $ (840.3)
Balance as at
January 1, 2012
Recognized in net income
Recognized in other
comprehensive income
Recognized through
business combinations
Effect of movements in
exchange rates
Balance as at
December 31, 2012
Recognized in
net income
Recognized in other
comprehensive income
Recognized through
business combinations
/disposals
Balance as at
December 31, 2013
As at December 31, 2013, $5.7 of the above deferred income tax assets related to tax losses incurred in the legal
entities of TMX Group Limited and TMX Group Inc. (2012 – $14.4). Recoverability of these assets is dependant on
the availability of future taxable profits within these legal entities. The Company believes that these losses will be
recoverable.
No deferred income tax assets have been recognized in respect of the following temporary differences:
Tax losses
Other deductible temporary differences
2013
30.2
105.0
135.2
2012
$ 46.3
143.5
$ 189.8
$
$
$13.2 of the above income tax losses will expire by 2033 (2012 – $10.3 by 2032). The remainder have no expiry
date under currently applicable income tax legislation. Deferred income tax assets have not been recognized in
respect of these items because it is not probable that future taxable profit will be available against which the
Company can utilize the tax losses. The Company will however continue to pursue tax planning strategies to utilize
the tax losses where possible.
At December 31, 2013, deferred income tax liabilities for temporary differences of $130.0 relating to investments in
certain domestic and foreign subsidiaries were not recognized as the Company is able to control the timing of the
reversal of the temporary differences, and it is probable that the temporary differences will not reverse in the
foreseeable future (2012 - $129.3).
Temporary differences relating to the remaining domestic subsidiaries have not been recognized as the temporary
difference can be settled without tax consequences.
175
52
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
24. Financial instruments
(a)
Financial instruments – carrying values and fair values
Assets at fair value through profit or loss
- Designated
Marketable securities
- Classified
Fair value of open energy contracts
Total return swaps
Available for sale financial assets
Investments in privately-owned companies
Loans and receivables
Cash and cash equivalents
Restricted cash and cash equivalents
Trade and other receivables
Energy contracts receivable
Clearing Members cash collateral
Other balances with Clearing Members
Balances with participants
Liabilities at fair value through profit or loss
- Classified
Fair value of open energy contracts
Other financial liabilities
Participants’ tax withholdings
Trade and other payables
Accrued interest payable
Energy contracts payable
Clearing Members cash collateral
Other balances with Clearing Members
Balances with participants
Obligations under finance leases
Non-current data license payable
Liquidity facilities drawn
Loans payable
Debentures
Relationships designated under hedge accounting
Interest rate swaps
December 31, 2013
Fair value
Carrying
amount
December 31, 2012
Fair value
Carrying
amount
$ 67.0
$ 67.0
$ 67.0
$ 67.0
$ 89.0
$ 89.0
$ 89.0
$ 89.0
$ 86.9
1.0
$ 87.9
$ 86.9
1.0
$ 87.9
$ 65.7
0.1
$ 65.8
$ 65.7
0.1
$ 65.8
$ 0.8
$ 0.8
$ 0.8
$ 0.8
$ 0.8
$ 0.8
$ 0.8
$ 0.8
$ 212.2
$ 212.2
$ 156.5
$ 156.5
102.9
83.6
764.9
309.3
102.9
83.6
764.9
309.3
67.9
67.9
89.1
696.4
424.2
89.1
696.4
424.2
9,524.6
9,524.6
6,978.8
6,978.8
330.8
$ 11,328.3
330.8
$ 11,328.3
370.9
$ 8,783.8
370.9
$ 8,783.8
$ (86.9)
$ (86.9)
$ (86.9)
$ (86.9)
$ (65.7)
$ (65.7)
$ (65.7)
$ (65.7)
$ (102.9)
$ (102.9)
$ (67.9)
$ (67.9)
(55.2)
(7.7)
(764.9)
(309.3)
(9,524.6)
(330.8)
(6.0)
-
(1.3)
(331.4)
(55.2)
(7.7)
(764.9)
(309.3)
(9,524.6)
(330.8)
(6.0)
-
(1.3)
(331.4)
(51.2)
-
(696.4)
(424.2)
(6,978.8)
(370.9)
(1.5)
(1.9)
-
(51.2)
-
(696.4)
(424.2)
(6,978.8)
(370.9)
(1.5)
(1.9)
-
(1,453.1)
(1,453.1)
(996.4)
$ (12,430.5)
(1,003.8)
$ (12,437.9)
-
$ (10,045.9)
-
$ (10,045.9)
$ (0.4)
$ (0.4)
$ (0.4)
$ (0.4)
$ (1.7)
$ (1.7)
$ (1.7)
$ (1.7)
176
53
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
With the exception of the Debentures, the carrying values for TMX Group’s financial instruments approximate their
fair values at each reporting date. The fair value of the Debentures was obtained using Level 2 observable market
prices as inputs.
Fair value amounts disclosed represent current estimates that may change in the future due to market conditions or
other factors. Fair value represents the Company’s estimate of the amounts for which the Company could exchange
the financial instruments with willing third parties who were interested in acquiring the instruments. Where
calculations are performed, these calculations represent management’s best estimates based on a range of
methodologies and assumptions; since they involve uncertainties, the fair values may not be realized in an actual
sale or settlement of the instruments.
(b) NGX, CDCC and CDS clearing and settlement balances
(i) NGX clearing and settlement balances
The NGX clearing balances include the following:
• Energy contracts receivable and energy contracts payable -- These balances represent the amounts
receivable and payable where physical delivery of energy trading contracts has occurred and/or settlement
amounts have been determined but payments have not yet been made. There is no impact on the
consolidated income statement as an equivalent amount is recognized in both the assets and the liabilities.
•
Fair value of open energy contracts – These balances represent the fair value at the balance sheet date of
the undelivered physically settled energy trading contracts and the forward cash settled energy trading
contracts. Fair value is determined based on the difference between the trade price when the contract was
entered into and the settlement price. The settlement price is a price designated by NGX for each trading
instrument in each trading hub at market close and is used in conjunction with published market price
bands. Depending on the term and type of instrument, some settlement prices can be derived from actual
trading data from NGX’s trading system, basis values for NGX markets compared to NYMEX, daily market
surveys and/or industry reports. There is no impact on the consolidated income statement as an equivalent
amount is recognized in both the assets and the liabilities.
177
54
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
NGX requires each contracting party to sign the Contracting Party’s agreement; a standardized agreement that
allows for netting of positive and negative exposures associated with a single contracting party. The following
table sets out the carrying amounts of recognized financial instruments that are subject to the agreement:
Financial assets
Energy contracts receivable
Fair value of open energy contracts receivable
Financial liabilities
Energy contracts payable
Fair value of open energy contracts payable
Net amount
Financial assets
Energy contracts receivable
Fair value of open energy contracts receivable
Financial liabilities
Energy contracts payable
Fair value of open energy contracts payable
Net amount
As at December 31, 2013
Gross amount
Amount offset in the
consolidated balance
sheet
Net amounts presented
in the consolidated
balance sheet
3,609.7
500.5
4,110.2
(3,609.7)
(500.5)
(4,110.2)
-
$
$
$
$
$
(2,844.8)
(413.6)
(3,258.4)
2,844.8
413.6
3,258.4
-
$
$
$
764.9
86.9
851.8
(764.9)
(86.9)
(851.8)
-
As at December 31, 2012
Gross amount
Amount offset in the
consolidated balance
sheet
Net amounts presented
in the consolidated
balance sheet
3,919.4
349.3
4,268.7
(3,919.4)
(349.3)
(4,268.7)
-
$
$
$
$
$
(3,223.0)
(283.6)
(3,506.6)
3,223.0
283.6
3,506.6
-
$
$
$
696.4
65.7
762.1
(696.4)
(65.7)
(762.1)
-
$
$
$
$
$
$
The actual collateral pledged to NGX at December 31 is summarized below:
Cash collateral deposits
Letters of credit
December 31, 2013
719.3
$
1,794.1
2,513.4
$
December 31, 2012
672.0
$
1,596.5
2,268.5
$
These amounts are not included in the consolidated balance sheet.
178
55
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(ii) CDCC clearing, settlement and participant balances
Balances with clearing members of CDCC (“Clearing Members”) and participants, consists of:
• Daily settlements due from, and to, Clearing Members – These balances result from marking open futures
positions to market and settling option transactions each day. These amounts are required to be collected
from and paid to Clearing Members prior to the commencement of trading the next day. There is no impact
on the consolidated income statement as an equivalent amount is recognized in both assets and liabilities.
During 2013, the largest amount due from a Clearing Member was $224.9 (2012 - $122.1), and the largest
amount due to a Clearing Member was $80.9 (2012 - $96.1).
• Net amounts receivable/payable on open REPO agreements – In February 2012, CDCC launched the
clearing of fixed income REPO agreements. OTC REPO agreements between buying and selling Clearing
Members are novated to CDCC whereby the rights and obligations of the Clearing Members under the
REPO agreements are cancelled and replaced by new agreements with CDCC. Once novation occurs,
CDCC becomes the counterparty to both the buying and selling Clearing Member. As a result, the
contractual right to receive and return the principal amount of the REPO as well as the contractual right to
receive and pay interest on the REPO is thus transferred to CDCC.
These balances represent outstanding balances on open REPO agreements. Receivable and payable
balances outstanding with the same Clearing Member are offset when they are in the same currency and
are to be settled on the same day, as CDCC has a legally enforceable right to offset and the intention to net
settle. The balances include both the original principal amount of the REPO and the accrued interest, both
of which are carried at amortized cost. As CDCC is the central counterparty, an equivalent amount is
recognized in both the Company’s assets and liabilities.
The following table sets out the carrying amounts of Balances with Clearing Members that are subject to
offsetting, enforceable master netting arrangements and similar arrangements:
Asset/(Liability)
Financial assets
Daily settlements due from Clearing
Members
Net amounts receivable on
open REPO agreements
Financial liabilities
Daily settlements due to Clearing Members
Net amounts payable on
open REPO agreements
Net amount
Amount offset in the
consolidated balance
sheet
As at December 31, 2013
Net amounts presented
in the consolidated
balance sheet
Gross amount
$
$
$
$
$
28.8
17,211.7
17,240.5
(28.8)
(17,211.7)
(17,240.5)
-
$
$
$
$
$
(2.1)
(7,713.8)
(7,715.9)
2.1
7,713.8
7,715.9
-
$
$
$
$
$
26.7
9,497.9
9,524.6
(26.7)
(9,497.9)
(9,524.6)
-
179
56
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
Asset/(Liability)
Financial assets
Daily settlements due from Clearing
Members
Net amounts receivable on
open REPO agreements
Financial liabilities
Daily settlements due to Clearing Members
Net amounts payable on
open REPO agreements
Net amount
Amount offset in the
consolidated balance
sheet
As at December 31, 2012
Net amounts presented
in the consolidated
balance sheet
Gross amount
$
$
$
$
$
143.2
10,036.4
10,179.6
(143.2)
(10,036.4)
(10,179.6)
-
$
$
$
$
$
(1.5)
(3,199.3)
(3,200.8)
1.5
3,199.3
3,200.8
-
$
$
$
$
$
141.7
6,837.1
6,978.8
(141.7)
(6,837.1)
(6,978.8)
-
Balances with Clearing Members’, either as margin against as margin against open positions or as part of the
clearing fund, are held by CDCC and are recognized as an asset and an equivalent and offsetting liability is
recognized as these amounts are ultimately owed to the Clearing Members. There is no impact on the
consolidated income statement. Government securities and other securities are pledged by the Clearing
Members under irrevocable agreements and are held with CDS, a commonly controlled entity and an approved
depository. Clearing Members may also pledge escrow receipts directly with the Company.
The actual collateral pledged to CDCC at December 31 is summarized below.
Cash collateral held:
Clearing Members’ cash margin deposits
Clearing fund cash deposits
Non-cash collateral pledged:
Non-cash margin deposits
Non-cash clearing fund deposits
December 31,
2013
December 31,
2012
$
$
$
261.2
48.1
309.3
3,691.9
287.0
3,978.9
$
$
$
361.3
62.9
424.2
3,310.7
258.1
3,568.8
Non-cash collateral is held in government securities, put letters of guarantee and equity securities and is not
included in the consolidated balance sheet.
180
57
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(iii) CDS clearing, settlement and participant balances
• CDS – Cash deposits
CDS Participant Rules require participants to pledge collateral to CDS in the form of cash or securities in
amounts calculated in relation to their activities. Balances with Clearing Members and participants on TMX
Group’s consolidated balance sheet include the cash collateral pledged and deposited with CDS and cash
dividends, interest and other cash distributions awaiting distribution (“entitlements and other funds”) on
securities held under custody in the depository. The cash held is recognized as an asset and an equivalent
and offsetting liability is recognized as these amounts are ultimately owed to the participants. There is no
impact on the consolidated income statement.
Entitlements and other funds
Participants cash collateral
Balances with participants
December 31,
2013
11.9
318.9
330.8
$
$
December 31,
2012
16.2
354.7
370.9
$
$
At December 31, as a result of calculations of participants’ exposure, the total amount of collateral required
by CDS Clearing was $3,237.8 (2012 – $3,078.0). The actual collateral pledged to CDS Clearing at
December 31 is summarized below.
Cash (included within Balances with participants
on the consolidated balance sheet)
Treasury bills and fixed income securities
Total collateral pledged
December 31,
2013
December 31,
2012
$
$
318.9
3,668.7
3,987.6
$
$
354.7
3,534.8
3,889.5
Non-cash collateral is not included in TMX Group’s consolidated balance sheet.
181
58
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(c)
Fair value measurement
Asset/(Liability)
Marketable securities
Fair value of open energy contracts
Investments in privately-owned companies
Total return swaps
Fair value of open energy contracts
Interest rate swaps
Asset/(Liability)
Marketable securities
Fair value of open energy contracts
Investments in privately-owned companies
Total return swaps
Fair value of open energy contracts
Interest rate swaps
Fair value measurements using:
Assets/(liabilities)
Level 1
Level 2
Level 3
at fair value
$ 67.0
$ -
$ -
$
67.0
As at December 31, 2013
-
-
-
-
-
86.9
-
1.0
(86.9)
(0.4)
-
0.8
-
-
-
86.9
0.8
1.0
(86.9)
(0.4)
Fair value measurements using:
Assets/(liabilities)
Level 1
Level 2
Level 3
$ 89.0
$ -
$ -
at fair value
$ 89.0
As at December 31, 2012
-
-
-
-
-
65.7
-
0.1
(65.7)
(1.7)
-
0.8
-
-
-
65.7
0.8
0.1
(65.7)
(1.7)
There were no transfers during the periods between any of the levels.
(i) Marketable securities
The investment portfolio includes pooled fund investments managed by an external investment fund manager as
well as treasury bills and certain term deposits. There is no contracted maturity date for the pooled fund
investments and the contracted term for the treasury bills and term deposits is less than six months.
TMX Group has designated its marketable securities as fair value through profit and loss. Fair values have been
determined by reference to quoted market prices or are based on observable market information. Unrealized
losses of $0.2 have been reflected in net income for the year ended December 31, 2013 (2012 – unrealized
losses of $0.2) (note 5).
(ii)
Investment in privately-owned companies
The Company holds an investment in a privately-owned company, whose shares are not traded on an active
market. The fair value of this investment was recorded at cost at acquisition. Management considers cost of
the investment to approximate its fair value. There is no movement in the fair value for the year ended
December 31, 2013.
182
59
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(iv) Total return swaps (“TRSs”)
TMX Group has entered into a series of TRSs which synthetically replicate the economics of TMX Group
purchasing the Company’s shares as a partial economic hedge to the share appreciation rights of the non-
performance element of RSUs. TMX Group has also entered into a series of TRSs as a full fair value hedge
against the share price appreciation associated with the DSUs. TMX Group marks to market the fair value of
the TRSs as an adjustment to income, and simultaneously marks to market the liability to holders of the units as
an adjustment to income. Fair value is obtained from a pricing service based on a discounted cash flow model.
The fair value of the TRSs and the obligation to unit holders are reflected on the consolidated balance sheet.
The contracts are settled in cash upon maturity.
Unrealized gains and realized losses of $0.6 and $0.6 respectively have been reflected in net income in the
financial statements for the year ended December 31, 2013 (2012 – unrealized losses and realized gains of $4.4
and $4.6 respectively).
25. Financial risk management
TMX Group is exposed to a number of financial risks as a result of its operations, which are discussed below. It
seeks to monitor and minimize adverse effects from these risks through its risk management policies and
processes.
(a)
Credit risk
Credit risk is the risk of financial loss to the Company associated with a counterparty’s failure to fulfill its financial
obligations, and arises principally from TMX Group’s cash and cash equivalents and investments in marketable
securities, trade receivables, interest rate swaps, total return swaps and the clearing and/or brokerage operations of
Shorcan, Shorcan Energy Brokers, NGX, CDCC and CDS.
(i) Cash and cash equivalents
TMX Group manages its exposure to credit risk on its cash and cash equivalents and restricted cash and cash
equivalents by holding the majority of its cash and cash equivalents with major Canadian chartered banks or in
Government of Canada treasury bills.
(ii)
Investments in marketable securities
TMX Group manages its exposure to credit risk arising from investments in marketable securities by holding
investment funds that actively manage credit risk or by holding high-grade individual fixed income securities or
term deposits with credit ratings of AA-/R1-Middle or better. In addition, when holding individual fixed income
securities, TMX Group will limit its exposure to any non-government security. The investment policy of the
Company will only allow excess cash to be invested in money market securities or fixed income securities.
183
60
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
The majority of the portfolio is held within a money market fund and a specific short-term bond and mortgage
fund. The money market fund manages credit risk by limiting its investments to government or government-
guaranteed treasury bills, and high-grade corporate notes. The short-term bond and mortgage fund manages
credit risk by limiting its investments to high-quality Canadian corporate bonds, government bonds and up to
40% of the fund's net assets in conventional first mortgages and mortgages guaranteed under the National
Housing Act (Canada). Corporate bonds held must have a minimum credit rating of BBB by DBRS Limited at the
time of purchase. Mortgages may not comprise more than 40% of the portfolio and must be either multi-
residential conventional first mortgages or multi-residential government guaranteed mortgages. TMX Group
does not have any investments in non-bank asset-backed commercial paper.
(iii) Trade receivables
TMX Group’s exposure to credit risk resulting from uncollectable accounts is influenced by the individual
characteristics of its customers, many of whom are banks and financial institutions. TMX Group invoices its
customers on a regular basis and maintains a collections team to monitor customer accounts and minimize the
amount of overdue receivables. There is no concentration of credit risk arising from trade receivables from a
single customer. In addition, customers that fail to maintain their account in good standing risk loss of listing,
trading, clearing and data privileges.
(iv) Interest rate swaps and total return swaps
The Company limits its exposure to credit risk on its interest rate swaps and its total return swaps by contracting
with major Canadian chartered banks.
(v) Clearing and/or brokerage operations
TMX Group is exposed to credit risk in the event that customers, in the case of Equity Transfer, Shorcan and
Shorcan Energy Brokers, contracting parties, in the case of NGX, Clearing Members, in the case of CDCC, or
participants, in the case of CDS, fail to fulfil their financial obligations.
Equity Transfer is exposed to credit risk on foreign exchange transactions processed for clients in the event that
either the client or the financial counterparty fails to settle contracts for which foreign exchange rates have
moved unfavourably. The risk of a financial counterparty failing to settle a transaction is considered remote as
Equity Transfer deals only with reputable financial institutions comprised of Canadian major chartered banks.
Shorcan and Shorcan Energy Brokers are exposed to credit risk in the event that customers fail to settle on the
contracted settlement date. This risk is limited by their status as agents, in that they do not purchase or sell
securities for their own account. As agents, in the event of a failed trade, Shorcan or Shorcan Energy Brokers
has the right to withdraw its normal policy of anonymity and advise the two counterparties to settle directly.
184
61
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
NGX is exposed to credit risk in the event that contracting parties default on their contractual obligations to NGX
resulting in the failure to settle on the amounts due. NGX is the central counterparty to each transaction
(whether it relates to natural gas, electricity or crude oil contracts) cleared through its clearing operations. By
providing a clearing and settlement facility, NGX is subject to the risk of a counterparty default. NGX manages
this risk by applying standard rules and regulations, and using a conservative margining regime based on
industry best practices. This margining regime involves monitoring client portfolios in real-time and requiring
participants to deposit liquid collateral in excess of those valuations. NGX conducts market stress scenarios,
liquidation simulations, and backtesting regularly to test the ongoing integrity of its clearing operation. NGX also
manages and mitigates these risks through a framework of policies, regulations and procedures.
NGX requires each contracting party to provide sufficient collateral, in the form of cash or letters of credit, in
excess of the outstanding credit exposure as determined by NGX in accordance with its margining methodology.
The cash collateral deposits and letters of credit are held by a major Canadian chartered bank. This collateral
may be accessed by NGX in the event of default by a contracting party (note 24). NGX measures total potential
exposure for both credit and market risk for each contracting party on a real-time basis as the aggregate of:
•
•
•
outstanding energy contracts receivable;
“Variation Margin,” comprised of the aggregate “mark to market” exposure for all forward purchase and sale
contracts; and
“Initial Margin,” an amount that estimates the potential contracting party loss in their portfolio under an
adverse price movement to a 99.7% confidence interval during a liquidation period.
CDCC is exposed to credit risk in the event that Clearing Members fails to satisfy any of the contractual
obligations as stipulated within the CDCC’s Rules.
CDCC is exposed to the risk of default of its Clearing Members since it acts as the central counterparty for all
transactions carried out on MX’s markets and on certain OTC markets which are serviced by CDCC. It primarily
supports the credit risk of one or more counterparties defaulting on their financial obligations, in which case, the
obligations of those counterparties would become the responsibility of CDCC.
The first line of defence in CDCC's credit risk management process is the adoption of strict membership criteria
which include both financial and regulatory requirements. In addition, CDCC performs on-going monitoring of the
financial viability of its Clearing Members against the relevant criteria as a means of ensuring the on-going
compliance of its Clearing Members. In the event that a Clearing Member fails to continue to satisfy any of its
membership criteria, CDCC has the right through its Rules, to impose various forms of sanctions on such
Clearing Members.
One of CDCC’s principal risk management practices with regards to counterparty credit risk is the collection of
risk-based margin deposits in the form of cash, equities, liquid government securities and escrow receipts.
Should a Clearing Member fail to meet settlements and/or daily margin calls or otherwise not honour its
obligations, margin deposits would be seized and would then be available to apply against the costs incurred to
liquidate the Clearing Member’s positions.
185
62
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
CDCC’s margining system is complemented by a Daily Capital Margin Monitoring (DCMM) process that
evaluates the financial strength of a Clearing Member against its margin requirements. CDCC monitors the
margin requirement of a Clearing Member as a percentage of its capital (net allowable assets). CDCC will make
additional margin calls when the ratio of margin requirement/net allowable assets exceeds 100%. The additional
margin is equal to the excess of the ratio over 100% and is meant to ensure that Clearing Member leverage in
the clearing activities does not exceed the value of the firm.
An additional component to CDCC’s overall credit risk is its exposure in the default management process.
CDCC holds $10.0 million of its cash and cash equivalents and marketable securities to cover the potential loss
incurred due to Clearing Member defaults (note 26). This $10.0 million would be accessed in the event that a
defaulting Clearing Members’ margin and clearing fund deposits are insufficient to cover the loss incurred by
CDCC. The $10.0 million is allocated into two separate tranches. The first tranche of $5.0 million is intended to
cover the loss resulting from the first defaulting Clearing Member. If the loss incurred is greater than $5.0 million,
and as such the first tranche is fully depleted, CDCC will fully replenish the first tranche using the second
tranche of $5.0 million. This second tranche is in place to ensure there is $5.0 million available in the event of an
additional Clearing Member default.
CDCC’s cash margin deposits and cash clearing fund deposits are held at the Bank of Canada thereby
alleviating the credit risk CDCC was to face with deposits held at commercial banks. CDCC’s non-cash margin
deposits and non-cash clearing fund deposits are pledged to CDCC under irrevocable agreements and are held
by approved depositories (note 24). This collateral may be seized by CDCC in the event of default by a Clearing
Member.
CDS is exposed to the risk of loss due to the failure of a participant in CDS Clearing’s clearing and settlement
services to honour its financial obligations. To a lesser extent, CDS is exposed to credit risk through the
performance of services in advance of payment.
Through the clearing and settlement services operated by CDS Clearing, credit risk exposures are created.
During the course of each business day, transaction settlements can result in a net payment obligation of a
participant to CDS Clearing or the obligation of CDS Clearing to pay a participant. The potential failure of the
participant to meet its payment obligation to CDS Clearing results in payment risk, a specific form of credit risk.
Payment risk is a form of credit risk in securities settlement whereby a seller will deliver securities and not
receive payment, or that a buyer will make payment and not receive the purchased securities. Payment risk is
mitigated by delivery payment finality in CDSX, CDS’s multilateral clearing and settlement system, as set out in
the CDS Participant Rules.
In the settlement services offered by CDS Clearing, payment risk is transferred entirely from CDS Clearing to
participants who accept this risk pursuant to the contractual rules for the settlement services. This transfer of
payment risk occurs primarily by means of participants acting as extenders of credit to other participants through
lines of credit managed within the settlement system or, alternatively, by means of risk-sharing arrangements
whereby groups of participants cross-guarantee the payment obligations of other members of the group. Should
a participant be unable to meet its payment obligations to CDS Clearing, these surviving participants are
186
63
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
required to make the payment. Payment risk is mitigated on behalf of participants through the enforcement of
limits on the magnitude of payment obligations of each participant and the requirement of each participant to
collateralize their payment obligation. Both of these mitigants are enforced in real time in the settlement system.
Through New York Link (“NYL”) and DTC Direct Link (“DDL”), credit risk exposures at CDS are created. During
the course of each business day, settlement transactions by the National Securities Clearing Corporation
(“NSCC”)/Depository Trust Company (“DTC”) can result in a net payment obligation from NSCC/DTC to CDS
Clearing or the obligation of CDS Clearing to make a payment to NSCC/DTC. As a corollary result, CDS has a
legal right to receive the funds from sponsored participants in a debit position or has an obligation to pay the
funds to sponsored participants in a credit position.
The potential failure of the participant to meet its payment obligation to CDS Clearing in the NYL or DDL
services results in a payment risk. To mitigate the risk of default, CDS Clearing has in place default risk
mitigation mechanisms to minimize losses to the surviving participants as set out in the CDS Participant Rules.
The process includes participants posting collateral with CDS Clearing and NSCC/DTC.
The risk exposure of CDS Clearing in these central counterparty services is mitigated through a daily mark-to-
market of each participant’s obligations as well as risk-based collateral requirements calculated daily. These
mitigants are intended to cover the vast majority of market changes and are tested against actual price changes
on a regular basis. This testing is supplemented with analysis of the effects of extreme market conditions on a
collateral valuation and market risk measurements. Should the collateral of a defaulter in a central counterparty
service be insufficient, either because the value of the collateral has declined or the loss to be covered by the
collateral exceeded the collateral requirement, the surviving participants in the service are required to cover any
residual losses. Cash collateral is held by CDS Clearing at the Bank of Canada and NSCC/DTC and non-cash
collateral pledged by participants under Participant Rules is held by CDS (note 24).
CDS may receive payment from securities issuers for entitlements, for example, maturity or interest payments,
prior to the date of payment to the participants holding those securities. In rare circumstances, due to the timing
of receipt of these payments or due to market conditions, these funds may be held with a major Canadian
chartered bank. As a result, CDS could be exposed to the credit risk associated with the potential failure of the
bank.
(b) Market risk
Market risk is the risk that changes in market price, such as foreign exchange rates, interest rates, commodity prices
and equity prices will affect TMX Group’s income or the value of its holdings of financial instruments.
187
64
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(i) Foreign currency risk
TMX Group is exposed to foreign currency risk on cash and cash equivalents, trade receivables and trade
payables denominated in foreign currencies, principally US dollars. It is also exposed to foreign currency risk on
revenue and expenses where it invoices or procures in a foreign currency, again principally US dollars. At
December 31, 2013, cash and cash equivalents and trade receivables, net of current liabilities, excluding BOX,
include US$23.2 (December 31, 2012 – net liability of US$19.9), which are exposed to changes in the US-
Canadian dollar exchange rate. In addition, net assets related to BOX, Finexeo and Razor are denominated in
US dollars, Euros (“EUR”) and Australian dollars (“AUD”), respectively, and the effect of exchange rate
movements on TMX Group’s share of these net assets is included in other comprehensive income.
TMX Group is also exposed to foreign currency risk on its US dollar advances on the TMX Group Limited
revolving facility. At December 31, 2013, advances on this facility include US$15.0 (2012 – US$nil), which is
exposed to changes in the US-Canadian dollar exchange rate.
NGX offers contracts denominated in both Canadian and US dollars and accepts collateral in either currency.
Settlement always occurs in the contracted currency. Foreign exchange risk could be created if there is a default
and the currency of the required payment obligation is different from the currency of the collateral supporting
that payment obligation. This risk is mitigated by converting the foreign denominated collateral at current foreign
exchange rates and then adjusting collateral positions to mitigate any foreign exchange risk present.
Settlements in the clearing and settlement services offered by CDS occur in both Canadian and US dollars.
Foreign exchange risk could be created if there is a default and the currency of the payment obligation is
different from the currency of the collateral supporting that payment obligation. This risk is mitigated by
discounting the collateral value of securities where these mismatches occur.
The Company does not currently employ hedging strategies and therefore significant moves in exchange rates,
specifically a strengthening of the Canadian dollar against the U.S. dollar can have an adverse affect on the
value of our revenue or assets in Canadian dollars.
(ii)
Interest rate risk
TMX Group is exposed to interest rate risk on its marketable securities, its Debentures and the Credit Facilities
payable.
External investment fund managers have been engaged by TMX Group to manage the asset mix and the risks
associated with the majority of its marketable securities. At December 31, 2013, TMX Group held $67.0 (2012 –
$89.0) in marketable securities of which 39% (2012 – 38%) were held in a short-term bond and mortgage fund,
17% (2012 – 12%) were held in treasury bills, 40% (2012 – 39%) were held in a money market fund and 4%
(2012 – 11%) were held in other term deposits.
188
65
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
TMX Group has Series C Debentures of $350.0 and Credit Facilities payable of $335.5 (note 14). TMX Group
has entered into a series of interest rate swap agreements to partially manage its exposure to interest rate
fluctuations on the Series C Debentures and the Credit Facilities (note 15).
(iii) Equity price risk
TMX Group is exposed to equity price risk arising from its RSUs and DSUs, as TMX Group’s obligation under
these arrangements are partly based on the price of the Company’s shares. TMX Group has entered into TRSs
as a partial fair value hedge to the share appreciation rights of these RSUs and DSUs.
(iv) Other market price risk
TMX Group is exposed to market risk factors from the activities of CDS, CDCC, NGX, Shorcan, and Shorcan
Energy Brokers, if a customer, contracting party, Clearing Member or participant, as the case may be, fails to
take or deliver either securities, energy products or derivative products on the contracted settlement date where
the contracted price is less favourable than the current market price.
Shorcan and Shorcan Energy Brokers’ risk is limited by their status as an agent, in that they do not purchase or
sell securities or commodities for their own account, the short period of time between trade date and settlement
date, and the defaulting customer’s liability for any difference between the amounts received upon sale of, and
the amount paid to acquire, the securities or commodities.
NGX, CDCC and CDS’s measure of total potential exposure, as described previously, includes measures of
market risk which are factored into the collateral required from each contracting party, Clearing Member or
participant.
TMX Group is also exposed to other market price risk on a portion of its sustaining fees revenue, which is based
on quoted market values of listed issuers as at December 31 of the previous year.
189
66
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(v) Market risk sensitivity summary
Foreign currency
USD, AUD, and EUR currency
USD, AUD, and EUR currency
USD advances on Loans payable
USD advances on Loans payable
Interest rates
Marketable securities
Marketable securities
Interest rate swaps
Interest rate swaps
Loans payable
Loans payable
Debentures
Debentures
Equity price
RSUs and DSUs
RSUs and DSUs
Change in
Impact on
Impact on equity
underlying
income before
attributable to
factor
income taxes
equity holders
+10% $ 2.5
$ 14.0
-10%
+10%
-10%
(2.5)
1.6
(1.6)
+1% $ (0.7)
-1%
+1%
-1%
+1%
-1%
+1%
-1%
0.7
6.0
(6.0)
(3.4)
3.4
(3.5)
3.5
+25% $ (1.8)
-25%
(0.8)
(14.0)
n/a
n/a
n/a
n/a
7.8
(7.8)
n/a
n/a
n/a
n/a
n/a
n/a
190
67
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(c)
Liquidity risk
Liquidity risk is the risk that TMX Group will not be able to meet its financial obligations as they fall due. TMX Group
manages liquidity risk through the management of its cash and cash equivalents and marketable securities, all of
which are held in short-term instruments, and its debentures, credit and liquidity facilities (note 14) and capital (note
26). The contractual maturities of TMX Group’s financial liabilities are as follows:
Less than 1 year
Between 1 and 5 years
Greater than 5 years
At December 31, 2013
Participants’ tax withholdings*
Accrued interest payable
Other trade and other payables
Restructuring provision
Obligation under finance leases
Energy contracts payable*
Fair value of open energy contracts*
$
102.9
$
7.7
82.4
1.8
2.5
764.9
72.7
Balances with Clearing Members and participants*
10,164.7
Non-current data license payable
Interest rate swaps
Liquidity facility drawn
Debentures
Loans payable
-
-
1.3
-
-
$
-
-
-
-
3.5
-
14.2
-
-
0.3
-
750.0
355.5
-
-
-
-
-
-
-
-
-
-
-
250.0
-
Less than 1 year
Between 1 and 5 years
Greater than 5 years
At December 31, 2012
Participants’ tax withholdings*
Other trade and other payables
Obligation under finance leases
Energy contracts payable*
Fair value of open energy contracts*
$ 67.9
$
68.1
1.0
696.4
65.7
Balances with Clearing Members and participants*
7,773.9
Non-current data license payable
Interest rate swaps
Loans payable
-
-
-
$
-
-
0.5
-
-
-
1.9
1.7
1,481.0
*The above financial liabilities are covered by assets that are restricted from use in the ordinary course of business.
(i) Balances with Clearing Members and participants
-
-
-
-
-
-
-
-
-
The margin deposits of CDCC and CDS and clearing fund margins of CDCC are held in liquid instruments. Cash
margin deposits and cash clearing fund deposits from CDCC’s Clearing Members, which are recognized on the
consolidated balance sheet, are held by CDCC with the Bank of Canada. Non-cash margin deposits and non-
cash clearing fund deposits, which are not recognized on the consolidated balance sheet, pledged to CDCC
191
68
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
under irrevocable agreements are in government securities and other securities and are held with approved
depositories.
CDS's NYL service does not apply strict limits to a participant's end-of-day payment obligation, creating the
potential for unlimited liquidity risk exposure to CDS if a user of the service were to default on its obligation.
CDS manages this risk through active monitoring of payment obligations and a committed liquidity facility which
covers the vast majority of potential participant default scenarios.
Cash collateral from CDS’s participants, which is recognized on the consolidated balance sheet, is held by CDS
at the Bank of Canada and NSCC/DTC. Non-cash collateral, which is not recognized on the consolidated
balance sheet, pledged by participants under Participant Rules is held by CDS in liquid government and fixed
income securities.
(ii) Fair value of open energy contracts and energy contracts payable
NGX requires each contracting party to provide sufficient collateral, in the form of cash or letters of credit, to
exceed its outstanding credit exposure, including contract replacement costs at current market prices, as
determined by NGX in accordance with its margining methodology. The cash collateral deposits and letters of
credit are held by a major Canadian chartered bank.
(iii) Debentures, credit and liquidity facilities
In response to liquidity risk that the Company is exposed to through its capital structure, it has arranged various
Credit Facilities and Debentures as a source of financing (note 14). If, as a result of not meeting its covenants
under the relevant agreements or trust indentures, the Credit Facilities or Debenture become due prior to their
stated maturity dates, the Company may be required to seek potentially less favourable sources of financing.
In response to the liquidity risk that CDS, NGX and CDCC are exposed to through their clearing operations, it
has arranged various liquidity facilities (note 14).
(iv) Cash and cash equivalents and restricted cash and cash equivalents
Cash and cash equivalents and restricted cash and cash equivalents consist of cash and highly liquid
investments.
(v) Marketable securities
The investment policy of the Company will only allow excess cash to be invested within money market securities
or fixed income securities. The majority of the portfolio is held within a money market fund and a specific short-
term bond and mortgage fund. The money market fund limits its investments to government or government-
192
69
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
guaranteed treasury bills, and high-grade corporate notes. The short-term bond and mortgage fund limits its
investments to high-quality Canadian corporate bonds, government bonds and up to 40% of the fund's net
assets in conventional first mortgages and mortgages guaranteed under the National Housing Act (Canada).
Fund units can be redeemed on any day that Canadian banks are open for business. Funds will be received the
day following the redemption.
Individual fixed income securities and term deposits held will have credit ratings of AA-/R1-Middle or better and
are highly liquid.
26. Capital maintenance
TMX Group’s primary objectives in managing capital, which it defines as including its cash and cash equivalents,
marketable securities, share capital, Debentures and various credit facilities, include:
• Maintaining sufficient capital for operations to ensure market confidence and to meet regulatory requirements
and credit facility requirements. Currently, the Company targets to retain a minimum of $250.0 in cash, cash
equivalents and marketable securities. This amount is subject to change;
• Reducing the debt levels to be below the total leverage ratios as discussed in (a) below, which decrease over
time;
• Maintaining a credit rating in a range consistent with the Company’s current A(high) with Stable trend from
DBRS Limited;
• Using excess cash to invest in and continue to grow the business; and
• Returning capital to shareholders through methods such as dividends paid to shareholders and purchasing
shares for cancellation pursuant to normal course issuer bids.
The Company aims to achieve the above objectives while managing its capital subject to capital maintenance
requirements imposed on TMX Group and its subsidiaries as follows:
(a) In respect of the Credit Facilities (note 14) that require TMX Group to maintain:
i) an interest coverage ratio of more than 4.0:1;
ii) a total leverage ratio of less than or equal to
-
-
-
4.25:1 until December 31, 2014,
4.00:1 until December 31, 2015,
3.50:1 thereafter.
(b) In respect of TSX, as required by the OSC to maintain certain financial ratios on both a consolidated and non-
consolidated basis, as defined in the OSC recognition order, as follows:
i) a current ratio of greater than or equal to 1.1:1;
ii) a debt to cash flow ratio of less than or equal to 4:1; and
iii) a financial leverage ratio of less than or equal to 4:1.
193
70
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
(c) In respect of TSX Venture Exchange, as required by various provincial securities commissions, to maintain
sufficient financial resources.
(d) In respect of NGX to:
i) maintain adequate financial resources as required by the Alberta Securities Commission;
ii) maintain a current ratio of not less than 1:1;
iii) maintain sufficient financial resources to cover 12 months of operating expenses as required by the U.S.
Commodity Futures Trading Commission (“”CFTC”); and
iv) maintain sufficient financial resources to cover the failure of its single largest contracting party under
extreme but plausible market conditions as required by the CFTC.
(e) In respect of MX, as required by the AMF, to maintain certain financial ratios as defined in the AMF recognition
order, as follows:
i) a working capital ratio of more than 1.5:1;
ii) a cash flow to total debt outstanding ratio of more than 20%; and
iii) a financial leverage ratio of less than 4.0.
(f) In respect of CDCC, to maintain certain amounts, as follows:
i) $5.0 cash and cash equivalents or marketable securities as part of the Clearing Member default recovery
process plus an additional $5.0 in the event that the initial $5.0 is fully utilized during a default;
ii) sufficient cash, cash equivalents and marketable securities to cover 12 months of operating expenses,
excluding amortization and depreciation; and
iii) $20.0 total shareholders equity.
(g) In respect of Shorcan:
i) by IIROC which requires Shorcan to maintain a minimum level of shareholders’ equity of $0.5;
ii) by the National Futures Association which requires Shorcan to maintain a minimum level of net capital; and
iii) by the OSC which requires Shorcan to maintain a minimum level of excess working capital.
(h) In respect of TMX Select, IIROC requires TMX Select to maintain an adequate level of risk adjusted capital.
(i) In respect of CDS and CDS Clearing, as required by the OSC and the AMF to maintain certain financial ratios as
defined in the OSC recognition order, as follows:
i) a debt to cash flow ratio of less than or equal to 4.0; and
ii) a financial leverage ratio of less than or equal to 4.0.
In addition, the OSC requires CDS and CDS Clearing to maintain working capital to cover 6 months of
operating expenses (excluding, in the case of CDS, the amount of shared services fees charged to CDS
Clearing).
(j) In respect of Alpha Exchange Inc., as required by the OSC to maintain certain financial ratios on both a
consolidated and non-consolidated basis as defined in the OSC recognition order, as follows:
194
71
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
i) a current ratio of greater than or equal to 1.1:1;
ii) a debt to cash flow ratio of less than or equal to 4.0:1; and
iii) a financial leverage ratio of less than or equal to 4.0:1.
As at December 31, 2013, TMX Group complied with each of these externally imposed capital requirements.
27. Related party relationships and transactions
(a)
Parent
The shares of the Company are widely held and as such there is no ultimate controlling party of TMX Group. While
in aggregate the Nominating Investors own a significant portion of the common shares outstanding of the TMX
Group, under the OSC and AMF recognition orders, no person or combination of persons acting jointly or in concert
is permitted to beneficially own or exercise control of direction over more than 10% of any class or series of voting
shares of TMX Group without prior approval of the OSC and the AMF.
(b) Key management personnel compensation
Compensation for key management personnel, including the Company’s Board of Directors, was as follows.
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
(c) Other related party transactions
2013
$ 9.7
$
1.5
9.8
2012
2.9
0.5
6.1
$ 21.0
$ 9.5
In aggregate, the Nominating Investors hold a significant proportion of the common shares outstanding of TMX
Group. The Company and its subsidiaries transact with a number of the Nominating Investors on a regular basis
through their normal operations. Transactions are conducted at prevailing market prices and on general market
terms and conditions.
195
72
TMX GROUP LIMITED
Notes to Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
Year ended December 31, 2013 and 2012
28. Dividends
Dividends recognized and paid in the year are as follows:
Dividend paid in March
Dividend paid in June
Dividend paid in August
Dividend paid in December
Total dividends paid
Dividend per
share
2013
Total paid
Dividend per
share
2012
Total paid
$ 0.40
$ 21.6
$
0.40
0.40
0.40
21.6
21.6
21.6
$
-
-
-
-
-
-
0.40
21.5
$ 86.4
$ 21.5
On February 4, 2014, the Company’s Board of Directors declared a dividend of 40 cents per share. This dividend will
be paid on March 7, 2014 to shareholders of record on February 21, 2014 and is estimated to amount to $21.6.
196
73
197
BOARD OF DIRECTORS
March 28, 2014
CHARLES WINOGRAD (CHAIR)
Senior Managing Partner
Elm Park Capital Management
Committees: Governance, Human Resources
Director since: 2012
THOMAS KLOET
Chief Executive Officer
TMX Group Limited
Director since: 2012
LUC BERTRAND
Vice Chair
National Bank Financial Group
Committees: Derivatives (Chair),
Public Venture Market
Director since: 2011
DENYSE CHICOYNE
Corporate Director
Committees: Finance and Audit,
Governance, Regulatory Oversight
Director since: 2012
MARIE GIGUÈRE
Executive Vice President,
Legal Affairs and Secretariat
Caisse de dépôt et placement du Québec
Committees: Governance, Regulatory Oversight
Director since: 2011
GEORGE GOSBEE
Chairman, President and Chief Executive Officer
AltaCorp Capital Inc.
Committees: Public Venture Market
Director since: 2012
WILLIAM HATANAKA
President and CEO
OPTrust
Committees: Human Resources (Chair), Derivatives
Director since: 2012
JEFFREY HEATH
Executive Vice President and Group Treasurer
Scotiabank
Committees: Derivatives
Director since: 2012
HARRY JAAKO
Executive Officer ,Director and a Principal
Discovery Capital Management Corp.
Committees: Finance and Audit, Governance,
Public Venture Market (Chair)
Director since: 2012
WILLIAM LINTON
Corporate Director
Committees: Finance and Audit (Chair), Governance
Director since: 2012
JEAN MARTEL
Partner
Lavery, de Billy LLP
Committees: Regulatory Oversight (Chair)
Director since: 2012
WILLIAM ROYAN
Head of Relationship Investing
Ontario Teachers’ Pension Plan Board
Committees: Governance (Chair), Human Resources
Director since: 2011
GERRI SINCLAIR
Corporate Director
Committees: Human Resources,
Public Venture Market
Director since: 2012
KEVIN SULLIVAN
Deputy Chairman
GMP Capital Inc.
Committees: Public Venture Market, Derivatives
Director since: 2012
ANTHONY WALSH
Corporate Director
Committees: Finance and Audit,
Public Venture Market
Director since: 2012
ERIC WETLAUFER
Senior Vice President, Public Market Investments
Canada Pension Plan Investment Board
Committees: Finance and Audit, Human Resources
Director since: 2012
TOM WOODS
Senior Executive Vice President and Vice Chairman
Canadian Imperial Bank of Commerce
Committees: Derivatives
Director since: 2012
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TMX GROUP EXECUTIVE COMMITTEE
March 28, 2014
THOMAS A. KLOET
Chief Executive Officer
TMX Group
ALAIN MIQUELON
President and Chief Executive Officer
Montréal Exchange Inc.
KEVAN COWAN
President, TSX Markets and Group Head of Equities
TMX Group
JAMES OOSTERBAAN
President and Chief Executive Officer
NGX
JEAN DESGAGNE
President and Chief Executive Officer
CDS
BRENDA HOFFMAN
Senior Vice President, Group Head
of Information Technology
TMX Group
MARY LOU HUKEZALIE
Senior Vice President, Group Head
of Human Resources
TMX Group
SHARON C. PEL
Senior Vice President, Group Head of Legal and
Business Affairs and Corporate Secretary
TMX Group
MICHAEL PTASZNIK
Senior Vice President and Group
Head Chief Financial Officer
TMX Group
ERIC SINCLAIR
President
TMX Datalinx
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SHAREHOLDER INFORMATION
STOCK LISTING
Toronto Stock Exchange
Share Symbol “X”
AUDITOR
KPMG LLP
Toronto, ON
SHARE TRANSFER AGENT
Requests for information regarding share transfers should be directed to the Transfer Agent:
TMX Equity Transfer Services Inc
200 University Ave
Suite 300
Toronto ON
M5H 4H1
Tel: 416-361-0930 ext 205
Toll Free: 1-866-393-4891
Fax: 416-361-0470
Email: investor@equityfinancialtrust.com
INVESTOR CONTACT INFORMATION
Investor Relations may be contacted at:
Tel: (416) 947-4277 (Toronto Area)
1-888-873-8392 (North America)
Fax: (416) 947-4444
E-mail: TMXshareholder@tmx.com
TRADE-MARKS
Canadian Best Bid and Offer, Capital Pool Company, CBBO, CDB, CDF, CLS, CPC, DEX, Equities
News, Groupe TMX, Infosuite, Market Book, MarketDepth, Natural Gas Exchange, NEX, NGX, TMX,
TMX Atrium, TMX Datalinx, TMX Group, TMX Quantum, TMX Quantum XA, TMX Select, TMXNet,
Toronto Stock Exchange, TSX, TSX Venture Exchange and TSXV are trade-marks of TSX Inc.
Alpha, the Alpha design, Alpha Exchange, Alpha Intraspread and Intraspread Facility are trade-
marks of Alpha Trading Systems Limited Partnership and are used under license.
BAX, Bourse de Montréal, CGB, Montréal Exchange, MX, SOLA and SXF are trade-
marks of Bourse de Montréal Inc. and are used under license.
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Canadian Derivatives Clearing Corporation, Corporation canadienne de
compensation de produits dérivés, CDCC, CCCPD and CDCS are trade-marks of
Canadian Derivatives Clearing Corporation and are used under license.
CDS, the CDS design and CDSX are trade-marks of The Canadian Depository
for Securities Limited and are used under license.
Equicom is the trade-mark of The Equicom Group Inc. and is used under license.
Razor, Razor Risk and their respective designs are trade-marks of Razor
Risk Technologies Limited and are used under license.
Shorcan, Shorcan Brokers and Shorcan Energy Brokers are trade-marks
of Shorcan Brokers Limited and are used under license.
BOX and the BOX Options Exchange design are trade-marks of Boston
Options Exchange Group, LLC and are used under license.
ICE is a trade-mark of IntercontentalExchange Inc. and is used under license.
“S&P”, as part of the composite mark of S&P/TSX which is used in the name the S&P/
TSX Composite Index, the S&P/TSX Venture Composite Index and other S&P/TSX indices, is
a trade-mark of Standard & Poor’s Financial Services LLC and is used under license.
All other trade-marks used are the property of their respective owners.
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, which are not historical facts but are based
on certain assumptions and reflect TMX Group’s current expectations. These forward-looking
statements are subject to a number of risks and uncertainties that could cause actual results
or events to differ materially from current expectations. We have no intention to update
this forward-looking information, except as required by applicable securities law.
This forward-looking information should not be relied upon as representing our views as of
any date subsequent to the date of this report. Please see “Caution regarding Forward-Looking
Information” in the 2013 Management’s Discussion and Analysis for some of the risk factors
that could cause actual events or results to differ materially from current expectations.
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