More annual reports from TMX Group:
2023 ReportPeers and competitors of TMX Group:
Ironbark Capital Limited| 1 2014 ANNUAL REPORT TMX GROUP LIMITEDLETTER FROM THE CHAIR It is once again my pleasure to report to you as Chair of the Board of Directors of TMX Group Limited. In a year marked by significant accomplishments and achievements across the company, TMX Group also underwent a successful transition in leadership from Tom Kloet to our new CEO, Lou Eccleston. I want to reiterate my thanks to Tom for his six years of dedicated leadership and for his invaluable contributions to TMX Group’s evolution. Lou Eccleston brings extensive experience and proven management expertise to our company and to Canada’s financial industry. On behalf of the Board, we look forward to working with Lou and his management team. TMX Group is well positioned for the future. As the global economic environment continues to change, this company stands to benefit from its strong technological capabilities, talent and assets. TMX Group has become a much more diversified company and we are committed to seeking out new opportunities to meet customer needs and grow our business. In addition to Tom, I would like to recognize three other directors, Bill Hatanaka, Bill Royan and Tom Woods, who retired during 2014. I personally enjoyed working with each of them and thank them for their valued contributions to the Board of Directors. I also want to welcome our new directors, Lise Lachapelle, Christian Exshaw, Martine Irman, Michael Wissell, and, of course, Lou. I would like to thank the diverse and talented group of employees at TMX Group for their commitment to the long-term success of our company. Finally, I want to express my thanks to our shareholders for their support as we turn to the next chapter in TMX Group’s history. Charles Winograd Chair, Board of Directors TMX Group Limited March 16, 2015 LETTER FROM THE CEO Upon joining TMX Group last November, I committed to delving deeply into identifying our strengths and our weaknesses, the challenges that our clients are facing and to understand what is necessary to manage our key role in Canada’s economy and our position in the global marketplace. In the last few months, I have met with many of our broad base of stakeholders, including key customers, employees, shareholders and regulators. This in-depth and ongoing learning process has proven to be a great help to me and to our team as we set the course for the future. TMX Group Is made up of an impressive portfolio of assets, capabilities and intellectual capital. As we prepare to enter the next crucial phase in our evolution, the job at hand is to determine how best to leverage all of our strengths and enable innovation across our business lines to create unique solutions for our clients that only TMX Group can provide. Review of 2014 Performance Throughout the year, the economic environment was in a constant state of change. Rapid and significant movements in commodity prices, particularly oil prices, currency values and interest rate levels created risks for certain companies and opportunities for others. In our own business, increased volatility and reduced capital spending in the resource sector had a negative effect on financing activity, but at the same time, the upswing in volatility helped spur increases in trading activity across our markets. In looking back now at TMX Group’s 2014 performance, it is important to note that despite the effects of some unpredictable factors, we saw encouraging signs within the numbers. For example, notwithstanding the severe downturn in commodity prices, we ranked in the top five amongst global exchanges in key new listings statistics in 2014. We also marked the graduation of the 600th company from TSX Venture Exchange to Toronto Stock Exchange since January 1, 2000. TSX Venture Exchange is a prime example of the strong capital formation process we provide to companies in Canada and around the world. TMX Group serves emerging small cap and early stage companies and helps them grow into the blue-chips of the future. It is unique in the world marketplace and remains the only public venture capital exchange of this scope and size. Some of the biggest success stories of Toronto Stock Exchange are TSX Venture Exchange graduates. Overall, Toronto Stock Exchange and TSX Venture Exchange equity trading volumes were up year over year, along with volumes on our energy business, NGX. Montréal Exchange volumes were higher compared with 2013, and MX also set new records in daily volume and overall levels of open interest during the year. We also had revenue increases in both Information Services and Risk Management Services over last year. 2014 Highlights In June and September, we successfully launched TMX Quantum XA on Toronto Stock Exchange and TSX Venture Exchange. The award-winning TMX Quantum XA is a world-class trading platform that has dramatically improved the efficiency and performance of our markets for all of our customers. In October, TMX Atrium, our global marketplace infrastructure provider, acquired Strike Technologies, as part of its initiative to launch a new cross border marketplace connectivity network utilizing industry best-practice microwave technology. Also, in October, we announced the restructuring of our equities trading offering. The proposed changes are aimed at further enhancing the Canadian trading landscape by introducing a domestic 2 | 2014 ANNUAL REPORT TMX GROUP LIMITED trading model with superior trading economics for retail and institutional orders, offering effective solutions to those who do not use speed-based trading strategies, and reducing market complexity. Finally, in November we launched TSX Private Markets, a service to facilitate capital raising and the trading of securities in the exempt market. TSX Private Markets allows us to extend the reach of our products and services to include Canadian private companies and enables us to assist companies in the capital formation process throughout each stage of their life cycle, from start-up to private issuer to public issuer. Moving Forward Across our broader industry landscape, we note fundamental shifts on two key fronts, technology and regulation. The rapid advances in available technologies during this current period of fluid global and domestic regulatory policy are reshaping the financial services industry. These are both fueling challenges and creating opportunities for TMX Group. As is true for the clients we serve, anticipating, understanding and adapting for the future are a crucial focus for TMX Group. Today’s ceaseless pace of change requires that we be nimble and seize the opportunity to evolve. So we have begun work with the goal of positioning TMX Group to derive optimal value from our vast portfolio of assets. Simply owning these assets is not enough. Our key priority is to deploy our assets and capabilities to create an organization whose value is greater than the sum of its parts. 2015 is an important year for TMX Group. In the short-term, we are taking a hard look at our operations and have engaged in a rigorous review of our overall strategy. Our goals are to establish the pillars of our strategy going forward and to optimize our ability to execute that strategy. Following that review, we will engage in relentless prioritization in order to fully realize TMX Group’s vision of leadership in capital markets both here in Canada and around the world. Once our priorities are identified, we will proceed with surgical focus and precision on the initiatives that will drive profitable growth. This is vital to our success and our ability in this regard will very much define TMX Group into the future. We will also be pursuing long-term infrastructure initiatives in order to reduce costs and time-to- market while increasing scale and flexibility. This strategic review process is well underway and I will provide an update on our progress throughout 2015. In closing, I would like to welcome Cheryl Graden, our new Senior Vice President, Group Head of Legal and Business Affairs and Corporate Secretary, who joined the executive management team on March 2nd. Cheryl joined TMX Group in 2004 and has taken on increasingly senior responsibilities over the years. Cheryl’s predecessor, Sharon Pel, retired at the end of February. I would like to thank Sharon for her many contributions. Sharon’s legal expertise, unwavering integrity and exceptional commitment to getting things done have helped shape today’s TMX Group. Louis V. Eccleston Chief Executive Officer TMX Group Limited March 16, 2015 | 3 2014 ANNUAL REPORT TMX GROUP LIMITED 4 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 5 2014 ANNUAL REPORT TMX GROUP LIMITED 6 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 7 2014 ANNUAL REPORT TMX GROUP LIMITED 8 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 9 2014 ANNUAL REPORT TMX GROUP LIMITED 10 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 11 2014 ANNUAL REPORT TMX GROUP LIMITED 12 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 13 2014 ANNUAL REPORT TMX GROUP LIMITED 14 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 15 2014 ANNUAL REPORT TMX GROUP LIMITED 16 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 17 2014 ANNUAL REPORT TMX GROUP LIMITED 18 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 19 2014 ANNUAL REPORT TMX GROUP LIMITED 20 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 21 2014 ANNUAL REPORT TMX GROUP LIMITED 22 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 23 2014 ANNUAL REPORT TMX GROUP LIMITED 24 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 25 2014 ANNUAL REPORT TMX GROUP LIMITED 26 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 27 2014 ANNUAL REPORT TMX GROUP LIMITED 28 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 29 2014 ANNUAL REPORT TMX GROUP LIMITED 30 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 31 2014 ANNUAL REPORT TMX GROUP LIMITED 32 | 2014 ANNUAL REPORT TMX GROUP LIMITED 11 12 | 33 2014 ANNUAL REPORT TMX GROUP LIMITED 14 34 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 35 2014 ANNUAL REPORT TMX GROUP LIMITED . . • 36 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 37 2014 ANNUAL REPORT TMX GROUP LIMITED 38 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 39 2014 ANNUAL REPORT TMX GROUP LIMITED - 40 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 41 2014 ANNUAL REPORT TMX GROUP LIMITED • 42 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 43 2014 ANNUAL REPORT TMX GROUP LIMITED . 44 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 45 2014 ANNUAL REPORT TMX GROUP LIMITED 46 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 47 2014 ANNUAL REPORT TMX GROUP LIMITED • • • 48 | 2014 ANNUAL REPORT TMX GROUP LIMITED • • | 49 2014 ANNUAL REPORT TMX GROUP LIMITED • • 50 | 2014 ANNUAL REPORT TMX GROUP LIMITED • • • • • • • | 51 2014 ANNUAL REPORT TMX GROUP LIMITED • 17 18 19 52 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 53 2014 ANNUAL REPORT TMX GROUP LIMITED 20 54 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 55 2014 ANNUAL REPORT TMX GROUP LIMITED 56 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 57 2014 ANNUAL REPORT TMX GROUP LIMITED 58 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 59 2014 ANNUAL REPORT TMX GROUP LIMITED 60 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 61 2014 ANNUAL REPORT TMX GROUP LIMITED 62 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 63 2014 ANNUAL REPORT TMX GROUP LIMITED 64 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 65 2014 ANNUAL REPORT TMX GROUP LIMITED 66 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 67 2014 ANNUAL REPORT TMX GROUP LIMITED 68 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 69 2014 ANNUAL REPORT TMX GROUP LIMITED 70 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 71 2014 ANNUAL REPORT TMX GROUP LIMITED 72 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 73 2014 ANNUAL REPORT TMX GROUP LIMITED 74 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 75 2014 ANNUAL REPORT TMX GROUP LIMITED 76 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 77 2014 ANNUAL REPORT TMX GROUP LIMITED 78 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 79 2014 ANNUAL REPORT TMX GROUP LIMITED 80 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 81 2014 ANNUAL REPORT TMX GROUP LIMITED 82 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 83 2014 ANNUAL REPORT TMX GROUP LIMITED 84 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 85 2014 ANNUAL REPORT TMX GROUP LIMITED 86 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 87 2014 ANNUAL REPORT TMX GROUP LIMITED 88 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 89 2014 ANNUAL REPORT TMX GROUP LIMITED 90 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 91 2014 ANNUAL REPORT TMX GROUP LIMITED 92 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 93 2014 ANNUAL REPORT TMX GROUP LIMITED 94 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 95 2014 ANNUAL REPORT TMX GROUP LIMITED 96 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 97 2014 ANNUAL REPORT TMX GROUP LIMITED 98 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 99 2014 ANNUAL REPORT TMX GROUP LIMITED ACCOUNTING AND CONTROL MATTERS 100 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 101 2014 ANNUAL REPORT TMX GROUP LIMITED 102 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 103 2014 ANNUAL REPORT TMX GROUP LIMITED 104 | 2014 ANNUAL REPORT TMX GROUP LIMITED | 105 2014 ANNUAL REPORT TMX GROUP LIMITED 106 | 2014 ANNUAL REPORT TMX GROUP LIMITEDMANAGEMENT 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. Louis V. Eccleston Michael Ptasznik Chief Executive Officer Chief Financial Officer TMX Group Limited TMX Group Limited February 3, 2015 KPMG LLP Bay Adelaide Centre Suite 4600 333 Bay Street Toronto, ON M5H 2S5 Telephone (416) 777-8500 Fax (416) 777-8818 www.kpmg.ca INDEPENDENT AUDITORSʼ REPORT To the Shareholders of TMX Group Limited: We have audited the accompanying consolidated financial statements of TMX Group Limited (the “Company”), which comprise the consolidated balance sheets as at December 31, 2014 and 2013, 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. Managementʼs 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 as issued by the International Accounting Standards Board, 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. Auditorsʼ 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. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. 2014 ANNUAL REPORT TMX GROUP LIMITED | 107 | 107 2014 ANNUAL REPORT TMX GROUP LIMITED Page 2 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, 2014 and 2013, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Chartered Professional Accountants, Licensed Public Accountants February 3, 2015 Toronto, Canada 108 | 2014 ANNUAL REPORT TMX GROUP LIMITED 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 Non-current assets: Fair value of open energy contracts Goodwill and 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 Commercial Paper Liquidity facilities drawn Other current liabilities Non-current liabilities: Fair value of open energy contracts Loans payable Debentures Other non-current liabilities Deferred income tax liabilities Total Liabilities Equity: Share capital Contributed surplus – share option plan Retained earnings Accumulated other comprehensive income Total Equity attributable to equity holders of the Non-controlling interests Total Equity Commitments and contingent liabilities Total Liabilities and Equity Note December 31, 2014 December 31, 2013 $ $ $ 6 6 6 7 8 8 8 10 8 9 10 15 11 6 8 8 8 12 12 13 8 12 12 13 15 21 22 214.0 $ 75.6 59.7 91.3 696.5 201.3 8,807.2 14.7 10,160.3 12.5 4,650.3 123.1 17.9 14,964.1 $ 77.1 $ 75.6 696.5 201.3 8,807.2 233.9 2.2 34.9 10,128.7 12.5 — 997.2 52.6 827.2 12,018.2 2,858.3 7.2 34.0 9.3 2,908.8 37.1 2,945.9 212.2 102.9 67.0 83.6 764.9 72.7 10,164.7 17.2 11,485.2 14.2 4,806.9 129.0 60.2 16,495.5 104.9 102.9 764.9 72.7 10,164.7 — 1.3 25.4 11,236.8 14.2 331.4 996.4 45.4 900.5 13,524.7 2,849.2 5.2 27.4 6.0 2,887.8 83.0 2,970.8 19&20 $ 14,964.1 $ 16,495.5 See accompanying notes which form an integral part of these consolidated financial statements. Approved on behalf of the Board of Directors on February 3, 2015: "Charles Winograd" Chair "William Linton" Director TMX GROUP LIMITED | 109 1 2014 ANNUAL REPORT TMX GROUP LIMITED TMX GROUP LIMITED Consolidated Income Statements (In millions of Canadian dollars, except per share amounts) 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 Net income from equity accounted investees Impairment charges Gain on sale of a subsidiary 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 Consolidated Financial Statements For the year ended December 31, Note $ 16 9 4 4 4 15 $ $ $ $ 2014 198.3 $ 303.9 187.8 27.3 77.1 (77.1) — 717.3 206.8 70.0 91.6 70.3 438.7 278.6 3.0 (136.1) — (6.7) 4.2 (43.2) (3.6) (42.6) 96.2 41.6 54.6 $ 100.5 (45.9) 54.6 $ 1.85 $ 1.85 $ 2013 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 2 Earnings per share (attributable to equity holders of the Company): 5 Basic Diluted See accompanying notes which form an integral part of these consolidated financial statements. 110 | TMX GROUP LIMITED 2014 ANNUAL REPORT TMX GROUP LIMITED TMX GROUP LIMITED Consolidated Statements of Comprehensive Income (in millions of Canadian dollars) For the year ended December 31, Consolidated Financial Statements Net income Other comprehensive (loss) income: Note 2014 $ 54.6 $ Items that will not be reclassified to the consolidated income statements: Actuarial (losses) gains on defined benefit pension and other post- retirement benefit plans (net of tax benefit of $2.5, 2013 – tax expense of $3.7) 17 Total items that will not be reclassified to the consolidated income statements Items that may be reclassified subsequently to the consolidated income statements: Unrealized gains on translating financial statements of foreign operations Change in fair value of effective portion of interest rate swaps designated as cash flow hedges (net of tax benefit of $0.1, 2013 – tax benefit of $0.6) Reclassification to net income of losses (gains) on interest rate swaps (net of tax expense of $0.2, 2013 – tax expense of $0.2) 14 14 Total items that may be reclassified subsequently to the consolidated income statements Total comprehensive income Total comprehensive income (loss) attributable to: Equity holders of the Company Non-controlling interests $ $ $ (7.1) (7.1) 6.3 (0.2) 0.5 6.6 54.1 $ 96.7 $ (42.6) 54.1 $ See accompanying notes which form an integral part of these consolidated financial statements. 2013 123.7 10.3 10.3 12.3 0.8 (0.7) 12.4 146.4 141.3 5.1 146.4 TMX GROUP LIMITED | 111 3 2014 ANNUAL REPORT TMX GROUP LIMITED TMX GROUP LIMITED Consolidated Statements of Changes in Equity (in millions of Canadian dollars) For the year ended December 31, 2014 Consolidated Financial Statements Attributable to equity holders of the Company Contributed surplus – share option plan Share capital Accumulated other comprehensive income Total attributable to equity holders Retained earnings Note Non- controlling interests Total equity $ 2,849.2 $ 5.2 $ 6.0 $ 27.4 $ 2,887.8 $ 83.0 $ 2,970.8 Balance at January 1, 2014 Net income (loss) Other comprehensive income (loss): Foreign currency translation differences 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 income (loss) Dividends to equity holders Dividend to non-controlling interests Proceeds from exercised share options Cost of exercised share options 14 17 27 Cost of share option plan 22 — — — — — — — 8.4 0.7 — — — — — — — — — (0.7) 2.7 7.2 $ — 100.5 100.5 (45.9) 54.6 3.0 0.3 — 3.3 — — — — — — — 3.0 3.3 6.3 0.3 — 0.3 (7.1) 93.4 (7.1) 96.7 — (42.6) (7.1) 54.1 (86.8) (86.8) — (86.8) — — — — — 8.4 — 2.7 (3.3) (3.3) — — — 8.4 — 2.7 9.3 $ 34.0 $ 2,908.8 $ 37.1 $ 2,945.9 Balance at December 31, 2014 $ 2,858.3 $ See accompanying notes which form an integral part of these consolidated financial statements. 112 | TMX GROUP LIMITED 4 2014 ANNUAL REPORT TMX GROUP LIMITED Consolidated Financial Statements TMX GROUP LIMITED Consolidated Statements of Changes in Equity (in millions of Canadian dollars) Attributable to equity holders of the Company For the year ended December 31, 2013 Contributed surplus – share option plan Accumulated other comprehensive (loss) income (Deficit) Retained earnings Total attributable to equity holders Share capital Note 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 (loss) Other comprehensive income: Foreign currency translation differences 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 Dividend to non-controlling interests Proceeds from exercised share options Cost of exercised share options Cost of share option plan — — — — — — — 14.5 1.0 — — — — — — — — — (1.0) 2.2 — 123.9 123.9 (0.2) 123.7 7.0 0.1 — 7.1 — — — — — — — 7.0 0.1 10.3 134.2 10.3 141.3 (86.4) (86.4) — — — — — 14.5 — 2.2 5.3 — — 5.1 — (5.3) — — — 12.3 0.1 10.3 146.4 (86.4) (5.3) 14.5 — 2.2 Balance at December 31, 2013 $ 2,849.2 $ 5.2 $ 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. TMX GROUP LIMITED | 113 5 2014 ANNUAL REPORT TMX GROUP LIMITED TMX GROUP LIMITED Consolidated Statements of Cash Flows (in millions of Canadian dollars) Cash flows from (used in) operating activities: Income before income taxes Adjustments to determine net cash flows: Depreciation and amortization Impairment charges Net finance costs Maple transaction and integration costs Maple transaction and integration related cash outlays Net income from equity accounted investees Gain on sale of a subsidiary Cost of share option plan Employee defined benefits expense Net settlement on interest rate swaps Trade and other receivables, and prepaid expenses Trade and other payables Provisions Deferred revenue Other non-current assets and non-current liabilities Cash received on unwind of interest rate swaps Cash paid for employee defined benefits Income taxes paid Cash flows from (used in) financing activities: Interest paid Reduction in obligations under finance leases Proceeds from exercised options Dividends paid to equity holders Dividend paid to non-controlling interests Financing and refinancing fees, expensed Net movement of Commercial Paper, net of fees Credit and liquidity facilities drawn, net Proceeds from issuance of debentures, net of financing costs Net repayment of loans payable, net of financing costs Cash flows from (used in) investing activities: Interest received Dividends received Additions to premises and equipment and intangible assets Acquisitions, net of cash acquired Proceeds from sale of a subsidiary 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 Consolidated Financial Statements For the year ended December 31, Note 2014 2013 $ 96.2 $ 9 4 16 22 17 14 17 20 22 27 12 12 12 16 70.3 136.1 42.6 6.7 (6.7) (3.0) — 2.7 6.8 (1.3) (9.9) (29.8) (1.4) 2.3 0.9 — (3.0) (56.6) 252.9 (37.3) (2.5) 8.4 (86.8) (3.3) (0.3) 231.6 0.9 — (336.0) (225.3) 3.7 3.9 (27.8) (14.7) — 7.3 (27.6) — 212.2 1.8 184.6 72.6 — 73.9 7.2 (14.1) (2.6) (5.4) 2.2 4.5 (2.0) 6.2 28.1 (1.3) 1.7 (0.4) 1.6 (7.0) (54.9) 294.9 (47.8) (2.6) 14.5 (86.4) (5.3) (0.8) — 1.3 996.2 (1,146.6) (277.5) 3.4 — (28.4) (64.0) 104.0 21.8 36.8 54.2 156.5 1.5 212.2 6 Cash and cash equivalents, end of the period $ 214.0 $ See accompanying notes which form an integral part of these consolidated financial statements. TMX GROUP LIMITED 114 | 2014 ANNUAL REPORT TMX GROUP LIMITED TMX GROUP LIMITED Notes to the Consolidated Financial Statements (In millions of Canadian dollars, except per share amounts) GENERAL INFORMATION TMX Group Limited (formerly Maple Group Acquisition Corporation (“Maple”)) 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 controls, directly or indirectly, a number of entities which operate exchanges, markets, and clearinghouses primarily for capital markets in Canada and provides select services globally, including: • TSX Inc. (“TSX”), which operates Toronto Stock Exchange, a national stock exchange serving the senior equities market; TSX Venture Exchange Inc. (“TSX Venture Exchange”), which operates TSX Venture Exchange, a national stock exchange serving the public venture equity market; and Alpha Trading Systems Inc. ("Alpha"), which also operates an exchange for the trading of securities; • Montréal Exchange Inc. ("MX"), Canada’s national derivatives exchange, and its subsidiaries, including 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 and BOX Market, LLC ("BOX") which provides a market for the trading of U.S. equity options; The Canadian Depository for Securities Limited and its subsidiaries ("CDS"), including CDS Clearing and Depository Services Inc. (“CDS Clearing”), which operates the automated facilities for the clearing and settlement of equities and fixed income transactions and custody of securities in Canada; • • • Natural Gas Exchange Inc. (“NGX”), which operates NGX, an exchange for the trading and clearing of natural gas, electricity, and crude oil contracts in North America and Shorcan Energy Brokers Inc. (“Shorcan Energy Brokers”), a wholly-owned subsidiary of Shorcan, for brokering of crude oil contracts; and Shorcan Brokers Limited ("Shorcan"), a fixed income inter-dealer broker and registered exempt market dealer; The Equicom Group Inc., an investor relations and corporate communications services provider; Finexeo S.A. (“Finexeo”), a provider of low- latency network and infrastructure solutions for the global investment community; TMX Equity Transfer Services Inc. ("Equity Transfer"), a provider of corporate trust, registrar, transfer agency and foreign exchange services; and Razor Risk Technologies Limited (“Razor”), a provider of risk management technology solutions. The audited annual consolidated financial statements as at and for the year ended December 31, 2014 (the “financial statements”), comprise the accounts of TMX Group Limited and its subsidiaries (collectively referred to as the “Company”), and the Company’s interests in equity accounted investees. NOTE 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 3, 2015. (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 23); Investment in privately-owned company (note 10); 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 19). • • • TMX GROUP LIMITED | 115 7 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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: • 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 9); 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 15); • • • 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 the Company’s external actuary (note 17); 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 19); and Share-based payments – The liabilities associated with the Company’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 the Company (note 22). • NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING POLICES ADOPTED The accounting policies set out below have been applied consistently to all periods presented in the financial statements, unless otherwise indicated. Similarly, the accounting policies have been applied consistently by all the Company's entities. (A) BASIS OF CONSOLIDATION Subsidiaries are entities controlled by the Company, and they are consolidated from the date on which control is transferred to the Company until the date that control ceases. Balances and transactions between the Company’s subsidiaries have been eliminated on consolidation. On loss of control of a subsidiary, the Company derecognizes the assets and liabilities of the entity, and any related non-controlling interests and equity. Any gain or loss is recognized in the consolidated income statement and any retained interests measured at fair value at the date of loss of control. Non-controlling interests are measured at the proportionate share of the acquiree's identifiable net assets at the date of acquisition. Changes in the Company's interest that do not result in a loss of control are accounted for as equity transactions. Equity accounted investees are entities in which the Company 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. 116 | TMX GROUP LIMITED 8 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (B) FOREIGN CURRENCY Items included in the financial statements of each of the Company’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 the Company’s functional and presentation currency. The assets and liabilities of the Company’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 income (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. 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. (C) 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 the Company, 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 listings, annual sustaining services and other issuer services. Initial and additional listings are recognized when the listing has occurred. Sustaining services 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 services 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. (ii) Trading, clearing, depository and related Trading and related revenues for cash markets (primarily through TSX, TSX Venture Exchange, Alpha and Shorcan) and for derivatives markets (through MX and BOX) 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, and 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”), CDS is required to share any annual revenue increases on clearing and other core CDS Clearing services, as compared to revenues for the twelve-month period ended 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. • 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. TMX GROUP LIMITED | 117 9 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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. (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. The Company 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. 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 Revenue from technology services may contain multiple elements. These elements may include one or more of the following: licensing, software, maintenance and support or professional services such as technology development. In a multiple element arrangement, the Company allocates revenue to each element of the arrangement. Revenue from licensing as well as support and maintenance services is recognized ratably over the term of the license or maintenance period. Revenue from professional services is recognized based on the percentage of completion of the contract at the reporting date. The percentage of completion is assessed based on actual hours incurred and estimated hours required to complete the contract. Revenue from time and materials contracts is recognized as hours are incurred. Technology services and other also includes revenue from 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. Other revenue is recorded and recognized as revenue over the period the service is provided. (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. (D) FINANCE INCOME AND 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. (E) EARNINGS PER SHARE Basic earnings per share is determined by dividing net income 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 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. (F) SEGMENT REPORTING An operating segment is a component of the Company 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 the Company’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. (G) 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. 118 | TMX GROUP LIMITED 10 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 with 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 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. (H) 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. (I) 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. (J) BALANCES WITH CONTRACTING PARTIES, CLEARING MEMBERS AND PARTICIPANTS (i) NGX clearing and settlement balances • NGX clearing and settlement balances on the Company’s consolidated balance sheet 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 balance sheet 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, daily market surveys and/or industry reports. There is no impact on the consolidated balance sheet as an equivalent amount is recognized in both the assets and the liabilities. (ii) CDCC clearing, settlement and Clearing Member balances Balances with Clearing Members and Participants on the Company’s consolidated balance sheet includes balances with clearing members of CDCC (“Clearing Members”) as follows: • 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 balance sheet as an equivalent amount is recognized in both assets and liabilities. • Net amounts receivable/payable on open 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. TMX GROUP LIMITED | 119 11 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 • Clearing Members’ cash collateral – Cash collateral, either 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 balance sheet. (iii) CDS clearing, settlement and Participant balances Balances with Clearing Members and Participants on the Company’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 balance sheet. (K) GOODWILL AND INTANGIBLE ASSETS (i) Goodwill Goodwill is recognized at cost on acquisition less any subsequent impairment in value. The Company 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. The Company 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 the Company incurs in connection with a business combination are expensed as incurred. (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, The Company intends to complete the asset for use or sale, The Company will be able to use the asset once completed, The asset will be useful and is expected to generate future economic benefits for the Company, The Company has adequate resources available to complete the development of and to use the asset, and The Company 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 Basis Straight-line Straight-line Straight-line Rate 17 – 34 years 1 – 6 years 6 months 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. (L) IMPAIRMENT The carrying amounts of the Company’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 120 | TMX GROUP LIMITED 12 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 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 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 CGUs, and then to reduce the carrying amounts of the other assets in the CGU 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. (M) FINANCIAL INSTRUMENTS (i) Non-derivative financial assets Financial assets are recognized on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Financial assets are generally derecognized when the contractual rights to the cash flows from the assets expire, or when the Company 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 the Company 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. The Company 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 the Company manages the asset, and makes purchase and sale decisions, based on its fair value in accordance with the Company’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. TMX GROUP LIMITED | 121 13 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (ii) Non-derivative financial liabilities The Company initially recognizes its financial liabilities on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company 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. (iii) Derivative financial instruments, including hedge accounting The Company enters into certain derivative financial instrument contracts, including interest rate swaps to partially hedge interest rate exposure on its credit facilities and debentures (note 12), foreign currency forward contracts to partially hedge foreign currency exposure on its US-denominated Commercial Paper (note 12), 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. The Company 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. 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. • Cash flow hedges – For cash flow hedges, the effective portion of the changes in the fair value of the hedging derivative, net of taxes, is 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. • Other derivatives – The Company 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) EMPLOYEE BENEFITS (i) Defined contribution and defined benefit pension plans The Company has registered pension plans with both a defined benefit tier and a defined contribution tier covering substantially all employees, as well as retirement compensation arrangements ("RCA") for senior management. The costs of these programs are being funded currently, except for the NGX RCA, and MX RCA, where a portion is guaranteed by a letter of guarantee. The Company’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-rated 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 the Company 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 the Company 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. 122 | TMX GROUP LIMITED 14 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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. The Company 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 The Company 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 the Company, and contributions from plan members in some circumstances. The Company’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-rated 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 the Company is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before retirement, or (2) when the Company recognizes costs related to a restructuring plan. (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 the Company’s annual short-term incentive plan if a present legal or constructive obligation to pay an amount exists as a result of past service provided by the employee, and the obligation can be estimated reliably. (v) Share-based payments The Company has both equity-settled and cash-settled share-based compensation plans. The Company 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. 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. (O) 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. The Company has entered into leases for equipment where substantially all of the risks and rewards of ownership have transferred to the Company, 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. TMX GROUP LIMITED | 123 15 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (P) PROVISIONS A provision is recognized if, as a result of a past event, the Company 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, the Company 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. (Q) 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 the Company 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. 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 the Company intends to settle them on a net basis or where the income tax assets and liabilities will be realized simultaneously. (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, 2014, 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, 2015, unless otherwise noted: • Defined Benefit Plans: Employee Contributions (Amendments to IAS 19, Employee Benefits) – The amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendments apply retrospectively for annual periods beginning on or after July 1, 2014 with earlier application permitted. • Annual Improvements cycle 2010-2012, cycle 2011-2013, and cycle 2012-2014 – These narrow-scope amendments apply to a total of thirteen standards as part of the IASB’s annual improvements process. The IASB uses the annual improvements process to make non-urgent but necessary amendments to IFRS. Most amendments will apply prospectively for annual periods beginning on or after July 1, 2014 for the 2010-2012 and 2011-2013 cycles and on or after January 1, 2016 for the 2012-2014 cycle. Earlier application is permitted with special transitional requirements. • Business combination accounting for interest in a joint operation (Amendments to IFRS 11, Joint Arrangements) – The amendments require business combination accounting to be applied when a joint operation that constitutes a business is acquired. The amendments are effective for annual periods beginning on or after January 1, 2016 with earlier application permitted. • Sale or contribution of assets between an investor and its associate or joint venture (Amendments to IFRS 10, Consolidated Financial Statements and IAS 28, Investments in Associates and Joint Ventures) – The amendments require full gain recognition when the transfer of assets involving an associate or joint venture meet the definition of a business under IFRS 3, Business Combinations. The amendments also introduce new accounting that involves neither a cost nor full step-up of certain retained assets that are not businesses. The amendments are effective for annual periods beginning on or after January 1, 2016 with earlier application permitted. 124 | TMX GROUP LIMITED 16 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 • • • Clarification of acceptable methods of depreciation and amortization (Amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets) – The amendments explicitly prohibit the use of revenue-based methods of depreciation for property, plant and equipment and introduce a rebuttable presumption that its use for intangible assets is inappropriate. The amendments are effective for annual periods beginning on or after January 1, 2016 with earlier application permitted. IFRS 9, Financial Instruments – IFRS 9 replaces the guidance in IAS 39, Financial Instruments: Recognition and Measurement, for the classification and measurement of financial assets and financial liabilities and new standards for hedge accounting. 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. IFRS 9 will provide for more hedging strategies to qualify for hedge accounting, introduce more judgment in assessing the effectiveness of a hedging relationship, and include a single, forward-looking “expected loss” impairment model. The mandatory date for IFRS 9 is for annual periods beginning on or after January 1, 2018, with early application permitted for annual periods beginning on or after January 1, 2015. IFRS 15, Revenue from Contracts with Customers – The IASB and the U.S. Financial Accounting Standards Board (“FASB”) jointly issued converged accounting standards on the recognition of revenue from contracts with customers; the IASB’s standard is IFRS 15, Revenue from Contracts with Customers. The previous requirements of both IFRS and U.S. GAAP were different and often resulted in different accounting for transactions that were economically similar. IFRS 15 and its U.S. GAAP equivalent, contain a single revenue model that applies to contracts with customers with the exception of contracts for insurance, financial instruments and leases. Under the model, there are two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The mandatory effective date for IFRS 15 is for annual periods beginning on or after January 1, 2017 with either full retrospective application, retrospective with optional practical expedients or a modified prospective approach with disclosure requirements. 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, the extent of the impact of adoption of these new standards and amendments has not yet been determined. NOTE 3 – SEGMENT INFORMATION The Company has four operating segments: • • • • The Cash Markets (“Cash”) segment contains operations encompassing listing and trading of cash equities and fixed income products, information services as well as technology, risk management, investor relations and corporate trust services; The Derivatives Markets (“Derivatives”) segment contains operations that provide markets for trading derivatives and clearing and settlement services for options and futures contracts and certain OTC products, including fixed income REPO transactions, and related information services; The Energy Markets (“Energy”) segment contains the operations that provide a marketplace for trading and clearing of natural gas, crude oil and electricity contracts and the brokering of crude oil contracts; and CDS segment includes the operations encompassing clearing, settlement and depository facilities as well as information services. As of January 31, 2014, this segment no longer contains the results of CDS Inc., which operated the SEDAR, NRD and SEDI services on behalf of the Canadian Securities Administrators. In addition, the Company has certain corporate costs and other balances not allocated to the operating segments. These balances, along with certain consolidation and elimination adjustments, are presented in the Corporate segment. TMX GROUP LIMITED | 125 17 2014 ANNUAL REPORT TMX GROUP LIMITED For the year ended 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 Amortization of intangibles related to acquisitions, net of non-controlling interests Impairment charges, net of non- controlling interests Net income (loss) attributable to equity holders of the Company For the year ended 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 Amortization of intangibles related to acquisitions, net of non-controlling interests Gain on sale of a subsidiary Deferred income tax recovery related to sale of a subsidiary Net income (loss) attributable to equity holders of the Company Notes to the Consolidated Financial Statements For the year ended December 31, 2014 December 31, 2014 Cash Derivatives Energy CDS Corporate Total $ 194.8 $ — $ — $ 3.6 $ (0.1) $ 91.3 161.3 25.6 — — — 473.0 (1.1) — 103.2 19.0 2.6 77.1 (77.1) — 124.8 (4.0) (14.8) 46.7 0.9 0.4 — — — 48.0 — — 62.8 7.5 2.4 — — — 76.3 — — (0.1) (0.9) (3.7) — — — (4.8) (31.4) (78.7) 198.3 303.9 187.8 27.3 77.1 (77.1) — 717.3 (36.5) (93.5) $ 145.4 $ 14.4 $ 8.8 $ 6.8 $ (74.9) $ 100.5 Cash Derivatives Energy CDS Corporate Total December 31, 2013 $ 186.4 $ — $ — $ 3.0 $ (0.1) $ 90.2 157.6 12.7 — — — 446.9 (1.2) — — 109.2 17.4 2.6 73.4 (73.4) — 129.2 (4.0) — — 41.9 0.7 0.5 — — — 43.1 — — — 61.9 6.1 17.9 — — — 88.9 — — — (0.1) (0.3) (7.1) — — — (7.6) (34.9) 5.4 (11.3) 189.3 303.1 181.5 26.6 73.4 (73.4) — 700.5 (40.1) 5.4 (11.3) $ 130.2 $ 26.4 $ 8.6 $ 11.0 $ (52.3) $ 123.9 126 | TMX GROUP LIMITED 18 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements The Company’s assets and liabilities by reportable segment are as follows: As at Cash Derivatives Energy CDS Corporate Total December 31, 2014 Investments in equity accounted investees $ Total assets Total liabilities 67.8 $ — $ — $ — $ — $ 67.8 1,941.4 994.1 9,896.8 8,781.1 999.8 946.9 526.1 457.9 1,600.0 838.2 14,964.1 12,018.2 As at Cash Derivatives Energy CDS Corporate Total December 31, 2013 Investments in equity accounted investees $ 67.0 $ — $ — $ — $ — $ 67.0 Total assets Total liabilities 1,902.1 998.7 11,291.8 10,244.7 941.9 893.6 532.1 469.5 1,827.6 918.2 16,495.5 13,524.7 The Company’s revenue by geography is as follows: For the year ended Canada US Other December 31, 2014 December 31, 2013 $ $ 496.5 $ 151.8 69.0 717.3 $ 509.9 149.5 41.1 700.5 Revenue is allocated based on the country to which customer invoices are addressed. The Company’s non-current assets by geography is as follows: As at December 31, 2014 December 31, 2013 Canada US Other 4,706.5 190.1 21.8 4,918.4 Non-current assets above are primarily comprised of goodwill and intangible assets, investments in equity accounted investees, and other assets and excludes both accrued employee benefit assets and deferred income tax assets. 4,662.5 $ 79.5 21.9 4,763.9 $ $ $ TMX GROUP LIMITED | 127 19 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 4 – FINANCE INCOME AND FINANCE COSTS Net finance costs for the period is as follows: For the year ended Finance income Interest income on funds invested Fair value gains on marketable securities: – realized – unrealized Other Finance costs Interest expense on borrowings, including amortization of financing fees Net settlement on interest rate swaps Change in fair value of derivative instruments Other 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 5 – EARNINGS PER SHARE Basic and diluted earnings per share for the period are as follows: For the year ended 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 Notes to the Consolidated Financial Statements For the year ended December 31, 2014 Note December 31, 2014 December 31, 2013 $ 3.7 $ 0.3 0.1 0.1 4.2 (40.2) (1.3) (0.1) (1.6) (43.2) (3.3) — — (0.3) (3.6) (42.6) $ $ 3.3 — (0.2) — 3.1 (58.4) (2.0) — (0.2) (60.6) (18.5) 1.6 1.3 (0.8) (16.4) (73.9) December 31, 2014 December 31, 2013 100.5 $ 123.9 54,241,388 91,833 54,333,221 1.85 $ 1.85 $ 54,041,528 77,990 54,119,518 2.29 2.29 14 12 12 $ $ $ 128 | TMX GROUP LIMITED 20 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 6 – CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash and cash equivalents, restricted cash and cash equivalents and marketable securities are comprised of: Notes to the Consolidated Financial Statements For the year ended December 31, 2014 As at Cash Overnight money market Treasury bills Term deposits Restricted cash – MX Cash and cash equivalents 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 December 31, 2014 December 31, 2013 $ $ $ $ $ $ 65.1 $ 51.0 71.7 24.0 2.2 214.0 $ 75.6 $ 75.6 $ 28.9 $ 28.8 0.5 1.5 59.7 $ 56.7 83.6 69.8 — 2.1 212.2 102.9 102.9 26.6 25.9 11.5 3.0 67.0 The Company’s exposure to interest rate risk and a sensitivity analysis for marketable securities is discussed in note 24. NOTE 7 – TRADE AND OTHER RECEIVABLES Trade and other receivables are comprised of: As at Trade receivables, gross Less: Allowance for doubtful accounts Trade receivables, net Other receivables Trade and other receivables December 31, 2014 December 31, 2013 $ $ 81.2 $ (5.2) 76.0 15.3 91.3 $ 75.7 (4.4) 71.3 12.3 83.6 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: As at Not past due Past due 1-90 days More than 90 days past due Trade receivables December 31, 2014 Gross Allowance $ $ 55.6 $ 18.5 7.1 81.2 $ 0.1 $ 0.8 4.3 5.2 $ December 31, 2013 Gross 52.0 $ 18.0 5.7 75.7 $ Allowance 0.2 0.2 4.0 4.4 TMX GROUP LIMITED | 129 21 2014 ANNUAL REPORT TMX GROUP LIMITED The movement in the Company’s allowance for doubtful accounts is as follows: Balance at January 1 Allowance recognized in the year, net of allowance released Receivables written off as uncollectible Balance at December 31 No allowance for impairment is considered necessary for other receivables. Notes to the Consolidated Financial Statements For the year ended December 31, 2014 December 31, 2014 December 31, 2013 $ $ 4.4 $ 2.8 (2.0) 5.2 $ 7.8 1.6 (5.0) 4.4 NOTE 8 – BALANCES WITH CONTRACTING PARTIES, CLEARING MEMBERS AND PARTICIPANTS (A) NGX CLEARING AND SETTLEMENT BALANCES 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: As at 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 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 $ $ $ $ Amount offset in the consolidated balance sheet December 31, 2014 Net amounts presented in the consolidated balance sheet Gross amount 4,286.8 $ 1,415.4 5,702.2 (4,286.8) (1,415.4) (5,702.2) — $ (3,590.3) $ (1,201.6) (4,791.9) 3,590.3 1,201.6 4,791.9 — $ 696.5 213.8 910.3 (696.5) (213.8) (910.3) — Amount offset in the consolidated balance sheet December 31, 2013 Net amounts presented in the consolidated balance sheet Gross amount 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) — The actual collateral pledged to NGX at December 31 is summarized below: December 31, 2014 December 31, 2013 Cash collateral deposits Letters of credit $ $ 555.0 $ 2,768.7 3,323.7 $ These amounts are not included in the consolidated balance sheet. 130 | TMX GROUP LIMITED 719.3 1,794.1 2,513.4 22 2014 ANNUAL REPORT TMX GROUP LIMITED (B) CDCC CLEARING, SETTLEMENT AND CLEARING MEMBER BALANCES 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: Notes to the Consolidated Financial Statements For the year ended December 31, 2014 As at 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 As at 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 $ $ $ $ Gross amount Amount offset in the consolidated balance sheet Net amounts presented in the consolidated balance sheet December 31, 2014 54.7 $ 15,097.5 15,152.2 (54.7) (15,097.5) (15,152.2) — $ (21.3) $ (7,196.5) (7,217.8) 21.3 7,196.5 7,217.8 — $ 33.4 7,901.0 7,934.4 (33.4) (7,901.0) (7,934.4) — Gross amount Amount offset in the consolidated balance sheet Net amounts presented in the consolidated balance sheet December 31, 2013 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) — For the year ended December 31, 2014, the largest amount due from a Clearing Member was $64.5 (2013 – $224.9), and the largest amount due to a Clearing Member was $68.5 (2013 – $80.9). 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, 2014 December 31, 2013 $ $ 457.5 $ 54.1 511.6 4,098.1 291.0 4,389.1 $ 261.2 48.1 309.3 3,691.9 287.0 3,978.9 Non-cash collateral is held in government securities, put letters of guarantee and equity securities and is not included in the consolidated balance sheet. TMX GROUP LIMITED | 131 23 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (C) CDS CLEARING, SETTLEMENT AND PARTICIPANT BALANCES 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 the Company’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, 2014 December 31, 2013 $ $ 12.7 $ 348.5 361.2 $ 11.9 318.9 330.8 At December 31, 2014 as a result of calculations of Participants’ exposure, the total amount of collateral required by CDS Clearing was $3,690.7 (2013 – $3,237.8). 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, 2014 December 31, 2013 $ $ 348.5 $ 4,306.8 4,655.3 $ 318.9 3,668.7 3,987.6 Non-cash collateral is not included in the Company’s consolidated balance sheet. NOTE 9 – GOODWILL AND INTANGIBLE ASSETS (A) GOODWILL AND INDEFINITE LIFE INTANGIBLE ASSETS A summary of the changes in goodwill is as follows: As at December 31, 2014 December 31, 2013 Balance at January 1 Additions through business combination: Acquisition of Equity Transfer Other acquisitions Impairment Sale of a subsidiary Effect of movements in exchange rates Balance at December 31 $ $ 1,293.8 $ — 13.6 (43.7) — (0.2) 1,263.5 $ 132 | TMX GROUP LIMITED 1,320.4 43.8 — — (74.3) 3.9 1,293.8 24 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 A summary of the Company’s indefinite life intangible assets, all acquired through business combinations, is as follows: Balance at January 1, 2013 Additions through business combinations: Acquisition of Equity Transfer Sale of a subsidiary Effect of movements in exchange rates Balance at December 31, 2013 Additions through general operations Impairment Effect of movements in exchange rates Balance at December 31, 2014 Trade names Derivative products Regulatory designations Index license product Structured products Total $ 254.9 $ 632.0 $ 1,409.0 $ 37.0 $ 107.0 $ 2,439.9 1.6 — 0.3 256.8 — (3.3) 0.2 253.7 $ — — — 632.0 — — — 632.0 $ — — 0.2 1,409.2 0.1 (0.7) — 1,408.6 $ — (37.0) — — — — — — $ — — — 107.0 — — — 107.0 $ 1.6 (37.0) 0.5 2,405.0 0.1 (4.0) 0.2 2,401.3 $ 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. (B) DEFINITE LIFE INTANGIBLE ASSETS A summary of the Company’s definite life intangible assets is as follows: Cost: Balance at January 1, 2013 Additions through business combination: Acquisition of Equity Transfer Additions through general operations Adjustments Disposals/write-offs Effect of movements in exchange rates Balance at December 31, 2013 Additions through general operations Adjustments Impairment Effect of movements in exchange rates Balance at December 31, 2014 Accumulated amortization: Balance at January 1, 2013 Charge for the year Adjustments Disposals/write-offs Effect of movements in exchange rates Balance at December 31, 2013 Charge for the year Adjustments Effect of movements in exchange rates Balance at December 31, 2014 Net book values: At December 31, 2013 At December 31, 2014 TMX GROUP LIMITED Technology Customer relationships CSA contracts Open interest Total $ 65.8 $ 1,149.9 $ 2.0 $ 2.0 $ 1,219.7 0.2 20.2 (2.7) — 2.3 85.8 17.6 7.2 (5.1) 2.8 108.3 $ 9.2 $ 16.2 (2.4) — 1.5 24.5 16.9 8.3 2.4 52.1 $ 16.8 — — (66.4) 9.5 1,109.8 — — (83.3) 6.3 1,032.8 $ 17.5 $ 41.2 3.4 0.9 63.0 38.7 — 1.8 103.5 $ 61.3 $ 56.2 $ 1,046.8 $ 929.3 $ $ $ $ $ $ — — — — — 2.0 — (2.0) — — — $ 0.4 $ 1.6 — — — 2.0 — (2.0) — — $ — $ — $ — — — — — 2.0 — — — — 2.0 $ 1.7 $ 0.3 — — — 2.0 — — — 2.0 $ 17.0 20.2 (2.7) (66.4) 11.8 1,199.6 17.6 5.2 (88.4) 9.1 1,143.1 28.8 59.3 (2.4) 3.4 2.4 91.5 55.6 6.3 4.2 157.6 — $ — $ 1,108.1 985.5 | 133 25 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (C) IMPAIRMENT OF BOX AND OTHER ASSETS At the end of each reporting period, the Company assesses whether there is any indication that any of its CGUs 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. The Company indirectly holds a 53.8% ownership interest in BOX which provides a market for the trading of U.S. equity options. As at June 30, 2014, the Company determined that the recoverable amount of the BOX CGU was lower than its carrying amount. BOX operates in a highly competitive market and has been challenged by increased competition and slower long-term growth rates. As a result, management revised both short-term and long-term forecasts for the operations of BOX and has reassessed the recoverable amount of the BOX CGU. In making its assessment of the recoverable amount of the BOX CGU, the Company used a value in use calculation. The value in use for the BOX CGU was determined using a discounted cash flow methodology based on management’s best estimate of the forecasted cash flows for the business discounted at a pre-tax discount rate of 13.8% (December 31, 2013 – 15.7%). For the year ended December 31, 2014, the impact of the above calculation resulted in an impairment charge net of deferred income taxes of $106.2 which was recognized in the consolidated income statement. As at June 30, 2014, the impairment charge had the following impact to the net assets of the BOX CGU: Cash Other assets Technology Customer list Regulatory designations and trade name Goodwill Total net assets / impairment charge before income taxes Deferred income tax assets Deferred income tax liabilities Total net assets / impairment charge Non-controlling interests (46.2%) Pre-impairment Carrying amount $ 19.6 $ 4.6 7.9 129.6 6.2 36.0 203.9 7.3 (25.0) 186.2 (77.4) Impairment charge Carrying amount June 30, 2014 — $ — (5.1) (83.3) (4.0) (36.0) (128.4) 3.6 18.6 (106.2) 42.6 19.6 4.6 2.8 46.3 2.2 — 75.5 10.9 (6.4) 80.0 (34.8) 45.2 Attributable to equity holders of the Company $ 108.8 $ (63.6) $ In addition to the BOX CGU at June 30, 2014, the Company determined that certain other assets had recoverable amounts that were lower than their respective carrying amounts. As a result, for the year ended December 31, 2014, the Company recognized an impairment charge of $7.7 related to goodwill in the consolidated income statement. (D) ANNUAL IMPAIRMENT TESTING Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, are tested for impairment at least annually. For the purpose of impairment testing, these assets (that cannot be tested individually) are grouped together into CGUs. The carrying values of goodwill and indefinite life intangible assets allocated to each CGU are as follows: December 31, 2014 Indefinite life intangibles Goodwill Goodwill TSX MX TSX Venture Exchange CDS NGX BOX Other 134 | TMX GROUP LIMITED $ $ 661.4 $ 269.3 126.3 89.5 9.6 — 107.4 1,263.5 $ 1,197.9 $ 668.0 392.0 22.0 112.0 2.4 7.0 2,401.3 $ December 31, 2013 Indefinite life intangibles 1,195.0 668.0 392.0 22.0 112.0 6.2 9.8 2,405.0 661.4 $ 269.3 126.3 89.5 9.6 36.0 101.7 1,293.8 $ 26 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 the Company’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 11.5% to 15.8%, which was set considering the weighted average cost of capital of the Company and certain risk premiums, based on management’s past experience. These assumptions are subjective judgements based on the Company’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 annual impairment tests performed for 2014. Management has determined that the TSX, TSX Venture Exchange, MX and NGX CGUs may be subject to a reasonably possible change to one or more of the key assumptions used to determine recoverable amount that could cause these CGUs 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 these CGUs to equal its carrying value. CGU TSX TSX Venture Exchange $ MX NGX Headroom‡ Key assumptions used Break-even sensitivities Discount rate Terminal growth rate Cash flow decrease Discount rate increase Terminal growth rate decrease 160.8 12.9 112.4 87.7 13.8% 14.0% 11.5% 15.8% 2.0% 2.0% 4.5% 2.0% 7.4% 2.5% 11.1% 32.4% 1.0% 0.3% 0.8% 5.3% 1.5% 0.4% 1.3% 9.6% ‡Headroom represents the amount by which the recoverable amount of the CGU exceeds its carrying value. TMX GROUP LIMITED | 135 27 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 10 – OTHER ASSETS Other assets is comprised of: As at Prepaid expenses Deferred contract costs Total return swaps (note 14) Current income tax assets Other current assets Investment in equity accounted investees (note 16) Accrued employee benefit assets (note 17) Investment in privately-owned company (note 23) Premises and equipment Other Other non-current assets NOTE 11 – TRADE AND OTHER PAYABLES Trade and other payables are comprised of: As at Trade payables and accrued expenses Sales taxes payable Employee and director costs payable Accrued interest payable Regulatory deficit surplus Other Trade and other payables Notes to the Consolidated Financial Statements For the year ended December 31, 2014 December 31, 2014 December 31, 2013 11.1 $ 1.7 — 1.9 14.7 $ 67.8 $ 8.7 0.8 43.8 2.0 123.1 $ 10.2 — 1.0 6.0 17.2 67.0 16.5 0.8 43.4 1.3 129.0 December 31, 2014 December 31, 2013 28.1 $ 3.5 35.1 7.8 2.2 0.4 77.1 $ 30.5 4.5 45.9 7.7 2.1 14.2 104.9 $ $ $ $ $ $ The fair value of trade and other payables is approximately equal to their carrying amount given their short term until settlement. 136 | TMX GROUP LIMITED 28 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 12 – DEBENTURES, COMMERCIAL PAPER, CREDIT AND LIQUIDITY FACILITIES Debentures, Commercial Paper, credit and liquidity facilities drawn and outstanding at December 31 are as follows: Notes to the Consolidated Financial Statements For the year ended December 31, 2014 Principal/ Authorized 2014 Carrying amount 2013 Carrying amount Series A Debentures Series B Debentures Series C Debentures Debentures Commercial Paper Commercial Paper TMX Group Limited term facility TMX Group Limited revolving facility TMX Group Limited credit facility Less: unamortized financing costs Loans payable CDS Limited operating demand loan CDS Clearing operating demand loan CDS Clearing overdraft facility CDS Clearing overnight loan facility Credit facilities CDS Clearing secured standby liquidity facility CDCC syndicated revolving standby liquidity facility 400.0 $ 250.0 350.0 400.0 — — Interest rate† Maturity date(s) 3.253% 4.461% 3 month B.A. + 70 bps Oct 3, 2018 $ Oct 3, 2023 Oct 3, 2016 1.21-1.25% / USD 0.18-0.23% Jan 5 – 28, 2015 1 month B.A. + 150 bps 1 month B.A./ LIBOR + 150 bps 1 month B.A./ LIBOR + 125 bps July 31, 2016 July 31, 2016 Aug 1, 2016 400.0 - - - - n/a n/a n/a n/a 6.0 10.0 5.0 US$5.5 - Prime less 1.75% Dec 23, 2015 US$400.0 Mar 7, 2015 300.0 398.8 $ 249.0 349.4 997.2 233.9 233.9 — — — — — — — — — — — 2.2 398.5 248.9 349.0 996.4 — — 309.5 26.0 — (4.1) 331.4 — — — — — — 1.3 n/a Mar 7, 2015 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 Liquidity facilities Total debentures, Commercial Paper, credit and liquidity facilities — — — — — — — 1.3 1,329.1 †The interest rate charged on borrowings under the credit and liquidity facilities vary as the actual rate will be based on the prevailing market rates at the time of draw. — — — — — — — 2.2 1,233.3 $ 600.0 12,264.0 n/a US$100.0 20.0 300.0 50.0 n/a July 31, 2015 n/a n/a n/a - - - - - - - $ (A) DEBENTURES The Company maintains debentures, which 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 ("DBRS"). TMX GROUP LIMITED | 137 29 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 debentures are carried at amortized cost and are measured using the effective interest rate method. For the year ended December 31, 2014, the Company recognized interest expense on its Series A, Series B and Series C debentures of $13.4, $11.4 and $7.4, respectively (2013 – $3.3, $2.8, and $1.7, respectively). (B) COMMERCIAL PAPER On May 30, 2014, the Company established a commercial paper program to offer potential investors up to $400 (or the equivalent United States dollars (“USD”)) of unsecured short-term promissory notes (“Commercial Paper”) to be issued in various maturities of no more than one year. The Commercial Paper bears interest rates based on the prevailing market conditions at the time of issuance. The Commercial Paper issued are unsecured obligations of the Company and rank equally with all other senior unsecured obligations of the Company. The Commercial Paper has been assigned a rating of R-1 (low) with Stable trend by DBRS. The Commercial Paper is carried at amortized cost and measured using the effective interest rate method. The Company used the net cash proceeds from the Commercial Paper to pay down the TMX Group Limited credit facility outstanding at that time. During the year ended December 31, 2014, the Company issued and repaid Commercial Paper with a cumulative amount of $1,688.4 and $1,458.5, respectively. As at December 31, 2014, the carrying amount of Commercial Paper issued that remains outstanding is $233.9, of which $87.0 represents the Canadian dollar equivalent amount of US dollar Commercial Paper. (C) TMX GROUP LIMITED FACILITIES On May 30, 2014, the Company entered into a new credit agreement (the “TMX Group Limited credit facility”) with a syndicate of lenders to provide 100% backstop to the commercial paper program as well as for general corporate purposes. The amount available to be drawn under the TMX Group Limited credit facility is limited to $400 less the amount of Commercial Paper outstanding at any point in time. On May 30, 2014, the Company used amounts available under the TMX Group Limited credit facility to repay the outstanding balances under the TMX Group Limited term facility and the TMX Group Limited revolving facility, and cancelled these facilities. In addition, as a result of the repayment of the TMX Group Limited term facility and the TMX Group Limited revolving facility, the Company discontinued the hedge accounting relationship between the former term facility and certain interest rate swaps with a notional value of $250 (note 14). During the year ended December 31, 2014, the Company recognized $3.6 of aggregate costs in connection with establishing the commercial paper program, entering into a new credit facility agreement and discontinuation of hedge accounting within the credit facility refinancing expenses line item in the consolidated income statement. During the year ended December 31, 2014, the Company paid down $335.8 of the TMX Group Limited facilities mostly using the net proceeds from the issuance of the Commercial Paper. MX has an outstanding letter of guarantee for $0.6 issued against the TMX Group Limited credit facility. 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 (note 17). (D) CDS FACILITIES CDS maintains unsecured operating demand loans totaling $6.0 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. On December 23, 2014, CDS cancelled its US$200.0, or Canadian dollar equivalent, secured standby liquidity facility. On the same day, CDS then entered into a new secured standby liquidity facility of US$400.0, or Canadian dollar equivalent, that can be drawn 138 | TMX GROUP LIMITED 30 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 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 $600.0 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 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 received by, or pledged to, CDCC. On March 7, 2014, the daylight liquidity facilities had decreased from $700.0 to $600.0, and on the same day, the syndicated revolving standby liquidity facility had increased from $200.0 to $300.0. As at December 31, 2014, CDCC had drawn $2.2 to facilitate a failed REPO settlement. The amount is fully offset by liquid securities included in cash and cash equivalents and was fully repaid subsequent to the reporting date. A $12,264.0 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 $11,064.0 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 BNY 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. (G) SHORCAN FACILITY Shorcan maintains an overdraft facility with a major chartered bank to provide end of day liquidity to cover any shortfalls due to timing of payments and receipts associated with the brokerage of trades. Use of this facility is secured by collateral in the form of securities. TMX GROUP LIMITED | 139 31 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 13 – OTHER LIABILITIES Other liabilities is comprised of: As at Fair value of interest rate swaps (note 14) Fair value of foreign currency forward contracts (note 14) Total return swaps (note 14) Deferred revenue (note 18) Provisions (note 19) Obligations under finance leases (note 20) Current income tax liabilities Other current liabilities Fair value of interest rate swaps (note 14) Accrued employee benefits payable (note 17) Deferred revenue (note 18) Provisions (note 19) Obligations under finance leases (note 20) Long-term incentive plan and director compensation obligations (note 22) Other Other non-current liabilities NOTE 14 – DERIVATIVE INSTRUMENTS (A) INTEREST RATE SWAPS $ $ $ $ Notes to the Consolidated Financial Statements For the year ended December 31, 2014 December 31, 2014 December 31, 2013 0.1 $ 0.2 1.2 16.7 3.3 2.1 11.3 34.9 $ 0.5 $ 19.7 0.7 9.2 1.3 19.4 1.8 52.6 $ — — — 14.3 6.4 2.5 2.2 25.4 0.4 14.1 0.8 6.8 3.5 17.6 2.2 45.4 The Company has entered into a series of interest rate swap agreements to partially manage its exposure to interest rate fluctuations associated with the amounts drawn on its credit facilities and debentures (note 12). The interest rate swaps in place as of December 31 are as follows: Swap Series 2 Series 3 Series 4 Maturity date Interest rate the Company will receive Interest rate the Company will pay Notional value Fair value liability September 30, 2014 1 month B.A. 1.312% $ — $ 200.0 $ September 30, 2015 1 month B.A. July 31, 2016 1 month B.A. 1.416% 1.499% 50.0 350.0 50.0 350.0 $ 400.0 $ 600.0 $ — $ (0.1) (0.5) (0.6) $ 2014 2013 2014 2013 (0.2) (0.1) (0.1) (0.4) The Company has designated certain interest rate swaps as cash flow hedges. The Company’s objective is to eliminate the variability of cash flows from interest rate payments due to be paid by the Company 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, 2014, interest rate swaps with a notional value of $200 matured (2013 – $153.5). On May 30, 2014, as a result of the repayment of the TMX Group Limited facilities, the Company de-designated interest rate swaps with a notional value of $250 used to hedge its interest rate exposure associated with the amounts drawn on the term facilities (note 12). Of these interest rate swaps, a notional value of $350 remain economically hedged at December 31, 2014. The Company continues to apply hedge accounting between the Series C debentures and certain interest rate swaps with a notional value of $350. During the year ended December 31, 2014, the Company has determined that certain hedge relationships were effective and has recognized within other comprehensive income unrealized fair value losses on the swaps of $0.3 (2013 – effective and unrealized gains of $1.4). In addition, the Company recognized $1.3 within net finance costs in the consolidated income statement, 140 | TMX GROUP LIMITED 32 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 representing the net amount paid on the interest rate swaps (2013 – paid $2.0). This amount was reclassified from other comprehensive income to net income. The Company has recognized unrealized fair value gains of $0.1 within net finance costs in the consolidated income statement for ineffective hedges (2013 – $nil). (B) FOREIGN CURRENCY FORWARD CONTRACTS In 2014, the Company entered into a series of foreign currency forward contracts to partially manage its exposure to foreign exchange fluctuations associated with the Commercial Paper issued and denominated in USD (note 12). The foreign currency forward contracts in place as of December 31, 2014 are as follows: Forward USD forward 1 USD forward 2 USD forward 3 USD forward 4 Settlement date Forward rate Notional value Fair value liability January 14, 2015 January 14, 2015 January 20, 2015 January 20, 2015 1.164% 1.164% 1.166% 1.162% $ $ 2014 20.0 5.0 10.0 25.0 60.0 $ $ 2014 (0.1) — (0.1) — (0.2) Fair values have been determined by reference to quoted market prices or are based on observable market information. As at December 31, 2014, the Company borrowed US$75.0 of Commercial Paper. Of this total, US$60.0 has been fully hedged with the use of foreign exchange forward contracts, as the maturity dates of these contracts coincide with the maturity dates of the underlying individual U.S. dollar denominated Commercial Paper. The remaining US$15.0 of Commercial Paper that is not hedged with forward contracts, is partially hedged by the Company's assets denominated in US dollars. During the year ended December 31, 2014, unrealized losses of $0.2 have been recognized within net finance costs in the consolidated income statement. (C) TOTAL RETURN SWAPS The Company has entered into a series of total return swaps ("TRSs") which synthetically replicate the economics of the Company purchasing the Company’s shares as a partial economic hedge to the share appreciation rights of the non-performance element of restricted shared units ("RSUs") and deferred share units ("DSUs") (note 22). The Company has also entered into a series of TRSs as a full fair value hedge against the share price appreciation associated with the DSUs. The Company 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 based on the 30-day volume weighted average price of the Company’s common shares at the end of the reporting period, which is the same methodology as the RSUs and DSUs (note 22). 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. For the year ended December 31, 2014, unrealized losses and realized gains of $1.7 and $1.5, respectively have been reflected in net income in the consolidated financial statements (2013 – unrealized gains and realized losses of $0.6 and $0.6, respectively). TMX GROUP LIMITED | 141 33 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 15 – INCOME TAXES (A) INCOME TAX EXPENSE RECOGNIZED IN THE CONSOLIDATED INCOME STATEMENT Income tax expense recognized in the consolidated income statement for the period is as follows: For the year ended 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 December 31, 2014 December 31, 2013 69.8 $ 61.3 (28.9) 0.7 — — 41.6 $ 0.3 (3.9) 2.7 0.5 60.9 $ $ Income tax expense attributable to income differs from the amounts computed by applying the combined federal and provincial income tax rate of 26.5% (2013 – 26.5%) to income before income taxes as a result of the following: For the year ended Income before income taxes Computed expected income tax expense Impairment charges (note 9) Non-deductible expenses Sale of a subsidiary 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 December 31, 2014 December 31, 2013 96.2 $ 25.5 $ 13.9 1.5 — 0.7 — 0.8 — (0.8) 41.6 $ 184.6 48.9 — 1.4 9.9 (3.9) 2.7 0.7 0.5 0.7 60.9 $ $ $ (B) INCOME TAX RECOGNIZED IN OTHER COMPREHENSIVE INCOME Income tax (expense) benefit recognized in other comprehensive income for the period is as follows: For the year ended December 31, 2014 December 31, 2013 Before tax Tax benefit (expense) Net of tax Before tax Tax benefit (expense) Net of tax Related to interest rate swaps designated as cash flow hedges Related to actuarial (losses) gains on defined benefit pension and other post-retirement benefit plans Total $ $ 0.4 $ (0.1) $ 0.3 $ (0.3) $ 0.4 $ 0.1 (9.6) (9.2) $ 2.5 2.4 $ (7.1) 14.0 (6.8) $ 13.7 $ (3.7) (3.3) $ 10.3 10.4 142 | TMX GROUP LIMITED 34 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (C) DEFERRED INCOME TAX ASSETS AND LIABILITIES Deferred income tax assets and liabilities as of December 31 are attributable to the following: Premises and equipment Cumulative eligible capital / intangible assets Tax loss carry-forwards Employee future benefits RSUs and DSUs Other Deferred income tax assets (liabilities) Set off of tax Net deferred income tax assets (liabilities) $ $ $ 2014 4.3 $ 22.4 14.5 4.4 6.7 7.8 60.1 $ (42.2) Assets 2013 4.3 $ 22.9 13.8 2.6 8.7 7.9 60.2 $ — 2014 (2.1) $ (865.7) — (1.5) — (0.1) (869.4) $ 42.2 Liabilities 2013 (2.1) $ (894.8) — (3.3) — (0.3) (900.5) $ — 2014 2.2 $ (843.3) 14.5 2.9 6.7 7.7 (809.3) $ — Net 2013 2.2 (871.9) 13.8 (0.7) 8.7 7.6 (840.3) — 17.9 $ 60.2 $ (827.2) $ (900.5) $ (809.3) $ (840.3) 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 Balance as at January 1, 2013 Recognized in net income Recognized in other comprehensive income Recognized through business combinations /disposals Effect of movements in exchange rates Balance as at December 31, 2013 Recognized in net income Recognized in other comprehensive income Effect of movements in exchanges rates $ 3.6 $ (902.0) $ 0.3 — (1.7) — 2.2 — — — 4.4 — 27.2 (1.5) (871.9) 28.6 — — 20.9 $ (7.1) 4.5 $ (1.5) — — — 13.8 0.3 — 0.4 (3.7) — — (0.7) 1.1 2.5 — 8.5 $ 3.1 $ (861.4) 0.2 — — — 8.7 (2.0) — — 4.1 0.4 — — 7.6 0.2 (0.1) — 0.4 (3.3) 25.5 (1.5) (840.3) 28.2 2.4 0.4 Balance as at December 31, 2014 $ 2.2 $ (843.3) $ 14.5 $ 2.9 $ 6.7 $ 7.7 $ (809.3) As at December 31, 2014, $4.3 of the above deferred income tax assets related to tax losses incurred in the legal entities of TMX Group Limited and TMX Group Inc. (2013 – $5.7). Recoverability of these assets is dependent upon 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: As at Tax losses Other deductible temporary differences December 31, 2014 December 31, 2013 33.9 $ 120.7 154.6 $ 30.2 105.0 135.2 $ $ At December 31, 2014, $14.8 of the above income tax losses will expire by 2034 (2013 – $13.2 by 2033). 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. However, the Company will continue to pursue tax planning strategies to utilize the tax losses where possible. At December 31, 2014, deferred income tax liabilities for temporary differences of $130.9 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 (2013 – $130.0). Temporary differences relating to the remaining domestic subsidiaries have not been recognized as the temporary difference can be settled without tax consequences. TMX GROUP LIMITED | 143 35 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 16 – INVESTMENTS IN EQUITY ACCOUNTED INVESTEES Investments in equity accounted investees are comprised of: As at Investment in FTSE TMX Global Debt Capital Markets Limited Other Investments in equity accounted investees December 31, 2014 December 31, 2013 $ $ 52.4 $ 15.4 67.8 $ 51.8 15.2 67.0 For the year ended December 31, 2014, the Company recognized $3.3 from its share of income from equity accounted investees, which has been offset by losses due to dilution of $0.3 (2013 – $2.6 and $nil, respectively). (A) FTSE TMX Global Debt Capital Markets Limited As at April 5, 2013, the Company had an indirect 25% equity interest in FTSE TMX Global Debt Capital Markets Limited ("FTSE"). The investment is accounted for using the equity method. On April 1, 2014, FTSE acquired an indices business in exchange for its shares. The acquisition diluted the Company's equity interest to 24.25%. Subsequently, the Company recognized a loss on dilution of its investment in FTSE of $0.3, which is included in net income from equity accounted investees line item of the consolidated income statement. Summary financial information for FTSE is as follows: As at Current assets Non-current assets Current liabilities Non-current liabilities Net assets (100%) For the year ended Revenue Net income and comprehensive income (100%) Share of income and comprehensive income December 31, 2014 December 31, 2013 30.0 $ 157.0 (22.6) (1.2) 163.2 $ 19.2 153.0 (22.4) (1.0) 148.8 December 31, 2014 December 31, 2013 22.6 $ 4.2 0.9 $ 17.2 2.1 0.5 $ $ $ $ For the year ended December 31, 2014, the Company earned $1.6 (2013 – $1.1) from FTSE as part of its royalty program, which is included in information services revenue and the cash segment. NOTE 17 – EMPLOYEE FUTURE BENEFITS (A) Defined contribution plans The total expense recognized in respect of the Company’s defined contribution plans for the year ended December 31, 2014, was $6.8, which represents the employer contributions for the period (2013 – $5.2). (B) Defined benefit plans The Company 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 TSX RCA plans, the most recent actuarial valuations for funding purposes were as at December 31, 2013, and the next required valuations are as at December 31, 2014. For the CDS RCA plan, the funding valuation is performed annually with the most recent actuarial funding valuation completed as of January 1, 2014. 144 | TMX GROUP LIMITED 36 2014 ANNUAL REPORT TMX GROUP LIMITED The accrued benefit assets and accrued benefit obligations related to the Company’s defined benefit pension and non-pension post-retirement plans are included in the Company’s consolidated balance sheet at December 31 as follows: Notes to the Consolidated Financial Statements For the year ended December 31, 2014 Accrued employee benefit assets Accrued employee benefits payable $ $ 2014 Pension and RCA plans 2013 16.5 $ (2.2) 14.3 $ 8.7 $ (2.9) 5.8 $ 2014 Other post-retirement benefit plans 2013 — (10.6) (10.6) (15.5) (15.5) $ — $ Accrued employee benefits payable on the consolidated balance sheet also includes the obligation under the post-employment benefit plan of $1.3 (2013 – $1.3). The accrued benefit assets and accrued benefit liabilities are comprised of: Accrued benefit obligation: Balance, beginning of the year Current service cost Past service cost Loss on settlement/curtailment Interest cost Benefits paid Settlements paid Employee contributions Actuarial losses (gains) Balance at December 31 Plan assets: Fair value, beginning of the year Interest income Employer contributions Employee contributions Benefits paid Settlements paid Plan administration cost Actuarial gains Fair value at December 31 Accrued benefit asset (liability) at December 31 Plan assets consist of: Asset category Equity securities Debt securities Other $ $ $ $ $ Pension and RCA plans 2013 2014 Other post-retirement benefit plans 2013 2014 93.5 $ 2.6 0.4 0.1 4.5 (2.9) (1.5) 0.2 14.0 110.9 $ 107.8 $ 5.2 2.4 0.2 (2.9) (1.5) (0.9) 6.4 116.7 $ 100.2 $ 3.1 (0.3) 0.7 4.2 (3.6) (3.2) 0.2 (7.8) 93.5 $ 98.3 $ 4.3 6.7 0.2 (3.6) (3.2) (0.3) 5.4 107.8 $ 10.6 $ 0.8 2.3 — 0.6 (0.6) — — 1.8 15.5 $ — $ — 0.6 — (0.6) — — — — $ 10.9 0.5 — — 0.5 (0.3) — — (1.0) 10.6 — — 0.3 — (0.3) — — — — 5.8 $ 14.3 $ (15.5) $ (10.6) December 31, 2014 Percentage of plan assets December 31, 2013 48.5% 33.7% 17.8% 100.0% 49.0% 31.7% 19.3% 100.0% The plan assets include units held in a pooled fund investments which hold approximately 0.087% of debentures in TMX Group Limited as at December 31, 2014 (2013 – 0.071%). TMX GROUP LIMITED | 145 37 2014 ANNUAL REPORT TMX GROUP LIMITED The elements of the Company’s defined benefit plan costs recognized in the year ended December 31 are as follows. The full cost is recognized within compensation and benefits and Maple transaction and integration costs line items in the consolidated income statement. Pension and RCA plans Other post-retirement benefit plans Notes to the Consolidated Financial Statements For the year ended December 31, 2014 Current service cost Past service cost Loss on settlement/curtailment Net interest cost Plan administration cost 2014 2.6 $ 2013 3.1 $ 2014 0.8 $ $ 0.4 0.1 (0.7) 0.7 (0.3) 0.7 (0.1) 0.1 2.3 — 0.6 — Net benefit plan expense recognized in the consolidated income statement $ 3.1 $ 3.5 $ 3.7 $ 2013 0.5 — — 0.5 — 1.0 The Company 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 for the year ended December 31 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 losses (gains) recognized in other comprehensive income Pension and RCA plans Other post-retirement benefit plans 2014 0.8 $ 12.8 0.3 (6.1) 2013 2014 1.9 $ 0.1 $ (8.1) (1.7) (5.1) 1.6 0.1 — 7.8 $ (13.0) $ 1.8 $ 2013 (0.2) (0.8) — — (1.0) $ $ The significant actuarial assumptions adopted in measuring the obligation as at December 31 are as follows (weighted average): Discount rate Commuted value Rate of compensation increase Pension and RCA plans Other post-retirement benefit plans 2014 3.99% 3.26% 3.50% 2013 4.90% 4.00% 3.50% 2014 3.99% n/a n/a 2013 4.90% n/a n/a Assumptions regarding mortality rates are based on published statistics and mortality tables. The mortality tables used in 2014 for the pension, RCA and other post-retirement plans was the Canadian Pensioner Mortality Experience RPP2014 private sector mortality table with projection scale CPM-B (2013 – Canadian Pensioner Mortality Experience RPP2014 private sector mortality table with projection scale CPM-A). The assumed health care cost trend rate at December 31, 2014 was 6.60% decreasing to 4.50% over 15 years (2013 – 6.75% decreasing to 4.50% over 16 years). Reasonably possible changes to one of the relevant actuarial assumptions, holding other assumptions constant, would impact the accrued benefit obligations as follows: 50 bps decrease in the discount rate 25 bps decrease in inflation assumptions 1 year increase in mortality rates 100bps decrease in initial and ultimate trend rates 100bps increase in initial and ultimate trend rates Pension and RCA plans 2014 2013 $ (6.9) $ (5.5) $ 3.3 0.6 n/a n/a 0.8 (1.4) n/a n/a Other post-retirement benefit plans 2014 (1.1) $ n/a (0.7) 0.7 (0.8) 2013 (0.7) n/a (0.4) 0.5 (0.6) MX has provided a letter of guarantee in the amount of $0.6 to the benefit of the trustee of the MX supplementary pension plan (2013 – $0.6), using a part of the TMX Group Limited credit facility (note 12). 146 | TMX GROUP LIMITED 38 2014 ANNUAL REPORT TMX GROUP LIMITED In 2015, the Company expects to contribute approximately $1.9 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. Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 18 – DEFERRED REVENUE Deferred revenue is comprised of: As at Energy Listings Technology Other Current deferred revenue Energy Non-current deferred revenue December 31, 2014 December 31, 2013 $ $ $ $ 5.5 $ 2.7 5.2 3.3 16.7 $ 0.7 $ 0.7 $ 5.2 3.3 2.7 3.1 14.3 0.8 0.8 Deferred revenue mainly comprises of energy deferred revenue from NGX, which recognizes trading, clearing and related revenue over the trade, delivery and settlement months of each transaction, and initial and additional listings for TSX Venture Exchange, which are paid in advance for the services being provided and which are deferred until the point at which the listing occurs and the service is completed. Technology deferred revenue includes fees for network and infrastructure solutions and risk management software, and annual information services subscription sales from CDS which are deferred over a twelve month period. NOTE 19 – PROVISIONS AND CONTINGENCIES (A) PROVISIONS A summary of the Company’s provisions is as follows: Onerous leases Decommissioning liabilities Commodity tax Restructuring Total Balance as at January 1, 2013 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 Provisions recognized during the period Provisions used or reversed during the period Balance as at December 31, 2014 Current Non-current Balance as at December 31, 2014 (B) CONTINGENT LIABILITIES $ $ $ $ $ $ $ 4.5 $ 0.9 (4.3) 1.1 $ 1.0 $ 0.1 1.1 $ 1.2 (1.0) 1.3 $ 0.2 $ 1.1 1.3 $ 2.8 $ 4.1 (0.2) 6.7 $ — $ 6.7 6.7 $ 5.2 (3.8) 8.1 $ — $ 8.1 8.1 $ 3.2 $ 0.4 — 3.6 $ 3.6 $ — 3.6 $ 0.8 (2.6) 1.8 $ 1.8 $ — 1.8 $ — $ 1.8 — 1.8 $ 1.8 $ — 1.8 $ 1.7 (2.2) 1.3 $ 1.3 $ — 1.3 $ 10.5 7.2 (4.5) 13.2 6.4 6.8 13.2 8.9 (9.6) 12.5 3.3 9.2 12.5 From time to time in connection with its operations, the Company 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 the Company’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. TMX GROUP LIMITED | 147 39 2014 ANNUAL REPORT TMX GROUP LIMITED NOTE 20 – COMMITMENTS AND LEASE OBLIGATIONS Notes to the Consolidated Financial Statements For the year ended December 31, 2014 The Company 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 regard 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, 2014 December 31, 2013 $ $ 21.6 $ 52.9 78.8 153.3 $ 17.1 56.0 87.1 160.2 The Company is responsible for additional taxes, maintenance and other direct charges with respect to its leases. The additional amount will be approximately $13.5 for 2015 (2014 – $13.9). The figures above do not include the Company’s obligations to restore certain leased premises to their original condition (note 19). The Company 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 December 31, 2014 December 31, 2013 $ $ 1.6 $ 3.8 5.4 $ 1.8 5.0 6.8 Payments of $33.9 were charged to the consolidated income statement in relation to operating leases, net of sub-lease income (2013 – $32.2). (B) FINANCE LEASES Finance lease liabilities that are payable in less than one year are included in other current liabilities and the remaining liabilities are included in other non-current liabilities on the consolidated balance sheet. Finance lease liabilities are payable as follows: December 31, 2014 December 31, 2013 Future minimum lease payments $ $ 2.3 $ 1.5 3.8 $ Present value of minimum lease payments Future minimum lease payments 2.1 $ 1.3 3.4 $ 2.7 $ 3.8 6.5 $ Interest 0.2 $ 0.2 0.4 $ Present value of minimum lease payments 2.5 3.5 6.0 Interest 0.2 $ 0.3 0.5 $ Less than one year Between one and five years 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. 148 | TMX GROUP LIMITED 40 2014 ANNUAL REPORT TMX GROUP LIMITED Under the CDS recognition orders granted by the OSC and 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 on a 50:50 basis with Participants. For the year ended December 31, 2014, the rebate payable amounted to $2.3 (2013 – $1.0). Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 recorded as a reduction against revenue in the year to which they relate. NOTE 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 was 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. The Company has nomination agreements in place 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 Group 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 Company's 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 the Company'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 Nominating Investors. The following transactions occurred with respect to the Company’s common shares during the period: Balance, beginning of the period Options exercised Balance as at December 31 Number of common shares issued and fully paid 2014 54,116,023 199,056 54,315,079 2013 53,763,464 $ 352,559 54,116,023 $ 2014 2,849.2 $ 9.1 2,858.3 $ Share capital 2013 2,833.7 15.5 2,849.2 The Company’s shares began trading on Toronto Stock Exchange under the symbol “X” on September 19, 2012. TMX GROUP LIMITED | 149 41 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 22 – SHARE-BASED PAYMENTS On March 26, 2014, the Board approved changes to its long-term incentive plan (“LTIP”) for certain employees and officers of the Company. Beginning with grants in 2015 for 2014 performance, certain employees and officers of the Company will receive a mix of LTIP awards consisting of share options, performance-based restricted share units (referred to as “PSUs”) and time-based RSUs. The share option plan has been amended so that options would vest in quarters over 4 years and have a maximum term of 10 years. The new PSU plan will be substantially the same as the current RSU plan and a new time-based RSU will replace the existing RSU plan. For the year ended December 31, 2014, the Company recognized compensation and benefits expense under the following share- based payment arrangements: • Share option plan; • Restricted share unit and deferred share unit plans; and • Employee share purchase plan. (A) SHARE OPTION PLAN Under the share option plan, the fair value of share options granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: a share price of $50.67 dollars (2013 – $55.15 dollars), and depending on the tranche, dividend yield of between 3.0% and 3.1% (2013 – 3.3% and 3.4%); expected life of between 2 and 5 years (2013 – 2 and 4 years); an expected volatility of between 19.5% and 20.9% (2013 – 18.2% and 23.0%); risk-free interest rate of between 1.3% and 1.8% (2013 – 1.1% and 1.3%); and expected forfeiture rates of between 7.2% and 22.5% (2013 – 9.3% and 26.2%). The assumptions are based on the Company’s historical share price movements and historical dividend policy and the expected life is based on the Company's past experience. The resulting weighted average fair value calculated for share options granted in 2014 was $6.61 dollars (2013 – $5.87 dollars). Options outstanding at December 31, 2014 will expire in 2015, 2017, 2018, 2019, 2020, 2021 and 2024. Movements in the number of share options outstanding are as follows: For the year ended December 31, 2014 December 31, 2013 Outstanding, beginning of the period Granted Expired Forfeited Exercised Outstanding as at December 31 Vested and exercisable as at December 31 Number of share options Weighted average exercise price (in dollars) Number of share options Weighted average exercise price (in dollars) 1,355,585 $ 741,336 (32,497) (261,042) (199,056) 1,604,326 $ 491,036 $ 49.84 50.67 51.50 51.61 42.29 50.84 48.06 1,064,883 $ 683,477 — (40,216) (352,559) 1,355,585 $ 302,118 $ 43.60 55.15 — 49.67 41.30 49.84 43.83 The range of exercise prices and weighted average remaining contractual life of options outstanding are as follows: As at Exercise price range (in dollars) $28.67 - $29.99 $30.00 - $39.99 $40.00 - $49.99 $50.00 - $55.39 Number of share options December 31, 2014 Weighted average remaining contractual life Number of share options December 31, 2013 Weighted average remaining contractual life 29,075 — 370,327 1,204,924 1,604,326 2 — 4 6 5 46,522 3,776 566,970 738,317 1,355,585 3 2 5 6 5 For the year ended December 31, 2014, the Company recognized compensation and benefits expense of $2.7 in relation to its share option plan (2013 – $2.2). 150 | TMX GROUP LIMITED 42 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 According to the terms of the Company’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 the Company. At December 31, 2014, 4,186,402 common shares of the Company remain reserved for issuance upon exercise of share options granted under the plan, representing approximately 8% of the outstanding common shares of the Company. (B) RESTRICTED SHARE UNIT (“RSU”) AND DEFERRED SHARE UNIT (“DSU”) PLANS RSUs vest over a maximum of three years and are payable provided the employee is still employed by the Company 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 30-day volume weighted average price of the Company’s common shares 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 the Company or such of its subsidiaries as are designated from time to time. Legacy RSU and DSU plans previously existed within the Company. In 2012, these plans were amended as part of the acquisition by Maple, 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 dollars per unit upon maturity. The Company 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, 2014, the total accrual for the Company’s RSUs and DSUs was $25.5 (2013 – $32.2), which includes $6.1 in trade and other payables (2013 – $14.6) and $19.4 in other non-current liabilities (2013 – $17.6). Included within the above accrual is $nil related to the Fixed RSUs (2013 – $12.8). Except for the Fixed RSUs, the maximum amount to be paid is not known 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 the 30-day volume weighted average price of the Company’s common shares at the end of the reporting period. The Company 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 23). For the year ended December 31, 2014, the Company recognized compensation and benefits expense and general and administration expense of $4.9 and $2.1, respectively, in relation to its RSUs and DSUs (2013 – $9.2 and $1.5, respectively). (C) EMPLOYEE SHARE PURCHASE PLAN The Company has an employee share purchase plan for eligible employees of the Company. Under the employee share purchase plan, contributions by the Company 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. The Company 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 of $2,500 dollars per year. The Company accounts for its contributions as compensation and benefits expense when the amounts are contributed to the plan. For the year ended December 31, 2014, compensation and benefits expense related to this plan was $1.9 (2013 – $1.6). TMX GROUP LIMITED | 151 43 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 23 – FINANCIAL INSTRUMENTS (A) FINANCIAL INSTRUMENTS – CARRYING VALUES AND FAIR VALUES The classification of the Company’s financial instruments, along with their carrying amounts and fair values are as follows: December 31, 2014 Fair value Carrying amount December 31, 2013 Fair value Carrying amount 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 Investment in privately-owned company 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 Foreign currency forward contracts Total return swaps Interest rate swaps Other financial liabilities Other trade and other payables Accrued interest payable Participants’ tax withholdings Energy contracts payable Clearing Members cash collateral Other balances with Clearing Members Balances with Participants Obligations under finance leases Credit and liquidity facilities drawn Commercial Paper Loans payable Debentures $ 59.7 $ 59.7 59.7 $ 59.7 67.0 $ 67.0 213.8 — 213.8 0.8 0.8 214.0 75.6 91.3 696.5 511.6 7,934.4 361.2 9,884.6 (213.8) (0.2) (1.2) (0.1) (215.3) (37.6) (7.8) (75.6) (696.5) (511.6) (7,934.4) (361.2) (3.4) (2.2) (233.9) — (997.2) (10,861.4) 213.8 — 213.8 0.8 0.8 214.0 75.6 91.3 696.5 511.6 7,934.4 361.2 9,884.6 (213.8) (0.2) (1.2) (0.1) (215.3) (37.6) (7.8) (75.6) (696.5) (511.6) (7,934.4) (361.2) (3.4) (2.2) (233.9) — (1,038.0) (10,902.2) 86.9 1.0 87.9 0.8 0.8 212.2 102.9 83.6 764.9 309.3 9,524.6 330.8 11,328.3 (86.9) — — — (86.9) (55.2) (7.7) (102.9) (764.9) (309.3) (9,524.6) (330.8) (6.0) (1.3) — (331.4) (996.4) (12,430.5) 67.0 67.0 86.9 1.0 87.9 0.8 0.8 212.2 102.9 83.6 764.9 309.3 9,524.6 330.8 11,328.3 (86.9) — — — (86.9) (55.2) (7.7) (102.9) (764.9) (309.3) (9,524.6) (330.8) (6.0) (1.3) — (331.4) (1,003.8) (12,437.9) Relationships designated under hedge accounting Interest rate swaps $ (0.5) (0.5) $ (0.5) (0.5) $ (0.4) (0.4) $ (0.4) (0.4) The carrying amount of the Company’s financial instruments approximate their fair values at each reporting date, with the exception of the debentures. The fair values of the debentures were obtained using Level 2 observable market prices as inputs. 152 | TMX GROUP LIMITED 44 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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) FAIR VALUE MEASUREMENT The categories within the fair value hierarchy of the Company’s financial instruments carried at fair value are as follows: As at Asset/(Liability) Marketable securities Fair value of open energy contracts Investment in privately-owned company Total return swaps Fair value of open energy contracts Foreign currency forward contracts Interest rate swaps Asset/(Liability) Marketable securities Fair value of open energy contracts Investment in privately-owned company Total return swaps Fair value of open energy contracts Interest rate swaps $ $ — — — — — — Level 1 67.0 $ — — — — — Level 1 59.7 $ Fair value measurements using: Level 3 Level 2 — $ — $ 213.8 — (1.2) (213.8) (0.2) (0.6) — 0.8 — — — — December 31, 2014 59.7 213.8 0.8 (1.2) (213.8) (0.2) (0.6) Fair value measurements using: Level 3 Level 2 — $ — $ 86.9 — 1.0 (86.9) (0.4) — 0.8 — — — December 31, 2013 67.0 86.9 0.8 1.0 (86.9) (0.4) There were no transfers during the periods between any of the levels. (i) Marketable securities The Company has designated its marketable securities as fair value through profit and loss (note 6). Fair values have been determined by reference to quoted market prices. (ii) Fair value of open energy contracts The Company has classified its open energy contracts as fair value through profit and loss (note 8). Fair value is determined based on the difference between the trade price when the contract was entered into and the settlement price. There is no impact on the consolidated income statement. (iii) Investment in privately-owned company 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. For the year ended December 31, 2014, there was no movement in the fair value (2013 – no movement). (iv) Total return swaps (“TRSs”) The Company has classified its series of TRSs as fair value through profit and loss (note 14). Fair value is based on the 30- day volume weighted average price of the Company’s common shares at the end of the reporting period. The fair value of the TRSs and the obligation to unit holders are reflected on the consolidated balance sheet. (v) Foreign currency forward contracts The Company has classified its foreign currency forward contracts as fair value through profit and loss (note 14). Fair values have been determined based on observable market information. TMX GROUP LIMITED | 153 45 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (vi) Interest rate swaps The Company marks to market the fair value of its certain of its interest rate swaps (note 14). Fair value is obtained from a pricing service based on a discounted cash flow model, which includes a credit spread. NOTE 24 – FINANCIAL RISK MANAGEMENT The Company 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 loss due to the failure of a borrower, counterparty, Clearing Member, or Participant to honour their financial obligations. It arises principally from the Company’s clearing operations of NGX, CDCC and CDS, cash and cash equivalents, restricted cash and cash equivalents, marketable securities, trade receivables, interest rate swaps, total return swaps and the brokerage operations of Shorcan and Shorcan Energy Brokers and the operations of Equity Transfer. (i) Clearing and/or brokerage operations The Company 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. 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 Contracting Parties 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 8). 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 CDCC is exposed to credit risk in the event that Clearing Members fail to satisfy any of the contractual obligations as stipulated within 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 sanctions on such Clearing Members. 154 | TMX GROUP LIMITED 46 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 CDS One of CDCC’s principal risk management practices with regard 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. 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 of its cash and cash equivalents and marketable securities to cover the potential loss incurred due to Clearing Member defaults (note 25). This $10.0 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 is allocated into two separate tranches. The first tranche of $5.0 is intended to cover the loss resulting from the first defaulting Clearing Member. If the loss incurred is greater than $5.0, and as such the first tranche is fully depleted, CDCC will fully replenish the first tranche using the second tranche of $5.0. This second tranche is in place to ensure there is $5.0 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 would 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 8). 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 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 TMX GROUP LIMITED | 155 47 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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 8). 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. 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 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. 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 Canadian major chartered banks. (ii) Cash and cash equivalents and restricted cash and cash equivalents The Company 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. (iii) Marketable securities The Company 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 A/R1-low or better. In addition, when holding individual fixed income securities, the Company 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. The majority of the portfolio is held within bank deposits, notes and treasury bills. In addition, a portion 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 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. (iv) Trade receivables The Company’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. The Company 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, data access privileges and other services. (v) Interest rate swaps, foreign currency forward contracts and total return swaps The Company limits its exposure to counterparty credit risk on its interest rate swaps, foreign currency forward contracts and its total return swaps by contracting with major Canadian chartered banks. 156 | TMX GROUP LIMITED 48 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 (B) MARKET RISK Market risk is the risk of loss due to changes in market prices and rates, such as foreign exchange rates, interest rates, commodity prices and equity prices. (i) Foreign currency risk The Company is exposed to foreign currency risk on revenue and expenses where it invoices or procures in a foreign currency. It is also exposed to foreign currency risk on cash and cash equivalents, trade receivables and trade payables denominated in foreign currencies, principally in US dollars. At December 31, 2014, cash and cash equivalents and trade receivables, net of current liabilities, excluding BOX, include US$28.5, which are exposed to changes in the US-Canadian dollar exchange rate (2013 – US$23.2), £0.5, which are exposed to changes in the British Pound Sterling-Canadian dollar exchange rate, and €0.9, which are exposed to changes in the Euro-Canadian dollar exchange rate. In addition, net assets related to BOX, Finexeo, Razor and other operations are denominated in US dollars, Euros (“EUR”), Australian dollars (“AUD”) and British Pound Sterling ("GBP") respectively, and the effect of foreign exchange rate movements on the Company’s share of these net assets is included in other comprehensive income. The Company is also exposed to foreign currency risk on its US dollar advances on Commercial Paper. At December 31, 2014, advances on Commercial Paper include US$75.0, which is exposed to changes in the US-Canadian dollar exchange rate (2013 – US$nil). The foreign currency risk related to the Commercial Paper is partially managed by US dollar foreign currency exchange forward contracts (note 14). 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. (ii) Interest rate risk The Company is exposed to interest rate risk on its marketable securities, its debentures and Commercial Paper. External investment fund managers have been engaged by the Company to manage the asset mix and the risks associated with the majority of its marketable securities. At December 31, 2014, the Company held $59.7 in marketable securities (2013 – $67.0); of which 48.4% were held in a money market fund , 48.2% were held in a short-term bond and mortgage fund, 0.8% were held in treasury bills, and 2.6% were held in other term deposits (2013 – 39.8%, 38.7%, 17.2%, and 4.3%, respectively). The Company has $350.0 of Series C Debentures and $234.0 of Commercial Paper (note 12). The Company has entered into a series of interest rate swap agreements to fully manage its exposure to interest rate fluctuations on its Series C Debentures and to partially manage its exposure to interest rate fluctuations on its Commercial Paper (note 14). (iii) Equity price risk The Company is exposed to equity price risk arising from its RSUs and DSUs, as the Company’s obligation under these arrangements are partly based on the price of the Company’s shares. The Company 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 The Company is exposed to market risk factors from the activities of NGX, CDCC, CDS, 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. NGX 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 TMX GROUP LIMITED | 157 49 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 excess of the outstanding credit exposure which includes mark-to-market exposure of all open trade positions. In addition, NGX collects additional risk-based margin collateral that is representative of the liquidating value, within a defined confidence interval and liquidation period under normal market conditions, that NGX would be exposed to in the default management process. CDCC CDCC is exposed to market risk 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. CDS CDS is exposed to market risk as a result of its role as central counterparty in its continuous net settlement and clearing 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 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. Shorcan and Shorcan Energy Brokers 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. Other The Company is also exposed to other market price risk on a portion of its sustaining services revenue, which is based on quoted market values of listed issuers as at December 31 of the previous year. 158 | TMX GROUP LIMITED 50 2014 ANNUAL REPORT TMX GROUP LIMITED (v) Market risk sensitivity summary Foreign currency USD, AUD, EUR and GBP currency USD, AUD, EUR and GBP currency USD advances on Commercial Paper USD advances on Commercial Paper Foreign currency forwards Foreign currency forwards Interest rates Marketable securities Marketable securities Interest rate swaps Interest rate swaps Commercial Paper Commercial Paper Debentures Debentures Equity price RSUs and DSUs RSUs and DSUs TRS TRS (C) LIQUIDITY RISK Notes to the Consolidated Financial Statements For the year ended December 31, 2014 Change in underlying factor Impact on income before income taxes Impact on equity attributable to equity holders +10.0% $ -10.0% +10.0% -10.0% +10.0% -10.0% +1.0% $ -1.0% +1.0% -1.0% +1.0% -1.0% +1.0% -1.0% +25.0% $ -25.0% +25.0% -25.0% 3.8 $ (3.8) (8.7) 8.7 7.0 (7.0) (0.8) 0.8 4.0 (4.0) (2.3) 2.3 (3.5) 3.5 (10.4) 4.5 6.4 (5.1) 7.2 (7.2) n/a n/a n/a n/a n/a n/a — — n/a n/a n/a n/a n/a n/a n/a n/a Liquidity risk is the risk of loss due to the inability of the Company to meet its, or of the Company's borrowers, counterparties, Clearing Members, or Participants to meet their obligations in a timely manner or at reasonable prices. The Company 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 and Commercial Paper (note 12) and capital (note 25). The contractual maturities of the Company’s financial liabilities are as follows: As at Less than 1 year Between 1 and 5 years Greater than 5 years December 31, 2014 $ 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* Balances with Clearing Members and Participants* Interest rate swaps Foreign currency contracts Liquidity facility drawn Commercial Paper 75.6 $ 7.8 37.6 1.3 2.1 696.5 201.3 8,807.2 0.1 0.2 2.2 234.0 — — $ — — — 1.3 — 12.5 — 0.5 — — — 750.0 — — — — — — — — — — — — 250.0 Debentures *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 TMX GROUP LIMITED | 159 51 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 recognized on the consolidated balance sheet, pledged to CDCC 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 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. Residual liquidity risk in excess of CDS’s liquidity facility is transferred to surviving Participant users of the New York Link service and as a result CDS’s liquidity risk exposure is limited to a maximum of its available liquidity facility. 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. NGX also ensures that it maintains sufficient liquid resources to cover twelve months of operating costs as well as the daily settlement requirement of its largest single participant under a stressed market scenario. (iii) Debentures, credit and liquidity facilities and Commercial Paper In response to the liquidity risk that NGX, CDCC and CDS are exposed to through their clearing operations, they have arranged various liquidity facilities (note 12). In response to liquidity risk that the Company is exposed to through its capital structure, it has arranged various liquidity and credit facilities, Commercial Paper and debentures as a source of financing (note 12). If, as a result of not meeting its covenants under the trust indentures, the terms of the commercial paper program or the credit facilities, the Company may be required to seek potentially less favourable sources of financing. The Company is exposed to specific liquidity risk should it be unable to borrow under a new Commercial Paper issuance in order to pay for Commercial Paper that is coming due because of a lack of liquidity or demand for the Company's Commercial Paper in the market. To mitigate this risk, the Company has entered into a credit agreement on that provides 100% coverage or backstop to the commercial paper program (note 12). (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 bank deposits, notes and treasury bills. In addition, a 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-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 A/R1-low or better and are highly liquid. Marketable securities held at CDS are comprised of Canadian and U.S. government-issued or government backed fixed income securities with maturities of less than one year. 160 | TMX GROUP LIMITED 52 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 NOTE 25 – CAPITAL MAINTENANCE The Company’s primary objectives in managing capital, which it defines as including its cash and cash equivalents, marketable securities, share capital, debentures, Commercial Paper, and various credit facilities, include: • Maintaining sufficient capital for operations to ensure market confidence and to meet regulatory requirements and various 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) and R1-low credit ratings 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. The Company aims to achieve the above objectives while managing its capital subject to capital maintenance requirements imposed on the Company and its subsidiaries as follows: a. In respect of the credit facilities (note 12) that require the Company 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: a current ratio of greater than or equal to 1.1:1; i. 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. c. d. In respect of TSX Venture Exchange, as required by various provincial securities commissions, to maintain sufficient financial resources. 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 as required by a major Canadian chartered bank; 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: a working capital ratio of more than 1.5:1; i. 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. maintain sufficient financial resources as required by the OSC; ii. $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; iii. sufficient cash, cash equivalents and marketable securities to cover 12 months of operating expenses, excluding amortization and depreciation; and iv. $20.0 total shareholder's equity. g. In respect of Shorcan: by IIROC which requires Shorcan to maintain a minimum level of shareholders’ equity of $0.5; i. 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. 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: h. i. a debt to cash flow ratio of less than or equal to 4:1; and i. ii. a financial leverage ratio of less than or equal to 4:1. TMX GROUP LIMITED | 161 53 2014 ANNUAL REPORT TMX GROUP LIMITED Notes to the Consolidated Financial Statements For the year ended December 31, 2014 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). 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: j. a current ratio of greater than or equal to 1.1:1; i. 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, 2014, the Company complied with each of these externally imposed capital requirements. NOTE 26 – 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 the Company. While in aggregate the Nominating Investors own a significant portion of the common shares outstanding of the Company, 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 the Company 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: For the year ended Salaries and other short-term employee benefits Post-employment benefits Share-based payments (C) OTHER RELATED PARTY TRANSACTIONS December 31, 2014 December 31, 2013 $ $ 9.6 $ 1.4 7.7 18.7 $ 9.7 1.5 9.8 21.0 In aggregate, the Nominating Investors hold a significant proportion of the common shares outstanding of the Company. 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. NOTE 27 – DIVIDENDS Dividends recognized and paid in the period are as follows: For the year ended Dividend paid in March Dividend paid in June Dividend paid in September Dividend paid in December Total dividends paid $ December 31, 2014 December 31, 2013 Dividend per share Total paid Dividend per share Total paid 0.40 0.40 0.40 0.40 $ $ $ 21.7 21.7 21.7 21.7 86.8 0.40 0.40 0.40 0.40 $ $ 21.6 21.6 21.6 21.6 86.4 On February 3, 2015, the Company’s Board of Directors declared a dividend of 40 cents per share. This dividend will be paid on March 6, 2015 to shareholders of record on February 20, 2015 and is estimated to amount to $21.7. 162 | TMX GROUP LIMITED 54 2014 ANNUAL REPORT TMX GROUP LIMITED Board of Directors As of March 27, 2015 CHARLES WINOGRAD (CHAIR) Senior Managing Partner Elm Park Capital Management Committees: Governance, Human Resources Director since: 2012 JEFFREY HEATH Executive Vice President and Group Treasurer Scotiabank Group Committees: Derivatives 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 LOUIS ECCLESTON Chief Executive Officer TMX Group Limited Director since: 2014 CHRISTIAN EXSHAW Managing Director and Head, Capital Markets Trading CIBC World Markets Inc. Committees: Derivatives Director since: 2015 MARTINE IRMAN Senior Vice President, TD Group and Vice Chair, Head of Global Enterprise Banking, TD Securities Director since: 2014 HARRY JAAKO Executive Officer, Director and a Principal Discovery Capital Management Corp. Committees: Finance and Audit, Governance, Public Venture Market (Chair) Director since: 2012 LISE LACHAPELLE Strategic and Economic Consultant and Corporate Director Committees: Human Resources, Regulatory Oversight Director since: 2014 WILLIAM LINTON Corporate Director Committees: Finance and Audit (Chair), Governance Director since: 2012 | 163 2014 ANNUAL REPORT TMX GROUP LIMITED MARIE GIGUÈRE Executive Vice President, Legal Affairs and Secretariat Caisse de dépôt et placement du Québec Committees: Governance (Chair), Regulatory Oversight Director since: 2011 JEAN MARTEL Partner Lavery, de Billy LLP Committees: Regulatory Oversight (Chair) Director since: 2012 PETER PONTIKES Senior Vice President, Public Equities Alberta Investment Management Corporation Committees: Public Venture Market Director since: 2015 ANTHONY WALSH Corporate Director Committees: Finance and Audit, Public Venture Market Director since: 2012 GERRI SINCLAIR Corporate Director, Digital Technologies Consultant Committees: Human Resources, Public Venture Market Director since: 2012 ERIC WETLAUFER Senior Managing Director & Global Head of Public Market Investments Canada Pension Plan Investment Board Committees: Finance and Audit, Human Resources (Chair) Director since: 2012 KEVIN SULLIVAN Deputy Chairman GMP Capital Inc. Committees: Derivatives, Public Venture Market Director since: 2012 MICHAEL WISSELL Senior Vice-President, Public Equities Ontario Teachers' Pension Plan Board Committees: Derivatives, Human Resources Director since: 2014 164 | 2014 ANNUAL REPORT TMX GROUP LIMITED TMX Group Executive Committee As of March 27, 2015 Louis Eccleston 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 James Oosterbaan President and Chief Executive Officer NGX Jean Desgagne President and Chief Executive Officer CDS Cheryl Graden Senior Vice President, Group Head of Legal and Business Affairs and Corporate Secretary TMX Group Brenda Hoffman Senior Vice President, Group Head of Information Technology TMX Group Michael Ptasznik Senior Vice President and Group Head Chief Financial Officer TMX Group Mary Lou Hukezalie Senior Vice President, Group Head of Human Resources TMX Group Eric Sinclair President TMX Datalinx | 165 2014 ANNUAL REPORT TMX GROUP LIMITED 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, 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 Private Markets, TSX Venture Exchange and TSXV are trade-marks of TSX Inc. Alpha is the trade-mark of Alpha Trading Systems Limited Partnership and is 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. 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. 166 | 2014 ANNUAL REPORT TMX GROUP LIMITED CDS 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 Risk is trade-mark of Razor Risk Technologies Limited is 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 and WebICE are the trade-marks of IntercontinentalExchange Inc. and are 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 & Poorʼs Financial Services LLC and is used under license. The VIX Methodology is the property of the CBOE. CBOE has granted S&P a license to use the VIX Methodology to create the S&P/TSX 60 VIX index and has agreed that S&P may permit values of the S&P/TSX 60 VIX index to be disseminated. Neither CBOE nor S&P nor TSX or their respective affiliates makes any representation regarding such index or the advisability of relying on such index for any purpose. Neither CBOE nor S&P or their respective affiliatesʼ sponsors endorses, sells or promotes any investment product that is or may be based on the S&P/TSX 60 VIX index. Neither TSX nor its affiliatesʼ sponsors endorses or promotes any third party investment product that is or may be based on the S&P/TSX 60 VIX index. 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 Groupʼs 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 2014 Managementʼs Discussion and Analysis for some of the risk factors that could cause actual events or results to differ materially from current expectations. | 167 2014 ANNUAL REPORT TMX GROUP LIMITED 168 | 2014 ANNUAL REPORT TMX GROUP LIMITED tmx.com
Continue reading text version or see original annual report in PDF format above