2017 Annual
Report
2017 Annual Report
1
TMX Group Limited
The future
is yours
to see.
2017 Annual Report
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TMX Group Limited
Letter from the chair
It is my pleasure to report to you
as Chair of TMX Group on an eventful
2017 for your company.
During 2017, your Board was heavily engaged with management
as we worked to bring the Trayport acquisition to closure.
As I’m sure you’ve read by now, Trayport has become an important
asset for TMX Group in advancing our strategy in many respects.
This acquisition accelerates our global expansion, increases
our revenue from recurring sources, significantly broadens our
product portfolio and is immediately accretive to our earnings.
I encourage you to read more about Trayport in this report.
As we look to the future, we believe that TMX Group is extremely
well positioned for long-term growth, delivering a diverse range
of product and service solutions to clients across the world.
I want to thank all of our clients and stakeholders, not only for
their support, but also for collaborating with us to build even
stronger working relationships.
I also want to recognize four directors, Denyse Chicoyne, Jeffrey
Heath, Peter Pontikes and Anthony Walsh, who will be retiring
this year. I enjoyed working with each of them and thank them
for their many contributions.
On behalf the Board, I especially want to thank our employees
for their dedicated efforts in accelerating the transformation
of TMX Group. Finally, I want to express my appreciation
to our shareholders for their support as we continue to build
a foundation for success into the future.
Charles Winograd
Chair, Board of Directors
TMX Group Limited
March 16, 2018
2017 Annual Report
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TMX Group Limited
Letter from the CEO
2017 was a transformational year
for TMX. In our results, we saw growth
in some foundational elements of our
business, including capital formation,
as well as evidence of the benefits
of implementing and maintaining
cost management discipline.
Supported by the fundamental strength of our business model,
we continued to make strong progress with the transformation
initiative we embarked on almost three and a half years ago.
Importantly for our future, we accelerated our evolution from
a diverse portfolio of assets into a client-driven solutions provider,
while expanding our global footprint and strengthening our
competitive position. The work we are doing with surgical focus,
to build the TMX of the future, has made TMX a true global player.
The Trayport Acquisition
Although the transformation work is not yet complete, we did
some heavy-lifting last year. 2017 will indeed be remembered
as the year we acquired Trayport, a London-based, world-leading
provider of technology and software solutions for energy traders,
brokers and exchanges. With Trayport, we have added a proven
and profitable technology driven data and analytics business,
as well as a talented team, to TMX. As we continue to develop a
deeper understanding of this business, we get more excited about
how our combined assets and expertise can drive growth. This is
a key priority for 2018 and as we look forward to exploring all of
the ways we can leverage Trayport’s expertise to drive innovation
across the markets we serve as well as into new geographies.
Trayport immediately bolsters our Global Solutions Insights
and Analytics business. In fact, pro-forma revenue increased
from about 25% in 2016 (excluding TMX Atrium, Razor and BOX)
to approximately 36% in 2017 (excluding TMX Atrium, NGX and
Shorcan Energy but including Trayport). On the same basis we
have also significantly diversified our revenue base with recurring,
non-transactional revenue streams now accounting for about
52% of revenue in 2017, up from approximately 40% in 2016.
On the business side, the acquisition of Trayport, the leading
European energy network and a premier technology platform
for data and analytics, will expand our global reach and provide
cross-selling opportunities across our capital formation,
trading and clearing businesses.
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TMX Group Limited
Looking Ahead
Another key priority for 2018 is increasing TMX’s global footprint.
The successes of 2017 continues to fuel our 2018 campaigns.
Capital formation is a core function we perform at the centre of the
Canadian marketplace and in the Canadian economy. We continue
to seek out full spectrum solutions for serving all clients at all
stages, from public venture capital through large cap, based here
in Canada and around the world.
The overall number of initial public offerings, and the dollar
amounts raised, were up significantly in 2017 compared with
the previous year. The technology sector continued to thrive.
In fact, 2017 was one of the strongest years on record for new
listing activity by innovation companies as we welcomed 35 new
companies, including 6 from outside of Canada. Within those
35 companies, we saw a great deal of diversity within the life
sciences, cleantech and technology sectors.
Another important global growth area for us lies in our derivatives
business. A key 2018 priority for Montreal Exchange is the coming
launch of extended trading hours, a move designed to broaden the
global appeal of our marketplace and increase foreign investor
exposure to Canadian benchmark derivatives products. Given the
experiences of other exchanges in extending hours, we believe this
initiative will contribute to increased volumes over time.
We have seized a leadership position in blockchain initiatives
that can revolutionize and invigorate our existing businesses
and the exchange industry. We continue to pursue new growth
initiatives that can combine insights from digital technologies with
an integrated customer experience approach. We want to better
engage and service our clients, to help them extract the maximum
value from our solutions.
In 2018, the future is well underway at TMX. We are developing
new data and analytic solutions and multi-asset class trading
capabilities that deploy breakthrough technologies, including
blockchain, as well as artificial intelligence and machine learning.
I look forward to updating you on all of our progress after we
report our first quarter results.
Louis V. Eccleston
Chief Executive Officer
TMX Group
March 16, 2018
2017 Annual Report
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TMX Group Limited
MD& A
Management's Discussion and Analysis
2017 Annual Report
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TMX Group Limited
TMX Group Limited
MANAGEMENT'S DISCUSSION AND ANALYSIS
February 12, 2018
This management’s discussion and analysis (MD&A) of TMX Group Limited’s (TMX Group) financial condition and financial
performance is provided to enable a reader to assess our financial condition, material changes in our financial condition
and our financial performance, including our liquidity and capital resources, for the year ended December 31, 2017 and
as at December 31, 2017, compared with the year ended December 31, 2016 and as at December 31, 2016. This MD&A
should be read together with our 2017 audited annual consolidated financial statements as at and for the year ended
December 31, 2017 (financial statements).
Our financial statements and this MD&A for the year ended December 31, 2017 are filed with Canadian securities regulators
and can be accessed at www.tmx.com and www.sedar.com. The financial measures included in this MD&A are based on
financial statements prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB), unless otherwise specified. All amounts are in Canadian dollars unless
otherwise indicated.
Certain comparative figures have been reclassified in order to conform with the financial presentation adopted in the
current year
Additional information about TMX Group, including the Annual Information Form, is available at www.tmx.com and
www.sedar.com. We are not incorporating information contained on our website in this MD&A.
MD&A Structure
Our MD&A is organized into the following key sections:
• Mission, Vision and Corporate Strategy – our mission, vision and strategic initiatives for future growth;
•
Initiatives and Accomplishments - 2017 initiatives and accomplishments;
• Regulatory Changes - an update on the regulatory environment;
• Market Conditions – a discussion of our current business environment;
• Our Business – a detailed description of our operations and our products and services;
• Results of Operations – a year-over-year comparison of results;
•
Liquidity and Capital Resources – a discussion of changes in our cash flow, our outstanding debt and the resources
available to finance existing and future commitments;
• Managing Capital - an outline of objectives for managing our cash and cash equivalents, marketable securities,
share capital, Commercial Paper, Debentures, and various credit facilities;
•
•
•
Financial Instruments;
Critical Accounting Estimates - a review of our goodwill and intangible assets - valuation and impairment;
Select Annual and Quarterly Financial Information - a discussion of select annual information from 2015-2017,
the fourth quarter of 2017 compared with the corresponding period in 2016 and the results over the previous
eight quarters;
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TMX Group Limited
Page 1
•
Enterprise Risk Management – a discussion of the risks to our business as identified through our risk management
process as well as Financial Risk Management;
• Accounting and Control Matters – a discussion of changes in accounting policies adopted in 2017 and future
changes in accounting policies, an evaluation of our disclosure controls and procedures and internal control over
financial reporting and changes to internal control over financial reporting and related party relationships and
transactions; and
•
Caution Regarding Forward-Looking Information.
MISSION, VISION AND CORPORATE STRATEGY
Mission
Powering capital and commodity markets, investment, and economic growth for clients in Canada, across North America,
and around the world.
Vision
To be a technology driven solutions provider that puts clients first.
Corporate Strategy
In 2015, we engaged in a comprehensive review of our portfolio of assets and an in-depth strategic review of the organization
to establish our strategy going forward. This included a full scale analysis of our markets and our organization to understand
how best to advance beyond a group of companies to be a more fully-integrated organization. From that, we built out our
investment strategy. We focused on the greatest areas of need for our clients and the markets in which they operate.
Putting clients first and working to create increasing value in the services we provide are our priorities. We identified
businesses that are core to our strategy going forward, and decided to deemphasize certain non-core businesses by
divesting or entering into partnership, joint venture or outsourcing arrangements. We also announced a realignment of
the organization in order to achieve our new vision of being a technology driven solutions provider that puts clients first.
The strategic review process guided us to make some important choices that will enhance our ability to grow revenues,
obtain significant operational and cost efficiencies, ignite innovation across all aspects of the business and compete more
effectively in Canada, across North America, and globally. Our business is now organized into the following areas.
Capital Markets
Capital formation: Energize and expand the capital markets community to better facilitate capital raising for issuers of all
types at all stages of their development, and provide access to alternative sources of capital.
Lines of business include Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) listing and issuer services, and
TSX Trust TMX Group's transfer agency and corporate trust services business.
Equities and fixed income trading and clearing: Operate innovative, efficient, reliable, fast, easy to use platforms for equities
and fixed income trading and clearing.
Lines of business include TSX, TSXV and TSX Alpha Exchange (Alpha) equities trading, Shorcan Brokers Limited (Shorcan)
fixed income trading and Canadian Depository for Securities Limited (CDS).
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TMX Group Limited
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Derivatives and Energy Markets
Derivatives trading and clearing: Intensify new product creation and leverage our unique market position to benefit
from increasing demand for derivatives products both in Canada and globally.
Lines of business include Montréal Exchange (MX) and Canadian Derivatives Clearing Corporation (CDCC).
Energy trading and clearing: Operate innovative, efficient, reliable, fast, easy to use platforms for energy trading and
clearing (sold on December 14, 2017)
Lines of business included Natural Gas Exchange Inc. (NGX), and Shorcan Energy Brokers Inc. (Shorcan Energy). On
December 14, 2017, we completed the sale of NGX and Shorcan Energy. TMX Group has classified the sale of NGX and
Shorcan Energy as discontinued operations. Prior to the sale, the operations of NGX and Shorcan Energy entirely
comprised of the Energy Trading and Clearing operating segment and a small portion of the Global Solutions, Insights
and Analytics operating segment.
The classification of discontinued operations occurred at December 14, 2017 which is the date of disposal of the operations.
Accordingly, TMX Group has re-presented the comparative consolidated income statements to show the discontinued
operations separately from continuing operations.
Global Solutions, Insights and Analytics (formerly Market Insights)
Deliver integrated data sets to fuel high-value proprietary and third party analytics to help clients make better trading
and investment decisions. Provide solutions to European wholesale energy markets for price discovery, trade execution,
post-trade transparency and straight through processing.
Lines of business include TMX Datalinx (information services), TMX Insights (analytics), Co-location and Managed
Services, as well as London-based Trayport Holdings Limited and its subsidiaries, and its U.S.-based affiliate, Trayport
Inc. (collectively, Trayport) (acquired on December 14, 2017).
INITIATIVES AND ACCOMPLISHMENTS1
Acquisition of Trayport and Sale of Natural Gas Exchange and Shorcan Energy Brokers
In December 2017, we announced that we had completed the acquisition of Trayport, a world-leading provider of
technology solutions for energy traders, brokers and exchanges from Intercontinental Exchange Inc (ICE). In conjunction
with the Trayport acquisition, TMX Group has completed the sale of Natural Gas Exchange Inc. (NGX) and Shorcan Energy
Brokers Inc. (Shorcan Energy) to ICE at a combined value of £221 million / C$379 million. The sale of these assets was
used as partial consideration for the acquisition of Trayport.
The acquisition of Trayport brings a proven team of product development, data, analytics and sales talent to us and
immediately strengthens our global data and analytics business. From a strategic perspective, this transaction significantly
accelerates our global expansion, increases the portion of our revenue from recurring sources (from approximately 40%
in 2016 to approximately 52% pro forma in 2017)2,3, increases the portion of our revenue from outside of Canada (from
1 The "Initiatives and Accomplishments" section above contains certain forward-looking statements. Please refer to "Caution Regarding
Forward-Looking Information" for a discussion of risks and uncertainties related to such statements.
2 Recurring revenue streams include substantially all of Global Solutions, Insights and Analytics, as well as sustaining listing fees, custody
fees, transfer agency fees, and other access / subscription based revenues.
3 Pro Forma revenue for 2017 excludes TMX Atrium, NGX and Shorcan Energy and includes Trayport for the full year.
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TMX Group Limited
approximately 30% in 2016 to 32% pro forma in 2017)4,8, and enhances the portfolio of analytics products in our Global
Solutions, Insights and Analytics (GSIA) business. Jean Desgagné, President & CEO, TMX GSIA Strategies, is responsible for
this business.
Trayport was founded in 1993 and has approximately 240 employees in offices in London, New York and Singapore as of
December 31, 2017. Trayport will continue to license its solutions platform to serve a global client base comprised of
energy commodities traders, exchanges, wholesale brokers, and central clearing counterparties (CCPs), providing price
discovery, trade execution, and post-trade services. We plan to strategically invest to support Trayport’s existing growth
initiatives while also seeking ways to develop and deploy analytics and benchmark products to facilitate better trading
strategies, leverage the combination of Trayport’s European leadership with TMX’s expertise in North American energy
markets to create new products, and explore strategic relationships in new geographies.
Summary financial details:
•
•
•
•
•
•
The £552 million / C$952 million5 purchase price comprised of £331 million / C$573 million in cash, and NGX and
Shorcan Energy, valued at a combined £221 million / C$379 million.
The cash consideration for the Trayport Acquisition was satisfied from the net proceeds from the TMX Group
debenture offering which closed on December 11, 2017, along with excess cash and borrowings under TMX
Group's commercial paper program.
Trayport’s revenue for the year ended December 31, 2017 was £60 million / C$100 million6,8, and earnings before
interest, taxes, depreciation and amortization (EBITDA) was £33 million / C$54 million7. For the period from 2014
to 2017, Trayport’s revenue has increased at a compounded annual growth rate (CAGR) of 7% and EBITDA increased
at a CAGR of 12%.8,9
The combined revenue of NGX and Shorcan Energy from January 1, 2017 to December 14, 2017, was approximately
C$58.3 million and the combined operating expenses were approximately C$34.9 million.
The transaction is expected to have a positive impact on TMX Group’s adjusted earnings per share, being
immediately accretive in 201810, before any synergies.
The expected transaction costs related to the acquisition of Trayport and sale of NGX and Shorcan Energy Brokers
are approximately $19.2 to $22.2 million (down from our previous estimate of $25.0 to $27.0 million) of which
approximately $17.8 million was incurred in 2017 and recorded in the following areas:
4 Pro Forma revenue for 2017 excludes TMX Atrium, NGX, and Shorcan Energy and includes Trayport for the full year. From customers
with an address outside Canada.
5 GBP (Sterling) amounts have been converted to Canadian dollars at the Bank of Canada spot rate of 1.7193 (as of December 14, 2017).
6 GBP (Sterling) amounts have been converted to Canadian dollars at the Bank of Canada 2017 average rate of 1.6720.
7 For the year ended December 31, 2017 Trayport net income C$27 million, add back income tax expense C$7 million, and amortization
and depreciation costs of C$20 million (including C$15.5 million relating to fair value adjustments from our purchase of Trayport).
Trayport EBITDA includes FX gains/losses and dividend income. EBITDA is a non-IFRS measure, see discussion under the heading "Non-
IFRS Financial Measures". The financial information for Trayport is unaudited.
8 Financial information for Trayport is unaudited for 2014 - 2016, and derived from the historical financial information and financial
statements of Trayport, which were prepared in accordance with applicable generally accepted accounting principles in the U.K., U.S.,
and Singapore (collectively, "Foreign GAAP"). Financial information for Trayport for 2017 has been adjusted to be in accordance with
IFRS. Trayport EBITDA for 2014 - 2016 excludes FX gains/losses, dividend income, and for 2014 and 2015 excludes management charges
from GFI Group (its previous owner).
9 EBITDA in 2014-2016 may not be comparable to EBITDA in 2017 due to differences in accounting standards largely due to capitalizing
and amortizing costs that were previously expensed of approximately C$2 million and FX gains/losses, as well as dividend income
excluded from EBITDA in 2014-2016 and included in 2017.
10 Adjusted earnings per share excludes the impact of acquisition costs and amortization of purchased intangibles.
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TMX Group Limited
(in millions of dollars)
Acquisition costs
Finance costs
Gain on sale of NGX and Shorcan Energy
Capitalized finance costs
Total transaction costs incurred in 2017
Estimated 2018 transaction costs
$
$
13.8
0.3
2.0
1.7
17.8
$1.4 - $4.4
TMX Group and ICE also entered into a non-binding memorandum of understanding agreeing to explore in the future
further avenues for possible collaboration.
Capital Markets
Capital Formation
Toronto Stock Exchange (TSX) had the best year since 2013 for new corporate issuers with 44 new corporate issuers (29
new corporate listings, 15 new graduates from TSX Venture Exchange (TSXV)). The total capital raised for the year ended
December 31, 2017 from corporate IPOs represented a diversified range of sectors totaling $4.8 billion.
In February 2017, The Advancing Innovation Roundtable, an independent working group funded by TMX Group, published
a report on how to increase access to growth capital for Canadian innovation economy companies as they progress beyond
the seed and start-up stages. Announced in October 2016, the 12-member Roundtable is a private sector, investor-led
initiative bringing together leaders across Canada’s financial services industry, including finance, investment and capital
formation. The recommendations of the Advancing Innovation Roundtable focus on solutions, sourced from both the
public and private markets, which address the scalability and financing issues across Canada’s ecosystem that serves as
the foundation for the long-term sustainability of our country’s innovation economy.
In April 2017, we announced a new Distributed Ledger Technology (DLT) prototype as part of our strategy to maximize
efficiencies and solve day-to-day client challenges across our various business areas. We developed the electronic
shareholder voting system prototype based on DLT, more commonly known as blockchain technology, in collaboration
with Accenture. Designed as a public company solution for TSX Trust, the E-Proxy Voting System prototype aims to
significantly improve the efficiency and accuracy of the voting process during annual shareholder meetings, while also
enhancing security through advancements in cryptography. The introduction of a blockchain-based system will also help
increase engagement in corporate governance by removing the need for shareholders to be physically present during the
voting process.
In June 2017, TSX and TSXV announced the appointment of a Head of Business Development in Israel. This move will allow
us to focus on strengthening relationships with the Israeli business community and exploring new opportunities as part
of our international growth strategy.
In July 2017, TSX announced that it had reached a significant milestone with 500 exchange traded funds (ETFs) listed. This
number has more than doubled in the past five years, bringing the total market capitalization of listed ETFs to approximately
$145 billion as of December 31, 2017.
In October 2017, TMX Group and the Shenzhen Stock Exchange (SZSE) signed a non-binding Memorandum of
Understanding (MoU) pursuant to which TMX Group and SZSE agree to explore opportunities for economic cooperation
with a specific focus on the technology and innovation sectors. Under the scope of the MoU, TMX Group and SZSE intend
to create the "China-Canada Technology and Innovation Companies Service Initiative" with the goal of connecting investors
and companies in the technology and innovation sectors in each of the two countries through an expanded capital formation
platform. The MoU was subject to approval from the China Securities Regulatory Commission, which was obtained on
September 27, 2017, and is effective for a period of five years.
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TMX Group Limited
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Equities and Fixed Income Trading and Clearing
In March 2017, CDS began implementation of the Issuer Services Program that was approved in December 2016 with the
following adjustments to the fees and implementation schedule, and subject to certain conditions required by CDS's
principal provincial regulators.
• All entitlement and Corporate Action Event Management Fees will be implemented over a two year period. Fees
will be discounted by 50% for the 2017 calendar year, and by 25% in the 2018 calendar year.
•
•
Events related to corporate debt securities deposited prior to implementation will not attract fees (up to, and
including, their maturities).
Events related to government debt securities deposited prior to implementation will not attract fees (up to, and
including, their maturities).
• A pre-payment option with a 20% discount (in addition to the applicable discounts, above) will be available for
instruments with predictable payment streams.
•
•
Interest Payment and Maturity Event Fees for serial debentures have been adjusted from $100/event to $25/
event (in addition to the applicable discounts, above).
CDS has set up, at no cost, existing Systematic Withdrawals (SWPs) and SWITCH programs (allowing ETF issuer to
offer its ETF holder the opportunity to switch one class of ETF security into another in that switch program using
a conversion event) as corporate action events for 2017. Transactions will attract Corporate Actions fees if Exchange
Traded Funds issuers choose to continue to use CDS to process these events; these fees, however, (SWPs and
SWITCHs, as well as Dividend Re-Investment Plans or DRIPs) will be discounted as described above.
In June 2017, we announced the launch of a new reporting capability on TSX NAVex that will provide fund manufacturers
transparency into the advisors driving the sale of their products. The first of its kind in Canada, the TSX NAVex Information
Portal was developed in collaboration with Broadridge Financial Solutions, Inc. to provide valuable intelligence about the
distribution of products, while enabling essential functions such as commission processing. We expect to be live on the
platform in early 2018.
In September 2017, CDS Clearing and Depository Services Inc. (CDS Clearing) announced the successful transition to a two
day securities settlement period, or T+2, from the previous three day period, or T+3. The shift to T+2 is the result of the
collective efforts of multiple stakeholders from across Canada's financial industry. Timed to coincide with the same change
in U.S. markets, the move to settle trades more quickly provides significant benefits to CDS's client base, enabling
participants to better mitigate counterparty, market and liquidity risks by reducing both outstanding settlements and
associated replacement cost risks.
In October 2017, Payments Canada, the Bank of Canada and TMX Group announced a collaboration to experiment with
an integrated securities and payment settlement platform based on distributed ledger technology (DLT) as part of the third
phase of the Project Jasper research initiative. This next phase of the project will develop a proof of concept for the clearing
and settlement of securities using the central bank cash-on-ledger model. The platform would seek to discover greater
speed and efficiency by automating the securities settlement process.
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Derivatives Markets
Derivatives Trading and Clearing
Montreal Exchange (MX) achieved two new volume records for the S&P/TSX 60 Index11 Standard Futures (SXF) – a monthly
record of 959,682 contracts traded, as well as a daily record of 211,811 reached on December 11, 2017. A new monthly
open interest record for SXF was also achieved with 446,494 contracts on December 12, 2017.
Several of MX’s key products set yearly volume records of contracts traded, including:
•
•
•
•
•
The Three-Month Canadian Bankers’ Acceptance Futures (BAX) reached 28,962,355 contracts, breaking the record
of 26,316,537 set in 2016 by 10%;
The Ten-Year Government of Canada Bond Futures (CGB) reached 23,946,703 contracts, breaking the record of
20,968,281 contracts set in 2016 by 14%;
The Five-Year Government of Bond Futures (CGF) reached 358,078 contracts, breaking the record of 301,026 set
in 2014 by 19%;
SXF reached 6,144,651 contracts, breaking the record of 6,090,257 set in 2016 by 1%;
The Options on Three-Month Canadian Bankers’ Acceptance Futures (OBX) reached 801,051 contracts, breaking
the record of 748,991 set in 2007 by 7%.
In December 2016, we launched single stock futures (SSFs) on about 20 symbols. The balance of the S&P/TSX 6012
symbols
were added throughout Q1/17. At the end of December 2017, open interest reached approximately 227,000 contracts.
In September 2017, Canadian Derivatives Clearing Corporation (CDCC) announced a proposal to expand its fixed income
service to enable certain Canadian buy-side firms to clear cash or repurchase agreements trades directly through CDCC.
CDCC's new direct-clearing model seeks to extend the range of significant benefits associated with central clearing
counterparty (CCP) clearing, including capital, margin and collateral efficiencies to a new membership category called
Limited Clearing Members (LCMs). The on-boarding of LCMs as direct clearing members is expected to begin in 2018,
subject to public consultation and regulatory approval.
Global Solutions, Insights and Analytics (formerly Market Insights)
On April 30, 2017, we sold our wireless and extranet infrastructure services business known as TMX Atrium. In 2016 and
the four months ended April 30, 2017, TMX Atrium earned approximately $26.3 million and $8.6 million of revenue,
respectively, and incurred approximately $30.3 million and $9.5 million in operating expenses before strategic re-alignment
expenses, respectively. The decision to enter into this transaction was made within the scope of our ongoing strategic
initiative to streamline our organizational structure and position us to deliver profitable long-term growth.
11 The “S&P/TSX 60” is a product of S&P Dow Jones Indices LLC (“SPDJI”) and TSX Inc. (“TSX”). Standard & Poor’s® and S&P® are registered
trademarks of Standard & Poor’s Financial Services. LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC (“Dow Jones”); and TSX® is a registered trademark of TSX. SPDJI, Dow Jones, S&P and TSX do not sponsor, endorse, sell or promote
any products based on the S&P/TSX 60 and none of such parties make any representation regarding the advisability of investing in such
product(s) nor do they have any liability for any errors, omissions or interruptions of the S&P/TSX 60 or any data related thereto.
12 The “S&P/TSX 60” is a product of S&P Dow Jones Indices LLC (“SPDJI”) and TSX Inc. (“TSX”). Standard & Poor’s® and S&P® are registered
trademarks of Standard & Poor’s Financial Services. LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC (“Dow Jones”); and TSX® is a registered trademark of TSX. SPDJI, Dow Jones, S&P and TSX do not sponsor, endorse, sell or promote
any products based on the S&P/TSX 60 and none of such parties make any representation regarding the advisability of investing in such
product(s) nor do they have any liability for any errors, omissions or interruptions of the S&P/TSX 60 or any data related thereto.
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TMX Group Limited
In May 2017, we announced that we had teamed up with IRESS, a leading supplier of technology for wealth management
and financial markets, to develop compatibility between the IRESS products and the TMX Analytics Transaction Cost Analysis
(TCA) application. TMX Analytics TCA offers clients protected access to their trade and order history and enables them to
review performance, routing and venue quality in intuitive, customizable formats. Other key features include support for
Markets in Financial Instruments Directive (MiFID) II and analysis of interlisted trading data for equities also listed on
international venues.
Update on Integrated Clearing Platform and Strategic Re-alignment Process13
In June 2017, we announced that we had chosen Tata Consultancy Services (TCS), a leading IT services, consulting and
business solutions organization, to implement a single, integrated technology platform for Canada's clearing and settlement
businesses. The innovative platform, called TCS BaNCS for Market Infrastructure, will replace the legacy systems deployed
by CDS and CDCC, subject to regulatory approval where required. Our current estimate of the expected cash outlays is
approximately $55.0 - $60.0 million from 2017 to 2019, of which approximately $9.0 million was spent on capital
expenditures in 2017. Substantially all of the costs will be related to capital expenditures and we expect that almost half
of the total spend will occur in 2018. The annual savings in operating expenses on a run rate basis, compared with our
current cost structure, are expected to be approximately $6.0 to $8.0 million, starting in 2020. As we transition to the
new platform, it is likely that operating expenses will increase over the short-term before we realize savings in 2020.
In September 2016, we provided a detailed update on the progress made in streamlining our organization, and said that
we were targeting further cost reductions before strategic re-alignment expenses related largely to compensation and
benefits of $8.0 to $10.0 million per year on a run rate basis to be realized by the end of 2016 and $3.0 to $5.0 million per
year in additional savings on a run rate basis to be realized by the end of 2017, net of the costs associated with new
employees that may be hired as we invest in our strategic priorities. We indicated that the majority of the headcount
reductions would be completed by the end of Q1/17. Approximately 95 full-time positions and about 20 consultants and
contractors were expected to be impacted.
By the end of 2016, we had realized approximately $12.6 million in savings on a run rate basis, net of the costs associated
with new employees. We exceeded our target of $8.0 to $10.0 million in net savings per year on a run rate basis, as we
exited 2016, largely by accelerating the process of streamlining the organization. The majority of the headcount reductions
were completed by the end of Q4/16. Most planned reductions in headcount for 2017 occurred in 1H/17.
Corporate
In 2017 and January 2018, we implemented organizational and executive changes, including new strategic and
expanded responsibilities for members of our senior management team:
•
•
Luc Fortin was appointed President & CEO, Montreal Exchange & Global Head of Trading, effective January 16,
2018. In this expanded role which now includes our equity trading and private market businesses, Luc leads
the growth of TMX’s trading businesses, helping us deliver a best-in-class experience to our trading clients, as
well as develop new products.
Loui Anastasopoulos was appointed President, Capital Formation & TSX Trust (where he was previously
President), effective January 16, 2018, responsible for leading our Capital Formation business, which includes
the listings functions in the TSX, TSXV and TSX Company Services, as well as TSX Trust. Loui takes over for
Ungad Chadda, who has moved to a new role as Senior Vice President & Enterprise Head of Corporate
Strategy, Development and External Affairs.
•
Jean Desgagné assumed the newly created role of President & CEO, TMX Global Solutions, Insights and
Analytics Strategies (formerly Market Insights) in August, 2017. The mandate for this leadership position is to
13 The "Update on Integrated Clearing Platform and Strategic Re-alignment Process" section above contains certain forward-looking
statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainties related to such
statements.
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implement and oversee a cohesive TMX Group enterprise approach to innovative technology and data driven
solutions. The purpose is to enrich the client experience across TMX Group’s capital markets community by
providing ready access to benchmark data and analytics products.
Shaun McIver was appointed Chief Client Officer, TMX Group, effective January 16, 2018, overseeing
Marketing & Branding, Salesforce Effectiveness, and Key Account Strategies for the enterprise.
In addition to his current role as Chief Financial Officer, John McKenzie also took on administrative oversight of
CDS and CDCC in August, 2017. Glenn Goucher , as the head of CDS and CDCC, reports to the Boards of the
two clearing houses.
Cheryl Graden’s mandate was expanded to include oversight of enterprise risk management, as Senior Vice
President, Group Head of Legal and Business Affairs, Enterprise Risk Management and Government Relations
Jay Rajarathinam, who joined TMX Group from NYSE/Intercontinental Exchange in July 2016, as Chief
Information Officer, was promoted to TMX Group’s Senior Management Team and reports directly to Lou
Eccleston, Chief Executive Officer.
Eric Sinclair, President, TMX Market Insights retired at the end of August 2017. Over the past 14 years, Mr.
Sinclair made significant contributions to TMX Group leading the growth of our data business by establishing a
strong client focus, developing new products and services and implementing a professional sales force.
•
•
•
•
•
• As a result of splitting the responsibility for the Capital Formation and Equity Trading businesses, the role
of President & CEO, Global Equity Capital Markets was eliminated and it was announced on January 16, 2018
that Nick Thadaney would be leaving the company. Nick agreed to stay on for six weeks in a special advisory
capacity in order to ensure the smooth transition of strategic matters.
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Page 9
REGULATORY CHANGES14
Equity Trading
On January 25, 2017, the Canadian Securities Administrators (CSA) announced approval of further reductions to the cap
on active trading fees applicable to ETFs and non-interlisted equities securities executed at $1.00 or greater. These were
reduced from $0.0030 to $0.0017 per share/unit traded, effective May 1, 2017. In April 2017, we announced that we
reduced our active fee on these securities to $0.0015 per share/unit traded, effective May 1, 2017. The passive credit
was reduced to $0.0011, also effective May 1, 2017, maintaining the $0.0004 net spread. We expect that these fee changes
could result in a reduction in revenue of approximately $1.3 to $1.5 million on an annual basis. No changes are necessary
to the fees for TSX Alpha Exchange (Alpha) as it employs an inverted maker-taker model, which results in an active rebate
rather than a fee. The reduced fee cap for non-interlisted securities is directionally aligned with what TMX Group had
initiated through its maker taker reduction program that commenced in June 2015.
Global Solutions, Insights and Analytics (formerly Market Insights)
The CSA’s data fees methodology estimates a fee range for top-of-book (Level 1) and depth-of-book (Level 2) market data
based on a marketplace’s contribution to price discovery and trading activity. Effective October 1, 2016, amendments to
National Instrument 23-101 - Trading Rules came into force, which among other things, outlined a transparent methodology
to be used by the CSA when reviewing professional market data fees charged by a marketplace. In 2017, the CSA is applying
the methodology at least annually to determine whether a marketplace’s data fees are higher than the range identified
using the methodology. While this methodology does recognize the value of TMX Group's exchanges' offerings and relative
to our domestic competitors, it introduces a stricter regulatory regime for market data fees. In April 2017 we received
notice from the Ontario Securities Commission (OSC) that we will need to amend our market data fees for Alpha. Changes
were effective October 1, 2017 and we expect that the revised fees will result in a reduction in revenue of approximately
$0.8 to $1.0 million on an annual basis. We were also advised that we would not need to amend our market data fees for
TSX or TSXV.
MARKET CONDITIONS
Overall, Canadian equities trading volumes were up 2% in 2017 compared with 201615. The average CBOE Volatility Index
(VIX) was 11.1 during 2017, down significantly from 15.8 in 2016. Trading on TSXV increased with a 15% increase in volumes
traded in 2017 compared with 2016; however, there was a decline of 15% in the volume traded on TSX over the same
period. Derivative trading in Canada was positively impacted by speculation around an increase in interest rates as reflected
in a 5% increase in the volume of contracts traded on MX in 2017 compared with 2016.
Canadian equities indices and the market capitalization of listed issuers increased on both TSX and TSXV during 2017. For
TSXV (including NEX), there was a 40% increase in the total amount of financing dollars raised and a 3% increase in the
total number of financings in 2017 over the same period last year. On TSX, the total amount of financing dollars raised
declined by 16% and the total number of financings increased by 4% in 2017 compared with 2016. Looking specifically at
14 The "Regulatory Changes" section above contains certain forward-looking statements. Please refer to "Caution Regarding Forward-
Looking Information" for a discussion of risks and uncertainties related to such statements.
15 Source: IIROC (excluding intentional crosses).
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IPOs on TSX, there was a 48% increase in the number of IPOs and a 292% increase in IPO financing dollars raised in 2017
compared with last year.
On January 17, 2018, The Bank of Canada increased its overnight rate target to 1.25 per cent.16 The Bank said recent data
has been strong, inflation is close to target, and the economy is operating roughly at capacity. However, uncertainty
surrounding the future of the North American Free Trade Agreement (NAFTA) is clouding the economic outlook. The Bank
expects CPI inflation to fluctuate in the months ahead as various temporary factors (including gasoline and electricity
prices) unwind. Looking through these temporary factors, inflation is expected to remain close to 2 per cent over the
projection horizon.
OUR BUSINESS
On the following pages, we provide an overview and description of products and services, strategy and revenue
description for each of our segments as outlined below:
1. Capital Markets
i.
Capital Formation
ii. Equities and Fixed Income Trading and Clearing
2. Derivatives and Energy Markets
i. Derivatives Trading and Clearing
ii. Energy Trading and Clearing (sold December 14, 2017)
3. Global Solutions, Insights and Analytics (formerly Market Insights)
i.
TMX Datalinx
ii. TMX Insights
iii. Co-location and Managed Services
iv. Trayport
For key statistics related to each business above, please see Results of Operations.
16 Source: Bank of Canada press release, January 17, 2018.
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CAPITAL MARKETS
Capital Formation
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Page 12
Overview and Description of Products and Services
Our goal is to provide solutions for corporate clients in need of growth capital and liquidity, and provide investors with a
broad range of investment opportunities.
TMX operates a unique two-tiered ecosystem, Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV), to help
companies access the public markets, raise equity and provide liquidity to shareholders. TSX is a leading listings venue for
established domestic and international issuers. TSXV is the pre-eminent global platform for facilitating venture stage capital
formation.
In general, issuers initially list on TSX through an Initial Public Offering (IPO), by graduating from TSXV, or by seeking a
secondary listing in addition to its current listing venue. Venture stage companies generally list on TSXV either in connection
with an IPO, or through alternative methods such as TSXV’s Capital Pool Company (CPC) program or a Reverse Takeover
(RTO). We also operate NEX, a market for issuers that have fallen below the listing standards of TSXV.
Issuers list a number of different types of securities including conventional securities such as common shares, preferred
shares, rights and warrants; and a variety of alternative types of structures such as exchangeable shares, convertible debt
instruments, limited partnership units, exchange traded funds (ETFs), and structured products such as investment funds.
We are a global leader in listing small and medium-sized enterprises (SMEs) with concentration in resource sector listings
and a growing number of innovation companies (including those in the technology, clean technology, renewable energy
and life science sectors). Since the beginning of 2017, we have listed 228 international listings, of which 40 are new
technology and innovation companies.Issuers listed on TSX and TSXV raised a combined $54.5 billion in 2017 ($48.4 billion
on TSX and $6.1 billion on TSXV).
In addition to our listing facilities, we offer other services to our listed issuers. TSX Company Services is focused on enhancing
and expanding our service offering to support the growth of our listed companies and their unique needs. Together with
industry leading service providers, we offer solutions designed to help our clients reach their corporate objectives. For
example, we teamed up with Ipreo Holdings LLC to offer TSX and TSXV issuers in-depth analysis and dynamic functionality
to assist them to build and execute their IR strategies. TSX Trust supports issuers and private companies with corporate
trust, transfer and registrar, and employee plan administration services for issuers.
Strategy
• Our business development and sales efforts focus on:
Activating new pools of capital in new geographies and by engaging pools of capital not currently
active on our markets
Growing the innovation sector while maintaining our resource sector franchise
Expanding our geographic focus to attract international listings across all sectors
•
Streamline and digitize issuer on-boarding processes to improve issuer engagement and to lower costs for
issuers
• Develop digital platforms to assist our listed issuer base in making global investors aware of opportunities
•
Leverage our trustee license and existing capabilities to expand into adjacent TSX Trust opportunities
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Page 13
Revenue Description
We generate Capital Formation revenue from several services, including:
Initial Listing
TSX and TSXV issuers pay initial listing fees based on the value of the securities to be listed or reserved, subject to minimum
and maximum fees. Initial listing fees fluctuate with the value of securities being listed or reserved at the time of listings.
Additional Listing17
Issuers already listed on one of our equity exchanges pay fees in connection with subsequent capital market transactions,
such as the raising of new capital through the sale of additional securities and reserving additional shares to be issued
under stock option plans. Additional listing fees are based on the value of the securities to be listed or reserved, subject
to minimum and maximum fees.
The Toronto Stock Exchange (“TSX”)has amended the TSX Listing Fee Schedule (“Fee Schedule”), effective January 1, 2018.
The amendments to the Fee Schedule include:
• An increase to the maximum additional listing fee payable by Corporate Issuers from $190,000 to $250,000.
• Housekeeping amendments to clarify the recovery of expenses incurred by TSX
Based on historical data from 2017, we estimate that the revised fees could result in an increase in revenue of approximately
$5.0 to $7.0 million on an annual basis starting on January 1, 2018.
Sustaining Listing18
Issuers listed on one of our equity exchanges pay annual fees to maintain their listing, based on their market capitalization
at the end of the prior calendar year, subject to minimum and maximum fees. Sustaining listing fees for existing issuers
are billed during the first quarter of the year, recorded as deferred revenue and amortized over the year on a straight-line
basis. Sustaining listing fees for new issuers are billed in the quarter that the new listing takes place and are amortized
over the remainder of the year on a straight-line basis.
Fees charged to issuers vary based on the type of issuer (corporate, structured product or ETF) and for TSXV issuers, there
are other transactional fees we charge for Stock Options Plans and Change of Business, among others.
The aggregate market capitalization of issuers listed on TSX increased from $2.74 trillion to $2.97 trillion at the end of 2016
to the end of 2017. The market capitalization of issuers listed on TSXV increased from $38.7 billion to $51.4 billion over
the same period. We also made changes to TSX's fee structure that would impact eligible secondary market issuers, In
addition, there was a reduction to the annual sustaining fee payable by Special Acquisition Purpose Corporations in their
terminal year. We estimate that these increases in market capitalization on TSX and TSXV, net of the impact of some of
these other changes in fees, could result in an increase in sustaining listing fee revenue of approximately $1.0 million for
2018.
Other Services
TSX Trust revenue is primarily derived from a contractual monthly charge. Corporate trust fees relate to services that
include acting as trustee for debt instruments, depository for takeover bid offers, warrant agent, subscription receipt agent,
and agent for voluntary escrow arrangements. This revenue is normally transactional.
17 The "Additional Listing" section above contains certain forward-looking statements. Please refer to "Caution Regarding Forward-
Looking Information" for a discussion of risks and uncertainties related to such statements.
18 The "Sustaining Listing" section above contains certain forward-looking statements. Please refer to "Caution Regarding Forward-
Looking Information" for a discussion of risks and uncertainties related to such statements.
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Equities and Fixed Income Trading & Clearing
Equities and Fixed Income trading – TSX, TSXV, Alpha and Shorcan
Overview and Description of Products and Services
We operate innovative, efficient, reliable, fast, easy to use platforms for trading and clearing.
Equities Trading
TSX, TSXV and Alpha operate fully electronic exchanges that facilitate secondary trading in TSX and TSXV-listed securities
on a continuous auction basis throughout the trading day.
Retail, institutional and other proprietary investors and traders place orders to buy or sell securities through dealers acting
as principals or agents, who are Participating Organizations (POs)/Members of the exchanges. In addition to continuous
trading throughout the day, TSX and TSXV also operate opening and closing auctions, which are central sources of liquidity
in Canada during those times. The closing auctions also establish the benchmark closing price for our listed securities. A
post-closing trading session on TSX and TSXV allows for further opportunity to trade at the closing price. Additional trading
features and functionalities are offered to accommodate a range of trading strategies and provide flexibility to clients –
for example, TSX and TSXV offer a range of dark order types that allow clients to obtain price improvement relative to
displayed prices. Each of TSX, TSXV and Alpha also allow POs to report their internally matched orders, by printing these
as crosses on the exchanges at no cost.
Fixed Income Trading
Shorcan acts as an inter-dealer bond broker (IDB) that specializes in the Canadian fixed income marketplace, brokering
products from benchmark and off the run bonds, to provincial, corporate, strip, and mortgage bonds; repo and swaps.
Shorcan serves financial institutions that are broker-dealer registered with the Investment Industry Regulatory Organization
of Canada (IIROC) and that are CDCC members; the buy-side does not participate. Interdealer brokers can be accessed via
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broker screens that can run on a desktop computer at a trader’s desk. IDB negotiations are anonymous pre-trade and post-
trade, however, in certain cases, IDBs reveal counterparty identity before trade execution. Shorcan also allow a “workup”
session where after two participants match orders, they are able to increase the volume of the trade for 7-seconds with
one another.
Strategy
•
•
•
•
Focus on strengthening the core business through client-centric activities.
Continue to deploy innovative trading features and functionalities aimed at reducing dealers’ costs and
operational risks.
Leverage existing technology and capabilities to better serve clients.
Expand into other asset classes (e.g. mutual fund)
Revenue Description
Equities Trading
Most of the fees on TSX, TSXV and Alpha are volume-based. These fees are applied to traded shares, and in most cases,
involve one side of the trade being charged a per share fee and the other side being provided with a per share rebate. The
excess of the fee over the rebate represents the exchanges' net fee per share traded. These types of models are intended
to incent different types of customers and behaviors. The primary fee structure on TSX and TSXV is a maker-taker model
that pays a rebate to the liquidity providing side of the trade so that market participants have an incentive to enter passive
orders into the central limit order book, while the liquidity taking side of the trade pays a fee. Alpha supports an inverted
pricing model which is intended to provide incentives to take liquidity by providing a rebate, with the liquidity providing
side of the trade paying the fee. Regardless of the fee structure applied, trading revenue is recognized in the month in
which the trade is executed. (also see REGULATORY CHANGES - Equity Trading)
Fixed Income Trading
Shorcan charges broker commissions on both sides of the trade upon execution. Commission of the brokered transaction
is embedded in the price of the trade through clearing and settlement processes. Trading revenue is recognized when the
trade is settled. Shorcan broker commission varies by different types of fixed income instrument and differ between orders
that are matched electronically vs. voice-brokered.
Equities and Fixed Income Clearing, Settlement, Depository and Other Services - CDS
Overview and Description of Products and Services
The Canadian Depository for Securities Limited (CDS) is Canada's national securities depository, clearing and settlement
hub for domestic and cross-border depository-eligible securities. CDS supports Canada's equity, fixed income and money
markets and is accountable for the safe custody and movement of securities, the processing of post-trade transactions,
and the collection and distribution of entitlements relating to securities deposited by participants.
CDS’ domestic clearing and settlement services enable participants to report, confirm or match, reconcile, net and settle
exchange and OTC traded equity, debt and money market transactions, as well as derivative transactions in depository-
eligible securities (e.g., the processing of rights and warrants and the settlement of exercised options). CDS also offers
related services such as buy-ins, risk controls and reporting, and facilitates trading in CDSX (CDS’s multilateral clearing and
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TMX Group Limited
settlement system) eligible securities before they are publicly distributed (trades in these securities settle after public
distribution). CDSX is designated by the Bank of Canada as being systematically important, under the Payment Clearing
and Settlement Act (Canada).
CDS Depository is accountable for the safe custody and movement of depository-eligible domestic and international
securities, accurate record-keeping, processing post-trade transactions, and collecting and distributing entitlements arising
from securities deposited by participants.
Other CDS services include, the issuance of International Security Identification Numbers (ISINs), depository eligibility,
securities registration as well as entitlement and corporate action (E&CA) event management.
In November 2014, CDS submitted to its regulators a notice of publication in respect of amendments to the CDS issuer
services program fee schedule. The fees were approved in December 2016, subject to a number of adjustments and
conditions and implemented in March 2017 (see INITIATIVES AND ACCOMPLISHMENTS - Capital Markets - Equities and
Fixed Income Trading and Clearing).
Strategy
TMX has begun aligning CDS and CDCC under an integrated post-trade services strategy. Under this strategy, the two
businesses will:
• Develop and migrate to an efficient, cross-asset next-generation clearing solution
•
•
Explore opportunities related to fintech
Enhance and develop solutions related to liquidity, capital efficiency, and global infrastructures
Revenue Description
For reported trades, both exchange traded and OTC trades, CDS charges clearing fees to participants on a per trade basis.
Clearing fees are recognized as follows:
• Reporting fees are recognized when the trades are delivered to CDS.
• Netting/novation fees are recognized when the trades are netted and novated.
Other clearing related fees are recognized when services are performed.
For those trades that are netted in Continuous Net Settlement (CNS), settlement fees are charged on the basis of the
number of netted trades settled. Settlement fees for those trades that are not netted (i.e., trades that are settled individually
on a trade-for-trade (TFT) basis) are charged on a per transaction basis. Settlement related fees are recognized when the
trades are settled.
Depository fees are charged per transaction and custody fees are charged based on a daily average of volume (i.e., number
of shares held for equity securities and nominal value held for fixed income securities) and positions held. Depository fees
are charged for custody of securities, depository related activities, and processing of entitlement and corporate actions,
and are recognized when the services are performed.
International revenue consists of revenue generated through offering links as channels to participants to affect cross-
border transactions and custodial relationships with other international organizations. The related fees are recognized as
follows:
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Page 17
•
Fees are charged to participants based on participant usage of National Securities Clearing Corporation (NSCC)
and Depository Trust Company (DTC) services. Participants are sponsored into NSCC and DTC services via the
New York Link service and the DTC Direct Link service respectively.
•
Custodial fees and other international services related revenues are recognized when the services are performed.
Issuer services fees are fees levied to issuers and/or their agents for ISIN, depository eligibility, and entitlements and
corporate actions management services for which they benefit.
50:50 Rebates on Core CDS Services
For the period starting November 1, 2012 and subsequent fiscal years starting on January 1, 2013, CDS shares with
participants, on a 50:50 basis, any annual increases in revenue on clearing and other core CDS Clearing services, as compared
with revenues in fiscal year 2012 (the 12-month period ending October 31, 2012). Beginning January 1, 2015 and
subsequent years, CDS also shares with Participants, on a 50:50 basis, any annual increases in revenue applicable to the
New York Link/Depository Trust Company Direct Link Liquidity Premium compared to the revenues for this service earned
in the twelve-month period ended December 31, 2015. Rebates are paid on a pro rata basis to participants in accordance
with the fees paid by such participants for these services.
Additional Rebates
In addition, CDS must rebate an additional $4.0 million annually to participants in respect of exchange clearing services
for trades conducted on an exchange or alternative trading systems (ATS).
DERIVATIVES AND ENERGY MARKETS
Derivatives Trading & Clearing – MX, CDCC and BOX
We are focused on delivering multi-asset class solutions for our Canadian and international clients by providing them
liquidity and transparency via our risk management ecosystem.
Overview and Description of Products and Services
Our domestic financial derivatives trading is conducted through MX, Canada’s standardized financial derivatives exchange.
Headquartered in Montréal, MX offers trading in interest rate, index and equity derivatives. BOX is an equity options
market located in the U.S. for which MX is the technical operator and technology developer. As at December 31, 2017,
MX held approximately 40% ownership interest in BOX. Our derivatives markets derive revenue from MX’s trading and
clearing.
Derivatives Trading
MX
MX offers interest rate, index, equity and exchange-rate derivatives to Canadian and international market participants.
MX connects participants to its derivatives markets, builds business relationships with them and works with them to ensure
that the derivatives offerings meet investor needs. More than half of MX’s volume in 2017 was represented by three
futures contracts – the Three-Month Canadian Bankers’ Acceptance Futures contract (BAX), the 10-Year Government of
Canada Bond Futures contract (CGB) and the S&P/TSX 60 Standard Futures contract (SXF) – with the balance largely
represented by our equity and ETF options market.
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BOX
BOX is an all-electronic equity derivatives market and is one of a number of equity options markets in the U.S. All BOX
trade volume is cleared through the Options Clearing Corporation. BOX runs on our SOLA technology, a leading-edge
technology for equity options.
In January 2015, BOX launched a program to incent subscribers to provide liquidity. In exchange for providing this liquidity
and a nominal cash payment, subscribers received volume performance rights (VPRs), which are comprised of Class C units
of BOX and an order flow commitment. The VPRs vest over 20 quarters of the 5-year order flow commitment period if
minimum volume targets are achieved. If a subscriber fails to meet its minimum volume targets, its VPRs are available for
reallocation to those subscribers that exceed their minimum volume targets, if any. Those VPRs may vest earlier. In
September 2015, the VPR program was granted regulatory approval by the Securities Exchange Commission (SEC). Pursuant
to the terms of the VPR program, subscribers became entitled to immediate economic participation in BOX for VPRs held.
As of July 1, 2016, we determined that we did not hold majority voting power on the board of directors as Class C units in
certain vested VPRs became entitled to vote at board meetings. As of this date, we no longer consolidated BOX as we
ceased to hold the majority of voting power on the board of directors and exercise control. As a result our financial results
from July 1, 2016 forward do not include the results of BOX other than our share of BOX's net income (loss), which is
reflected in Share of net income (loss) from equity accounted investees. For periods prior to July 1, 2016 our financial
results include the results from BOX on a consolidated basis.
Effective July 1, 2016, Derivatives revenue also includes revenue from licensing SOLA technology and providing other
services to BOX. This revenue was previously eliminated when BOX's operating results were consolidated in our financial
statements.
Derivatives – Clearing
CDCC acts as the central clearing counterparty for exchange-traded derivative products in Canada and for a growing range
of customized financial instruments. CDCC’s role is to ensure the integrity and stability of the markets that it supports.
CDCC provides CCP clearing and settlement services for all MX transactions and certain over-the-counter (OTC) derivatives,
including fixed income repurchase and reverse repurchase agreement (REPO) transactions. In addition, CDCC is the issuer
of options traded on MX markets.
CDCC is the only integrated central clearing counterparty in North America that clears and settles futures, options and
options on futures. The Canadian Derivatives Clearing Service (CDCS) operated by CDCC has been designated by the Bank
of Canada as being systemically important financial market infrastructure under the Payment Clearing and Settlement Act
(Canada).
CDCC generates revenue from clearing and settlement, as well as from options and futures exercise activities (see Revenue
Description section below).
TMX has begun aligning CDS and CDCC under an integrated post-trade services strategy. Under this strategy, the two
businesses will:
• Develop and migrate to an efficient, cross-asset next-generation clearing solution
•
•
Explore opportunities related to fintech
Enhance and develop solutions related to liquidity, capital efficiency, and global infrastructures
Derivatives – Regulatory Division
MX is a Self-Regulatory Organization (SRO) that has responsibility for maintaining the transparency, credibility and integrity
of the exchange-traded derivatives market in Canada. MX’s Regulatory Division, which is operated independently of its
other operations, is responsible for the regulation of its markets and its trading participants. The Regulatory Division is
subject to the sole internal oversight of MX’s Special Committee – Regulatory Division. The Special Committee – Regulatory
Division, which is appointed by the Board of Directors of MX, is composed of a majority of independent members, none
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TMX Group Limited
of whom is a member of the Board of Directors of MX or CDCC. The Regulatory Division operates on a non-profit/cost-
recovery basis.
The Regulatory Division generates revenues from regulatory fees (principally comprised of market surveillance fees
collected by MX on behalf of its Regulatory Division) and regulatory fine revenues (generated from fines levied by the
Regulatory Division). Market regulation fees are recognized in the month in which the services are provided.
Any surplus in the Regulatory Division must be, subject to the approval of the Special Committee – Regulatory Division,
redistributed to MX’s approved participants (excluding regulatory fine revenues, which cannot be redistributed) and any
shortfall must be made up by a special assessment by MX’s participants or by MX upon recommendation of the Special
Committee – Regulatory Division. Regulatory fine revenues are accounted for separately from regulatory fees revenues
and can be used only for specifically approved purposes, such as charitable donations or educational initiatives.
Strategy
• Client focus and global expansion
• Develop digital capabilities
• Diversification of revenue streams
•
Extend and develop existing product line.
Revenue Description
MX participants are charged fees for buying and selling derivatives products on a per transaction basis, determined
principally by contract type and participant status. Since MX trading fee rates are charged on each transaction based on
the number of contracts included in each transaction, MX trading revenue is directly correlated to the volume of contracts
traded on the derivatives market. Derivatives trading revenue is recognized in the month in which the trade is executed.
CDCC clearing members (Clearing Members) pay fees for clearing and settlement, including OTC fixed income and REPO
transactions, on a per transaction basis. Fees for fixed income transactions are based on the size and term of the original
agreement, and Clearing Members pay a minimum monthly fee. Clearing Members are also eligible for a revenue sharing
arrangement based on annual cleared volumes of REPO transactions. Clearing and settlement revenues other than for
REPO transactions are correlated to the trading volume of such products and therefore fluctuate based on the same factors
that affect our derivatives trading volume. Derivatives clearing revenue is recognized on the settlement date of the related
transaction. Clearing revenue for fixed income REPO agreements is recognized on the novation date of the related
transaction.
Energy trading and clearing – NGX and Shorcan Energy
In October 2017, we entered into an agreement to sell NGX and Shorcan Energy Brokers as a component of the total
consideration for the acquisition of Trayport (See Initiatives and Accomplishments - Acquisition of Trayport and Sale of
Natural Gas Exchange and Shorcan Energy Brokers for more information). On December 14, 2017, we completed the
sale of NGX and Shorcan Energy. TMX Group has classified the sale of NGX and Shorcan Energy as discontinued operations.
Prior to the sale, the operations of NGX and Shorcan Energy entirely comprised of the Energy Trading and Clearing operating
segment and a small portion of the Global Solutions, Insights and Analytics operating segment.
The classification of discontinued operations occurred at December 14, 2017 which is the date of disposal of the operations.
Accordingly, TMX Group has re-presented the comparative consolidated income statements to show the discontinued
operations separately from continuing operations.
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Global Solutions, Insights, and Analytics (formerly Market Insights)
Overview and Description of Products and Services
We aim to deliver integrated data sets to fuel high-value proprietary and third party analytics to help clients make better
trading and investment decisions, and provide solutions to European wholesale energy markets for price discovery, trade
execution, post-trade transparency, and post-trade straight through processing.
TMX Datalinx
Real-Time Equity Market Data Products – Toronto Stock Exchange and TSX Venture Exchange Level 1 and
Level 2 and Alpha Feeds
Trading activity on TSX, TSXV and Alpha produces a stream of real-time data reflecting orders and executed transactions.
This stream of data is supplemented with value-added content (e.g. dividends, earnings) and packaged by TMX Datalinx,
our information services division, into real-time market data products and delivered to end users directly or via Canadian
and global redistributors that sell data as feeds and for desktop product use. Our market data is available globally through
a large number of network carriers and extranets.
We offer our subscribers Last Sale, Level 1, and Level 2 real-time services for TSX, TSXV (including NEX, a market for issuers
that have fallen below the listing standards of TSXV) and Alpha. Last Sale is a new TMX innovation enabling open display
of recent trades for TSX, TSXV and Alpha markets to be displayed on internet media in real-time, providing broad market
transparency. Level 1 provides trades, quotes, corporate actions and index level information. Level 2 provides a more in-
Page 21
2017 Annual Report
27
TMX Group Limited
depth look at the order book and allows distributors to obtain Market Book for TSX, TSXV and Alpha. Market Book is an
end-user display service that includes Market-by-Price, Market-by-Order and Market Depth by Broker for all committed
orders and trades.
We also provide market participants with low-latency access to real-time Level 1 and Level 2 market data consolidated to
include all domestic equities marketplaces, by way of our TMX Information Processor Consolidated Data Feed (CDF),
Canadian Best Bid and Offer (CBBO), Consolidated Last Sale (CLS), and Consolidated Depth of Book (CDB) services. Our
Information Processor mandate from securities regulators is under application to be renewed for a four year period
commencing on July 1, 2018.
Real-Time Derivative Market Data Products
We also derive data revenue from MX. Similarly to equities markets, we distribute MX real-time Level 1, and Level 2 trading
data to market participants on a global basis directly and through data distributors.
Historical, Online, and Other Market Data Products
Historical market data products include market information such as historical tick data, official market statistics and close
prices and corporate information such as dividends and corporate actions used in research, analysis and trade clearing,
including via TMX Analytics product suites to enable increased usability for clients.
Co-location and Managed Services
We provide co-location services to a broad range of domestic and international market participants. Our co-location services
clients, benefit from stable, low-latency access to TSX, TSXV, Alpha, and MX trading engines and market data feeds, as well
as access to other capital market clients, financial content providers, and technology providers. At December 31, 2017,
over 90% of capacity was contracted or sold.
TMX Insights
TMX Global Analytics
TMX Global Analytics provides information and market insights by leveraging multi-asset class content across TMX Group
business lines and other sources. TMX Global Analytics enables clients to gain insight into market activity, liquidity, and
price discovery, to enhance their ability to improve trading strategies, meet regulatory requirements, and manage risk.
TMX Global Analytics provides these capabilities to clients with display based solutions for visualizations of analytics as
well as access to power suite of quantitative tools for clients to derive insights directly from TMX’s data suite and analytics
calculation systems.
Equities and Derivatives - Index Products
We have an arrangement with S&P Dow Jones Indices (S&P DJI) under which we share license fees received from
organizations that create products, such as mutual funds and ETFs, based on the S&P/TSX indices. In general, these license
fees are based on a percentage of funds under management in respect of these proprietary products. In January 2016 we
announced the the renewal of the multi-year Index Operation and License Agreement between TSX Inc. and S&P DJI further
extending our long-standing partnership. The Agreement between S&P DJI and TSX covers the creation and publication
of all S&P/TSX indices, while also providing MX with the rights to list futures and options on the S&P/TSX indices19.
19 The S&P/TSX indices are a product of S&P Dow Jones Indices LLC (“SPDJI”) and TSX Inc. (“TSX”). Standard & Poor’s® and
S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark
of Dow Jones Trademark Holdings LLC and TSX® is a registered trademark of TSX.
Page 22
2017 Annual Report
28
TMX Group Limited
Fixed Income – Index and Analytics Products
We have a 24.3% ownership interest in FTSE TMX Global Debt Capital Markets Limited, an international fixed income index
business. Income from our 24.2% interest is recorded under Net income of equity accounted investees and Global
Solutions, Insights and Analytics revenue (as a royalty).
Trayport
In October 2017 we entered into an agreement to acquire Trayport, the acquisition closed in December 2017 (See Initiatives
and Accomplishments - Acquisition of Trayport and Sale of Natural Gas Exchange and Shorcan Energy Brokers for more
information). Trayport is the primary connectivity network and data and analytics platform for the European wholesale
energy markets. Trayport's solutions provide price discovery, trade execution, post-trade transparency, and post-trade
straight through processing.
Strategy
•
•
•
Provide unified platforms for TMX Group proprietary content and complete product gaps for all core TMX
Group content
Expand TMX Global Analytics, a suite of multi-asset class, real time and historical analytics using proprietary
and third party data
Expand benchmark and index business by assessing market opportunities in new and existing asset classes
(including energy and commodities)
Revenue Description
Subscribers generally pay fixed monthly rates for access to real-time streaming data, which differ depending on the depth
of information accessed. In addition to streaming data, many individual investors consume real-time quote data, for which
we charge on a per quote basis. We charge market data vendors and direct feed clients a fixed monthly fee for access to
data feeds.
Real-time market data revenue is recognized based on usage as reported by customers and vendors, less a provision for
sales allowances from the same customers. Other Global Solutions, Insights and Analytics revenue is recognized when the
services are provided.
Generally, we sell historical data products for a fixed amount per product accessed. Fees vary depending on the type of
end use.
Subscribers to TMX Group’s managed services, which includes co-location services, pay a fixed monthly fee depending on
the number of cabinets and other related services they receive. Managed services are normally contracted for a period
of one to five years.
Trayport subscribers pay a monthly rate for access to the the platform, and are normally on multi-year contracts with an
average term of about two years.
In 2017, approximately 45% of our Global Solutions, Insights & Analytics revenue was billed in U.S. dollars. In 2017,
approximately 93% of Trayport's revenue was billed in British Pound Sterling. We do not currently hedge this revenue and
therefore it is subject to foreign exchange fluctuations. (For details, see Financial Risk Management - Market Risk - Foreign
Currency Risk.)
2017 Annual Report
29
TMX Group Limited
Page 23
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
Non-IFRS Financial Measures
EBITDA, adjusted earnings per share, and adjusted diluted earnings per share are non-IFRS measures and do not have
standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented
by other companies. We present EBITDA, adjusted earnings per share, and adjusted diluted earnings per share to indicate
ongoing financial performance from period to period, exclusive of a number of adjustments. These adjustments include
amortization of intangibles related to acquisitions, acquisition costs, gain on FX forward, gain on sale of NGX and Shorcan
Energy, non-cash impairment charges, product write-off, write-off of deferred income tax assets, increase in deferred
income tax assets resulting from capital loss carryback, strategic re-alignment expenses, and change in net deferred income
tax assets/liabilities resulting from change to Quebec, B.C., and U.S. corporate income tax rates. Management uses these
measures, and excludes certain items, because it believes doing so results in a more effective analysis of underlying
operating and financial performance, including, in some cases, our ability to generate cash. Excluding these items also
enables comparability across periods. The exclusion of certain items does not imply that they are non-recurring or not
useful to investors.
Additional IFRS Measures
Income from operations before acquisition costs and strategic re-alignment expenses, and income from operations are
important indicators of TMX Group's ability to generate liquidity through operating cash flow to fund future working capital
needs, service outstanding debts and fund future capital expenditures. The intent of these performance measures is to
provide additional useful information to investors and analysts; however, these measures should not be considered in
isolation.
BOX (BOX Holdings)
In January 2015, BOX launched a program to incent subscribers to provide liquidity. In exchange for providing this liquidity
and a nominal cash payment, subscribers received volume performance rights (VPRs), which are comprised of Class C units
of BOX and an order flow commitment. The VPRs vest over 20 quarters of the 5-year order flow commitment period if
minimum volume targets are achieved. If a subscriber fails to meet its minimum volume targets, its VPRs are available for
reallocation to those subscribers that exceed their minimum volume targets, if any. Those VPRs may vest earlier. In
September 2015, the VPR program was granted regulatory approval by the Securities Exchange Commission (SEC). Pursuant
to the terms of the VPR program, subscribers became entitled to immediate economic participation in BOX for VPRs held.
As of July 1, 2016, we determined that we did not hold majority voting power on the board of directors as Class C units in
certain vested VPRs became entitled to vote at board meetings. As of this date, we no longer consolidated BOX as we
ceased to hold the majority of voting power on the board of directors and exercise control. As a result our financial results
from July 1, 2016 forward do not include the results of BOX other than our share of BOX's net income (loss), which is
reflected in Share of net income (loss) from equity accounted investees. For periods prior to July 1, 2016 our financial
results include the results from BOX on a consolidated basis.
Effective July 1, 2016, Derivatives revenue also includes revenue from licensing SOLA technology and providing other
services to BOX. This revenue was previously eliminated when BOX's operating results were consolidated in our financial
statements.
Sale of NGX and Shorcan Energy - discontinued operations
On December 14, 2017, we completed the sale of NGX and Shorcan Energy. TMX Group has classified the sale of NGX
and Shorcan Energy as discontinued operations. Prior to the sale, the operations of NGX and Shorcan Energy entirely
comprised of the Energy Trading and Clearing operating segment and a small portion of the Global Solutions, Insights and
Analytics operating segment.
Page 24
2017 Annual Report
30
TMX Group Limited
The classification of discontinued operations occurred at December 14, 2017 which is the date of disposal of the operations.
Accordingly, TMX Group has re-presented the comparative consolidated income statements to show the discontinued
operations separately from continuing operations.
The information below reflects the financial statements of TMX Group for the year ended December 31, 2017 compared
with the year ended December 31, 2016.
(in millions of dollars, except per
share amounts)
Revenue
Operating expenses before acquisition
costs and strategic re-alignment
expenses
Income from operations before
acquisition costs and strategic re-
alignment expenses20
Acquisition costs21
Strategic re-alignment expenses
Income from operations22
Income from discontinued operations,
net of tax
Net income attributable to TMX
Group shareholders
Earnings per share - before
discontinued operations23
Basic
Diluted
Earnings per share24
Basic
Diluted
Adjusted Earnings per share25
Basic
Diluted
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase/
(decrease)
% increase/
(decrease)
$668.9
356.3
312.6
13.8
—
298.8
176.8
368.0
3.46
3.43
6.66
6.60
4.69
4.65
$683.7
383.6
300.1
—
21.0
279.1
15.7
196.4
3.31
3.30
3.60
3.58
4.49
4.47
$(14.8)
(27.3)
12.5
13.8
(21.0)
19.7
161.1
171.6
0.15
0.13
3.06
3.02
0.20
0.18
(2)%
(7)%
4%
n/a
(100)%
7%
1026%
87%
5%
4%
85%
84%
4%
4%
Cash flows from operating activities
276.6
314.4
(37.8)
(12%)
20 See discussion under the heading "Additional IFRS Financial Measures".
21 Includes costs related to the acquisition of Trayport.
22 See discussion under the heading "Additional IFRS Financial Measures".
23 Earnings per share information is based on net income attributable to TMX Group shareholders, discontinued operations include NGX
and Shorcan Energy.
24 Earnings per share information is based on net income attributable to TMX Group shareholders.
25 Adjusted earnings per share includes discontinued operations, net of gain on sale of NGX and Shorcan Energy, and is a non-IFRS
measure. See discussion under the heading "Non-IFRS Financial Measures".
Page 25
2017 Annual Report
31
TMX Group Limited
Net income attributable to TMX Group shareholders
Net income attributable to TMX Group shareholders in the year ended December 31, 2017 was $368.0 million, or $6.66
per common share on a basic basis and $6.60 per common share on a diluted basis, compared with a net income of $196.4
million, or $3.60 per common share on a basic and $3.58 on a diluted basis, for the year ended December 31, 2016. The
increase in net income in the year ended December 31, 2017 included an after tax gain on the sale of NGX and Shorcan
Energy, of $157.3 million as well as a gain on FX forwards relating to the Trayport acquisition. There were lower operating
expenses before acquisition costs and strategic re-alignment and no strategic re-alignment expenses in 2017 compared
with 2016. There was also a decrease in income tax expense of approximately $2.4 million related to a capital loss carryback,
which increased net income in 2017. In addition, we incurred lower finance costs in the year ended December 31, 2017
compared with the year ended December 31, 2016. During 2016, we recorded non-cash impairment charges of $8.9 million
relating to AgriClear and TMX Atrium whereas in 2017 we recorded non-cash impairment charges and wrote off product
costs totaling $7.7 million (after tax) relating to AgriClear and TMX Atrium.
These increases in net income were partially offset by lower revenue, acquisition costs on purchase of Trayport and a non-
cash income tax adjustment of $2.9 million relating to the write off of deferred income tax assets relating to TMX Atrium.
In 2017, we recorded non-cash income tax adjustments relating to a change in the B.C. and U.S. corporate income tax rate
of approximately $8.3 million, which increased income tax expense, whereas in 2016 we recorded a non-cash income tax
adjustment relating to a change in the Quebec corporate income tax rate of approximately $3.2 million which reduced
income tax expense. There was also an unfavorable impact on basic and diluted earnings per share from an increase in
the number of weighted-average common shares outstanding in the year ended December 31, 2017 compared with the
year ended December 31, 2016.
2017 Annual Report
32
TMX Group Limited
Page 26
Adjusted Earnings per Share Reconciliation for Year Ended December 31, 2017 and Year Ended
December 31, 2016
The following is a reconciliation of earnings per share to adjusted earnings per share:
Year Ended December 31,
2017
Year Ended December 31,
2016
(unaudited)
Earnings per share - before discontinued operations
Earnings per share - discontinued operations
Earnings per share26
Adjustments related to:
Amortization of intangibles related to
acquisitions
Acquisition costs (including finance costs)27
Gain on FX Forward
Strategic re-alignment expenses
Increase in deferred income tax assets resulting
from capital loss carryback28
Gain on sale of NGX and Shorcan Energy
Non-cash impairment charges (including
product write-off in 2017)29
Write-off of deferred income tax assets30
Change in net deferred income tax assets/
liabilities resulting from change to Quebec, B.C.,
and U.S. corporate income tax rates
Basic
$3.46
$3.20
$6.66
0.49
0.25
(0.16)
—
(0.04)
(2.85)
0.14
0.05
0.15
Diluted
$3.43
$3.17
$6.60
0.48
0.25
(0.16)
—
(0.04)
(2.82)
0.14
0.05
0.15
Adjusted earnings per share31
$4.69
$4.65
Basic
$3.31
$0.29
$3.60
0.51
—
—
0.28
—
—
0.16
—
(0.06)
$4.49
Diluted
$3.30
$0.28
$3.58
0.51
—
—
0.28
—
—
0.16
—
(0.06)
$4.47
Weighted average number of common shares
outstanding
55,285,668
55,730,437
54,616,160
54,810,538
Adjusted diluted earnings per share increased by 4% from $4.47 in the year ended December 31, 2016 to $4.65 in the year
ended December 31, 2017. The increase in adjusted diluted earnings per share reflected significantly lower operating
expenses before acquisition costs and strategic re-alignment expenses, excluding amortization of intangibles related to
acquisitions, partially offset by lower revenue. In addition, we incurred lower finance costs in the year ended December
26 Earnings per share information is based on net income attributable to TMX Group shareholders.
27Includes costs related to the acquisition of Trayport (24 cents), including finance costs (1 cent).
28 Related to Razor Risk.
29 Related to TMX Atrium (10 cents), and Agriclear impairment (6 cents) in 2016; and TMX Atrium impairment (9 cents), Agriclear
impairment (3 cents), and product write-off (2 cents) in 2017.
30 Related to TMX Atrium Wireless.
31 Adjusted earnings per share includes discontinued operations, net of gain on sale of NGX and Shorcan Energy, and is a non-IFRS
measure. See discussion under the heading "Non-IFRS Financial Measures".
Page 27
2017 Annual Report
33
TMX Group Limited
31, 2017 compared with the year ended December 31, 2016. The increase in basic and diluted earnings per share were
partially offset by the impact from an increase in the number of weighted-average common shares outstanding in the year
ended December 31, 2017 compared with the year ended December 31, 2016.
Revenue
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase/
(decrease)
% increase/
(decrease)
Capital Formation
$188.7
$182.9
Equities and Fixed Income Trading
and Clearing
Derivatives Trading and Clearing
Global Solutions, Insights and
Analytics
Other
182.1
114.8
186.5
(3.2)
$668.9
173.5
117.5
208.3
1.5
$683.7
$5.8
8.6
(2.7)
(21.8)
(4.7)
$(14.8)
3%
5%
(2)%
(10)%
(313)%
(2)%
Revenue was $668.9 million in the year ended December 31, 2017, down $14.8 million or 2% compared with $683.7 million
in the year ended December 31, 2016. There were decreases in Global Solutions, Insights and Analytics revenue reflecting
both a $5.9 million decrease in revenue from Razor Risk (sold on December 31, 2016) and a $17.7 million decrease in
revenue from TMX Atrium (sold on April 30, 2017), partially offset by $4.5 million revenue from Trayport (acquired on
December 14, 2017). The decrease in Other revenue was primarily due to recognizing higher net foreign exchange losses
on U.S. dollar and other non-Canadian denominated net monetary assets in the year ended December 31, 2017 compared
with the year ended December 31, 2016 and reclassifying revenue from BOX's regulatory entity from Other revenue to
Derivatives Trading and Clearing revenue effective July 1, 2016. These decreases were partially offset by increases in
Equities and Fixed Income Trading and Clearing, and Capital Formation revenue. Revenue for the year ended December
31, 2017 increased by 2% over the year ended December 31, 2016, excluding the Razor Risk and TMX Atrium businesses
and the $6.5 million net impact from de-consolidating BOX (effective July 1, 2016).
2017 Annual Report
34
TMX Group Limited
Page 28
Capital Formation
(in millions of dollars)
Initial listing fees
Additional listing fees
Sustaining listing fees
Other issuer services
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase/
(decrease)
% increase/
(decrease)
$12.5
82.7
70.3
23.2
$8.7
90.1
65.6
18.5
$188.7
$182.9
$3.8
(7.4)
4.7
4.7
$5.8
44%
(8)%
7%
25%
3%
•
Initial listing fees on TSX and TSXV for the year ended December 31, 2017 were higher than in the year ended December
31, 2016 reflecting an increase in both the number of new issuers listed and amount of IPO financing dollars raised
on TSX and TSXV.
• Additional listing fees in the year ended December 31, 2017 decreased from the year ended December 31, 2016
reflecting a 13% decrease in the number of transactions billed on TSX. There was also a decrease in additional listing
fees on TSXV where the number of financings decreased in the year ended December 31, 2017 compared with the
year ended December 31, 2016.
•
Issuers listed on TSX and TSXV pay annual sustaining listing fees primarily based on their market capitalization at the
end of the prior calendar year, subject to minimum and maximum fees. There was an increase in sustaining listing
fees on both TSX and TSXV due to the increase in the market capitalization of issuers at December 31, 2016 compared
with December 31, 2015.
• Other issuer services revenue in the year ended December 31, 2017 was higher compared to the year ended December
31, 2016 reflecting higher revenue from TSX Trust for transfer agent and corporate trust services.
Equities and Fixed Income Trading and Clearing
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase
% increase
Equities and fixed income trading
$104.0
Equities and fixed Income clearing,
settlement, depository and other
services (CDS)
78.1
$102.3
71.2
$182.1
$173.5
$1.7
6.9
$8.6
2%
10%
5%
•
There was a 2% increase in equities and fixed income trading revenue in the year ended December 31, 2017 compared
with the year ended December 31, 2016. The increase was largely attributable to higher fixed income trading revenue
reflecting increased activity in Government of Canada Bonds and swaps largely offset by a decline in equity trading
revenue. The overall volume of securities traded on our equities marketplaces decreased by 5% (142.0 billion securities
in the year ended December 31, 2017 versus 149.7 billion securities in the year ended December 31, 2016). Volumes
on TSXV increased by 15% and volumes on Alpha increased by 4% from the year ended December 31, 2016 to the
year ended December 31, 2017; however, volumes on TSX decreased by 15% over the same period. The decreases
in equities trading revenue on TSX more than offset the increases in equities trading revenue on TSXV and Alpha.
2017 Annual Report
35
TMX Group Limited
Page 29
•
•
Excluding intentional crosses, our combined domestic equities trading market share was 63% in the year ended
December 31, 2017, down from 69% in the year ended December 31, 201632. The decline in market share reflects an
increase in trading volume of issues not listed on TSX or TSXV.
CDS revenue increased by 10% from the year ended December 31, 2016 to the year ended December 31,
2017 reflecting revisions to the fee schedule for issuer services implemented on March 1, 2017.
Derivatives Trading and Clearing
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$114.8
$117.5
$(2.7)
(2)%
•
•
The decrease in Derivatives Trading and Clearing revenue largely reflected the impact from excluding revenue from
BOX effective July 1, 2016 when we ceased to consolidate BOX's results from operations. Partially offsetting this
decrease, also effective July 1, 2016, Derivatives Trading and Clearing revenue includes revenue from licensing SOLA
technology and providing other services to BOX. This revenue was previously eliminated when BOX's operating results
were consolidated in our financial statements. The net reduction in revenue related to BOX was $6.5 million.
This decrease was partially offset by higher revenue from MX and CDCC reflecting higher volumes somewhat offset
by the impact of lower revenue per contract due to higher rebates. Volumes increased by 5% on MX (96.3 million
contracts traded in the year ended December 31, 2017 versus 91.9 million contracts traded in the year ended December
31, 2016).
•
Excluding BOX, Derivatives Trading and Clearing revenue from MX and CDCC increased by 3% in the year ended
December 31, 2017 over the year ended December 31, 2016.
Global Solutions, Insights and Analytics
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$186.5
$208.3
$(21.8)
(10)%
•
•
The decrease in Global Solutions, Insights and Analytics revenue reflected a decline of $5.9 million in revenue from
Razor Risk, and $17.7 million in revenue from TMX Atrium. The decrease also reflected lower revenue recoveries
related to under-reported usage of real time quotes in prior periods, a decrease in professional market data
subscriptions, and an unfavourable impact from a stronger Canadian dollar relative to the U.S. dollar in the year ended
December 31, 2017 compared with the year ended December 31, 2016.
The decreases were somewhat offset by an increase in revenue from co-location services, benchmarks and indices,
and new analytic products in the year ended December 31, 2017 compared with the year ended December 31, 2016.
There was also additional revenue from Trayport (acquired December 14, 2017) of approximately $4.5 million.
• Revenue for the year ended December 31, 2017 increased by 1% over the year ended December 31, 2016 in the Global
Solutions, Insights and Analytics business, excluding Razor Risk and TMX Atrium and including Trayport.
32 Source: IIROC.
Page 30
2017 Annual Report
36
TMX Group Limited
•
•
The average number of professional market data subscriptions for TSX and TSXV products decreased by 3% from the
year ended December 31, 2016 to the year ended December 31, 2017 (102,018 professional market data subscriptions
in the year ended December 31, 2017 compared with 105,629 in the year ended December 31, 2016.
The average number of MX professional market data subscriptions decreased by 4% from the year ended December
31, 2016 to the year ended December 31, 2017 (18,003 MX professional market data subscriptions in the year ended
December 31, 2017 compared with 18,681 in the year ended December 31, 2016).
Other
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$(3.2)
$1.5
$(4.7)
(313)%
•
The decrease in Other revenue was primarily due to recognizing higher net foreign exchange losses on U.S. dollar and
other non-Canadian denominated net monetary assets in the year ended December 31, 2017 compared with the year
ended December 31, 2016 and reclassifying revenue from BOX's regulatory entity from Other revenue to Derivatives
Trading and Clearing revenue effective July 1, 2016.
2017 Annual Report
37
TMX Group Limited
Page 31
Operating expenses before acquisition costs and strategic re-alignment expenses
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase/
(decrease)
% increase/
(decrease)
Compensation and benefits
$171.4
$183.1
Information and trading systems
Selling, general and administration
Depreciation and amortization
51.2
82.1
51.6
67.2
76.7
56.6
$(11.7)
(16.0)
5.4
(5.0)
$356.3
$383.6
$(27.3)
(6)%
(24)%
7%
(9)%
(7)%
Operating expenses before acquisition costs and strategic re-alignment expenses in the year ended December 31, 2017 were
$356.3 million, down $27.3 million or 7%, from $383.6 million in the year ended December 31, 2016. There were lower
compensation and benefits costs (including employee performance incentive plan costs) of approximately $7.7 million related
to our strategic re-alignment initiative, as well as reduced costs related to Razor Risk and TMX Atrium of approximately $11.9
million and approximately $20.8 million respectively. Effective July 1, 2016, we excluded operating expenses related to BOX
when we ceased to consolidate BOX's results from operations, which were approximately $7.6 million in 1H/16. The decreases
in costs were partially offset by approximately $4.7 million of higher employee performance incentive plan costs and increased
severance costs of $5.3 million (not included as part of strategic re-alignment expenses). There were also higher compensation
costs related to Trayport, higher occupancy costs, and approximately $2.2 million higher expenses related to our global
marketing campaign.
Compensation and benefits33
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$171.4
$183.1
$(11.7)
(6)%
•
•
•
Compensation and benefits costs decreased in the year ended December 31, 2017 compared with the year ended
December 31, 2016 reflecting reduced costs related to Razor Risk and TMX Atrium of approximately $10.3 million and
approximately $4.1 million respectively, and the exclusion of BOX costs effective July 1, 2016 when we ceased to
consolidate BOX's results from operations. In addition, there were lower compensation and benefits costs (including
employee performance incentive plan costs) of approximately $7.7 million related to our strategic re-alignment initiative,
and lower costs related to projects (net of labour capitalization).
These decreases were largely offset by an increase of approximately $4.7 million in employee performance incentive plan
costs relating to current employees in 2017 compared with the 2016 driven by the increase in our share price, and
increased severance costs (not included as part of strategic re-alignment expenses) of approximately $5.3 million. There
were also higher costs associated with employee compensation including merit increases, and Trayport.
There were 1,238 TMX Group employees at December 31, 2017 versus 1,075 employees at December 31, 2016 reflecting
a higher headcount related to the acquisition of Trayport on December 14, 2017 which employs approximately 240 people.
This increase was offset by reduction in headcount due to our strategic realignment initiative, the sale of Razor Risk on
December 31, 2016 which employed approximately 30 people, the sale of TMX Atrium on April 30, 2017 which employed
approximately 20 people, and the sale of NGX and Shorcan Energy which collectively employed approximately 70 people.
33 The "Compensation and benefits" section above contains certain forward-looking statements. Please refer to "Caution Regarding Forward-
Looking Information" for a discussion of risks and uncertainties related to such statements.
2017 Annual Report
38
TMX Group Limited
Page 32
•
For compensation and benefits, we will likely have higher severance costs related to organizational changes in the range
of $3.5 to $4.5 million in Q1/18, which is expected to generate an annual savings of approximately $2 million starting in
Q2/18.
Information and trading systems
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$51.2
$67.2
$(16.0)
(24)%
•
Information and trading systems expenses decreased by $16.0 million in the year ended December 31, 2017 compared
with the year ended December 31, 2016 reflecting lower expenses related to Razor Risk and TMX Atrium. In addition,
expenses related to BOX were excluded effective July 1, 2016 when we ceased to consolidate BOX's results from operations.
Offsetting these decreases, there was a write-off of costs related to discontinued AgriClear products of $1.7 million ($1.2
million after tax).
Selling, general and administration
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase
% increase
$82.1
$76.7
$5.4
7%
•
•
Selling, general and administration expenses increased by $5.4 million in the year ended December 31, 2017 compared
with the year ended December 31, 2016 reflecting increases in occupancy costs of $2.6 million mainly related to recoveries
in 2016, higher expenses related to our global marketing campaign of $2.2 million, as well as higher external fees.
These increases were partially offset by lower Razor Risk and TMX Atrium costs as well as the exclusion of BOX costs
effective July 1, 2016 when we ceased to consolidate BOX's results from operations.
Depreciation and amortization
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$51.6
$56.6
$(5.0)
(9)%
•
•
Lower Depreciation and amortization costs reflected a reduction in amortization related to BOX effective July 1, 2016
when we ceased to consolidate BOX's results from operations. There was also a decrease in Depreciation and amortization
costs related to Quantum XA, TMX Atrium, and Razor.
The Depreciation and amortization costs in the year ended December 31, 2017 of $51.6 million included $34.3 million
related to amortization of intangibles assets related to acquisitions (49 cents per basic and 48 cents per diluted share).
The Depreciation and amortization costs in the year ended December 31, 2016 of $56.6 million included $34.8 million
($34.3 million, net of non-controlling interests, NCI, for the six months ended June 30, 2016) related to amortization of
intangibles related to acquisitions (51 cents per basic and diluted share).
2017 Annual Report
39
TMX Group Limited
Page 33
Acquisition expenses
Year Ended December 31, 2017
Year Ended December 31, 2016
(in millions of dollars)
Pre-tax Amount
Basic and Diluted
Earnings per
Share Impact34
Pre-tax Amount
Basic and Diluted
Earnings per
Share Impact35
$13.8
$0.25
$—
$—
•
The increase in acquisition costs relate to the acquisition of Trayport that closed on December 14, 2017 (See INITIATIVES
AND ACCOMPLISHMENTS - Acquisition of Trayport and Sale of Natural Gas Exchange and Shorcan Energy Brokers).
Strategic re-alignment expenses
Year Ended December 31, 2017
Year Ended December 31, 2016
(in millions of dollars, except per share
amounts)
(unaudited)
Severance and related costs
Professional and consulting fees and
other charges
Strategic re-alignment expenses
Pre-tax Amount
—
—
$—
Basic and Diluted
Earnings per
Share Impact36
—
—
$—
Pre-tax Amount
$18.3
2.7
$21.0
Basic and Diluted
Earnings per Share
Impact37
$0.24
0.04
$0.28
•
The decrease in strategic re-alignment expenses from the year ended December 31, 2016 to the year ended December
31, 2017 reflected a decrease in severance costs and amounts paid to consultants. The initiative to transform the
organization was largely completed by the end of 2016 (See INITIATIVES AND ACCOMPLISHMENTS - Update on Integrated
Clearing Platform and Strategic Re-alignment Process).
34 Earnings per share information is based on net income attributable to TMX Group shareholders.
35 Earnings per share information is based on net income attributable to TMX Group shareholders.
36 Earnings per share information is based on net income attributable to TMX Group shareholders.
37 Earnings per share information is based on net income attributable to TMX Group shareholders.
2017 Annual Report
40
TMX Group Limited
Page 34
Additional Information
Income from discontinued operations
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase
% increase
$176.8
$15.7
$161.1
1026%
•
The increase in income from discontinued operations is primarily driven by the gain in the sale of NGX and Shorcan
Energy. In 2017, we completed the sale of NGX and Shorcan Energy at a combined amount of $379.2 million as partial
consideration for the related acquisition of Trayport. We disposed net assets of $174.0 million. There was an income
tax expense of $45.4 million resulting in an after-tax gain of $157.8 million.
•
Income from NGX and Shorcan Energy was $19.1 million net of tax from January 1, 2017 to December 14, 2017, an
increase of $3.4 million from the year ended December 31, 2016.
Share of net income from equity accounted investees
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ increase
% increase
$2.9
$2.4
$0.5
21%
•
In the year ended December 31, 2017 our share of net income from equity accounted investees increased by $0.5
million primarily attributable to an increase in our share of income from FTSE TMX Global Debt Capital Markets Limited.
This increase was partially offset by decreases in our share of income from BOX and Candeal.
Impairment charges
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$6.5
$8.9
$(2.4)
(27)%
•
•
In Q4/16 we determined that the fair value of TMX Atrium and Agriclear were below their carrying value, resulting in
impairment charges of $8.9 million
In Q1/17 we determined that the fair value of TMX Atrium was below its carrying value, resulting in impairment
charges relating to the write-down of goodwill of $4.8 million. In February 2017, we entered into an agreement to
sell TMX Atrium. The transaction closed on April 30, 2017 (see INITIATIVES AND ACCOMPLISHMENTS - Global
Solutions, Insights and Analytics). There was no material gain or loss on sale in Q2/17.
•
In Q4/17 we determined that the fair value of Agriclear was below its carrying value, resulting in impairment charges
of $1.7 million.
2017 Annual Report
41
TMX Group Limited
Page 35
Net finance costs
(in millions of dollars)
Year Ended
December 31,
2017
Year Ended
December 31,
2016
$ (decrease)
% (decrease)
$15.0
$31.4
$(16.4)
(52)%
•
The decrease in net finance costs reflects higher gains in 2017 compared with 2016. In 2017 we had gains on FX
forwards related to the Trayport acquisition of $10.2 million before tax (16 cents per share on a basic and diluted
basis), gains on U.S. dollar denominated Commercial Paper and lower interest expenses due to decreased average
debt levels throughout the year. In addition, there were mark to mark gains on interest rate swaps in 2017 compared
with mark to mark losses in 2016. Offsetting these decreases in net finance costs, we incurred finance costs of
approximately $0.3 million related to the acquisition of Trayport in 2017.
Income tax expense and effective tax rate38
Income Tax Expense (in millions of dollars)
Effective Tax Rate (%)
Year Ended December 31,
2017
Year Ended December 31,
2016
Year Ended December 31,
2017
Year Ended December 31,
2016
$89.0
$61.8
32%
26%
•
Excluding adjustments, primarily related to the items noted below, the effective tax rate would have been
approximately 27% for both 2017 and 2016.
• With the acquisition of Trayport, we expect our 2018 statutory tax rate to be approximately 26%.
2017
•
•
•
In Q4/17, there were non-cash income tax adjustments related to changes in B.C. and U.S. corporate income tax rates.
These changes increased net deferred income tax liabilities and reduced net deferred income tax assets, respectively,
resulting in a corresponding non-cash net increase in deferred income tax expense of approximately $8.3 million.
In Q4/17, we incurred acquisition costs related to Trayport, and non-cash impairment charges related to Agriclear
that are non-deductible for tax purposes, which increased our effective tax rate in Q4/17. The impact was somewhat
offset by the gain on FX forwards being taxed at 50% of our statutory rate.
In Q1/17, we incurred non-cash impairment charges of $4.8 related to TMX Atrium. We also wrote-down $2.9 million
of deferred tax assets relating to TMX Atrium Wireless which increased our effective tax rate for Q1/17. These items
increased our effective tax rate and income tax expense in Q1/17.
2016
•
•
In Q4/16, the Quebec corporate income tax rate decreased, effective January 1 of each year, starting January 1, 2017.
As a result of this change there was a decrease in the value of net deferred income tax liabilities and a corresponding
non-cash net decrease in deferred income tax expense of approximately $3.2 million.
In Q4/16, we incurred non-cash impairment charges of $8.9 million as well as a loss on the sale of Razor Risk of $0.8
million. On a net basis, the related tax impact of these two items increased our effective tax rate for Q4/16.
38 The "Income tax expense and effective tax rate" section above contains certain forward-looking statements. Please refer to "Caution
Regarding Forward-Looking Information" for a discussion of risks and uncertainties related to such statements.
Page 36
2017 Annual Report
42
TMX Group Limited
•
In Q3/16, we recorded non-cash income tax adjustments of approximately $2.0 million (net) largely related to the de-
consolidation of results from BOX, which reduced income tax expense.
Net loss attributable to non-controlling interests
(in millions of dollars)
Year Ended
December 31, 2017
Year Ended
December 31, 2016
$ (decrease)
$—
$0.7
$(0.7)
• As of July 1, 2016, we no longer consolidated BOX as we ceased to hold the majority of voting power on the board of
directors and exercise control. As a result our financial results from July 1, 2016 forward do not include the results of
BOX, and our share of BOX's net income (loss), is reflected in Net income from equity accounted investees in our
financial statements.
•
For periods prior to July 1, 2016 our financial results include the results from BOX on a consolidated basis and we
reported the net income (loss) attributable to non-controlling interests.
Total equity attributable to shareholders of TMX Group
(in millions of dollars)
As at December 31,
2017
as at December 31,
2016
$ increase
Total equity attributable to shareholders of TMX
Group
$3,182.8
$2,920.7
$262.1
• At December 31, 2017, there were 55,383,736 common shares issued and outstanding and 1,878,926 options
outstanding under the share option plan.
• At February 7, 2018, there were 55,403,013 common shares issued and outstanding and 1,831,909 options outstanding
under the share option plan.
•
The increase in Total equity attributable to shareholders of TMX Group is primarily attributable to the inclusion of net
income of $368.0 million, proceeds from exercised share options of $17.3 million, less dividend payments to
shareholders of TMX Group of $107.8 million.
2017 Annual Report
43
TMX Group Limited
Page 37
Segments
The following information reflects TMX Group’s segment results for the year ended December 31, 2017 compared with
the year ended December 31, 2016.
Year Ended December 31, 2017
(in millions of dollars)
Capital
Formation
Equities and
Fixed
Income
Trading &
Clearing
Derivatives
Trading &
Clearing
Global
Solutions,
Insights &
Analytics
Other
Total
Revenue from external customers $
188.7 $
182.1 $
114.8 $
186.5 $
(3.2) $
668.9
Inter-segment revenue
Total revenue
Income (loss) from operations
before acquisition costs and
strategic re-alignment expenses
—
188.7
107.0
1.5
183.6
—
114.8
0.6
187.1
(2.1)
(5.3)
—
668.9
84.0
55.0
117.7
(51.1)
312.6
Year Ended December 31, 2016
(in millions of dollars)
Capital
Formation
Equities and
Fixed
Income
Trading &
Clearing
Derivatives
Trading &
Clearing
Global
Solutions,
Insights &
Analytics
Other
Total
Revenue from external customers $
182.9 $
173.5 $
117.5 $
208.3 $
1.5 $
683.7
Inter-segment revenue
Total revenue
Income (loss) from operations
before strategic re-alignment
expenses
—
182.9
1.8
175.3
—
117.5
1.8
210.1
(3.6)
(2.1)
—
683.7
113.6
75.2
46.0
108.2
(42.9)
300.1
Income (loss) from operations before acquisition costs and strategic re-alignment expenses
The decrease in Income from operations before acquisition costs and strategic re-alignment expenses from Capital
Formation reflects higher operating costs before strategic re-alignment expenses in the year ended December 31, 2017
compared with the year ended December 31, 2016. The decrease was somewhat offset by higher revenue from initial
and sustaining listing fees as well as higher revenue from TSX Trust partially offset by lower revenue from additional listing
fees
The increase in income from operations before acquisition costs and strategic re-alignment expenses from Equities and
Fixed Income Trading and Clearing was driven by higher revenue from Fixed Income Trading and CDS partially offset by
lower Equities Trading revenue. There were also lower operating costs before acquisition costs and strategic re-alignment
expenses in 2017 compared with 2016.
Income from operations before acquisition costs strategic re-alignment expenses from Derivatives increased reflecting
lower operating costs before acquisition costs and strategic re-alignment expenses. There was also higher revenue from
MX and CDCC, reflecting a 5% increase in volumes on MX somewhat offset by the impact of lower revenue per contract
Page 38
2017 Annual Report
44
TMX Group Limited
due to higher rebates. Income from operations before strategic re-alignment expenses from Derivatives also reflects the
exclusion of revenue and expenses from BOX effective July 1, 2016 when we ceased to consolidate BOX's results from
operations. Also effective July 1, 2016, Derivatives revenue and expenses include revenue and expenses from licensing
SOLA technology and providing other services to BOX. This revenue and associated expense were previously eliminated
when BOX's operating results were consolidated in our financial statements. The net reduction in Derivatives revenue
related to BOX from the year ended December 31, 2017 to the year ended December 31, 2016 was $6.5 million.
The increase in Income from operations before acquisition costs and strategic re-alignment expenses from Global Solutions,
Insights and Analytics largely reflects the positive impacts from the sales of Razor Risk and TMX Atrium. While revenue
from Razor Risk declined by $5.9 million in the year ended December 31, 2017 compared with the year ended December
31, 2016, operating expenses declined by $11.9 million in the year ended December 31, 2017 compared with the year
ended December 31, 2016. Revenue from TMX Atrium declined by $17.7 million in the year ended December 31, 2017
compared with the year ended December 31, 2016, while operating expenses decline by $20.8 million in the year ended
December 31, 2017 compared with the year ended December 31, 2016.
Other includes certain revenue as well as corporate and other costs related to initiatives, not allocated to the operating
segments. Revenue related to foreign exchange gains and losses and other services are presented in the Other segment.
Costs and expenses related to the amortization of purchased intangibles, along with certain consolidation and elimination
adjustments, are also presented in Other. The higher loss from operations before acquisition costs and strategic re-
alignment expenses for the Other segment reflected a decrease in corporate and other costs allocated to other segments,
and lower revenue. The decrease in Other revenue was primarily due to recognizing higher net foreign exchange losses
on U.S. dollar and other non-Canadian denominated net monetary assets in the year ended December 31, 2017 compared
with the year ended December 31, 2016 and reclassifying revenue from BOX's regulatory entity from Other revenue to
Derivatives Trading and Clearing revenue effective July 1, 2016.
Geographical Information
The following information provides revenue by geography for the years ended December 31, 2017 and December 31,
2016.
2017
(in millions of dollars)
Revenue
Canada
$511.0
U.S.
$118.2
2016
(in millions of dollars)
Revenue
Canada
$493.2
U.S.
$145.6
U.K.
$16.7
U.K.
$16.2
Other
$23.0
TMX Group
$668.9
Other
$28.7
TMX Group
$683.7
Revenue is allocated based on country to which customer invoices are addressed.
In 2017, revenue originating from outside of Canada decreased by $32.6 million with revenue originating from U.S.
decreasing by $27.4 million or 3% of total revenue, and revenue from Other regions decreasing by $5.7 million or 1% of
total revenue. These decreases were driven by the sale of Razor Risk (sold December 31, 2016), and TMX Atrium (sold
April 30, 2017), revenue from both businesses were predominantly outside of Canada. These decreases were partially
offset by Trayport revenue (acquired December 14, 2017) that largely originates from the U.K.
2017 Annual Report
45
TMX Group Limited
Page 39
LIQUIDITY AND CAPITAL RESOURCES
Summary of Cash Flows
Year Ended December 31, 2017 compared with Year Ended December 31, 2016
(in millions of dollars)
Year Ended
December 31, 2017
Year Ended
December 31, 2016
$ increase/
(decrease) in cash
Cash flows from operating activities
Cash flows from/(used in) financing activities
Cash flows used in investing activities
$276.6
270.4
(612.0)
$314.4
(207.3)
(18.3)
$(37.8)
477.7
(593.7)
•
•
•
In 2017, Cash flows from operating activities decreased compared with 2016 reflecting an increase in income taxes
paid.
In 2017, Cash flows from financing activities were higher than in 2016 when we used cash in financing activities.
During 2016, we used $350.0 million in cash when we repaid our Series C Debentures whereas in 2017 there was an
increase in cash following the issuance of $300.0 million in Series D Debentures. The impact of this $650.0 million
increase in cash was partially offset by a net reduction in the issuance of Commercial Paper of approximately $150.0
million and an increase in dividends paid to equity holders.
In 2017, there was an increase in Cash flows used in investing activities compared with 2016 reflecting a cash outflow
of $613.5 million related to the purchase of Trayport and an increase in cash outlays for additions to premises and
equipment and intangible assets, partially offset by the proceeds on the sale of TMX Atrium.
Summary of Cash Position and Other Matters39
Cash, Cash Equivalents and Marketable Securities
(in millions of dollars)
As at December 31,
2017
as at December 31,
2016
$ (decrease)
$225.1
$302.4
$(77.3)
We had $225.1 million of cash, cash equivalents and marketable securities at December 31, 2017. There was a decrease
in cash, cash equivalents and marketable securities primarily reflecting a cash outflow of $613.5 million relating to the
purchase of Trayport, dividends to TMX Group shareholders of $107.8 million and additions to premises and equipment
and intangible assets of $44.1 million. These decreases in cash were offset by cash flows from operating activities of $281.9
million, proceeds from the issuance of our Series D Debentures of $300.0 million, a net increase in Commercial Paper of
approximately $85.4 million and proceeds from exercised options of $17.3 million. Based on our current business operations
and model, we believe that we have sufficient cash resources to operate our business, make interest payments, as well as
meet our covenants under the trust indentures governing our debentures and the terms of the Amended and Restated
Credit Agreement (as amended on December 14, 2017) and commercial paper program (Commercial Paper Program) (see
LIQUIDITY AND CAPITAL RESOURCES - Commercial Paper, Debentures, Credit and Liquidity Facilities), and satisfy the
capital maintenance requirements imposed by regulators.
39 The “Summary of Cash Position and Other Matters” section above contains certain forward-looking statements. Please refer to
“Caution Regarding Forward-Looking Information” for a discussion of risks and uncertainties related to such statements.
Page 40
2017 Annual Report
46
TMX Group Limited
Going forward, we expect to have increased capital requirements related to premises as we consolidate our Toronto and
Montreal facilities. Approximately $17.0 million of capital expenditure was spent in 2017, and a further approximately
$13.0 million of spending is expected in 2018. The expected annual savings will result in reductions in operating expenses
of approximately $2.4 to $2.8 million on a run rate basis starting in Q3/18. During Q2/18, we also expect to record charges
of approximately $5.0 million related to lease terminations.
We will also have cash outlays in integrating our clearing platforms (see - INITIATIVES AND ACCOMPLISHMENTS - Update
on Integrated Clearing Platform and Strategic Re-alignment Process)
Debt financing of future investment opportunities could be limited by current and future economic conditions, the
covenants in the Amended and Restated Credit Agreement (as amended on December 14, 2017) and the Debentures, and
by capital maintenance requirements imposed by regulators. At December 31, 2017, there was $395.3 million of
Commercial Paper outstanding, and the authorized limit under the program was $500.0 million.
Total Assets
(in millions of dollars)
As at December 31,
2017
as at December 31,
2016
$ increase
$25,624.8
$22,201.4
$3,423.4
• Our consolidated balance sheet as at December 31, 2017 includes outstanding balances on open REPO agreements
within Balances with Clearing Members and Participants. These balances have equal amounts included within Total
Liabilities. The increase in Total Assets of $3,423.4 million from December 31, 2016 reflected higher balances in CDCC
related to REPO agreements at December 31, 2017.
Defined Benefit Pension Plan
Based on the most recent actuarial valuations, we estimate a deficit of approximately $12.3 million of which $1.4 million
was funded in 2017. The next required tri-annual valuation for the TMX RPP will be as at December 31, 2019, however
with the proposed new Ontario funding rules, we will be filing a new RPP valuation as at December 31, 2017.
Commercial Paper, Debentures, Credit and Liquidity Facilities
Commercial Paper
(in millions of dollars)
As at December 31,
2017
as at December 31,
2016
$ increase
$395.3
$309.9
$85.4
TMX Group maintains a Commercial Paper Program to offer potential investors up to $500.0 million (or the equivalent U.S.
dollars) of Commercial Paper to be issued in various maturities of no more than one year from the data of issue. The
Commercial Paper bears interest rates based on the prevailing market conditions at the time of issuance. The Commercial
Paper Program is 100% backstopped by a credit agreement with a syndicate of lenders.
The Commercial Paper issued represents an unsecured obligation and ranks equally with all other senior unsecured
obligations of TMX Group. The Commercial Paper has been assigned a rating of "R-1 (low)" with a Stable trend by DBRS
Limited (DBRS).
2017 Annual Report
47
TMX Group Limited
Page 41
There was $395.3 million outstanding under the program at December 31, 2017 reflecting a net increase in the year ended
December 31, 2017 of approximately $85.4 million. The Commercial Paper outstanding at December 31, 2017 included
approximately $376.6 million issued in Canadian dollars and approximately $18.8 million in the Canadian dollar equivalent
amount of U.S.dollar Commercial Paper. Commercial paper is short term in nature, and the average term to maturity from
the date of issue in the year ended December 31, 2017 was 61.2 days on Canadian dollar Commercial Paper and 31.9 days
on U.S.dollar Commercial Paper.
Debentures
TMX Group has the following Debentures outstanding:
Debenture
Principal
Amount ($
millions)
Series A
$400.0
Series B
Series D
250.0
300.0
Coupon
Maturity Date
DBRS Credit Rating
3.253% per annum, payable in
arrears in equal semi-annual
installments (long first coupon)
4.461% per annum, payable in
arrears in equal semi-annual
installments (long first coupon)
2.997% per annum, payable in
arrears in equal semi-annual
installments
October 3, 2018
A (high)
October 3, 2023
A (high)
December 11, 2024
A (high)
•
The Series A and Series B Debentures may be redeemed, at the option of TMX Group, in whole or in part at the
redemption price together with accrued and unpaid interest to the date fixed for redemption. The redemption price
is equal to the greater of the applicable Canada Yield Price (as defined in the relevant Indenture) and 100% of the
principal amount of the Debentures being redeemed to the date fixed for redemption. For the Series B Debentures,
if redeemed on or after the date that is three months prior to the maturity date of the series, the redemption price
is equal to 100% of the aggregate principal amount outstanding on the Series B Debentures to be redeemed.
• On December 11, 2017, the Company completed a private placement offering of $300.0 million aggregate principal
amount of senior unsecured debentures ("Series D Debentures") to accredited investors. The Series D Debentures
received a credit rating of A (high) with a Stable trend from DBRS Limited. The Company incurred financing costs of
$1.7 for the initial issuance of the Series D Debentures, and these costs are offset against the initial carrying value of
the Debentures. The Series D Debentures may be redeemed, as a whole or in part, at the option of TMX Group, at
the redemption price together with accrued and unpaid interest to the date fixed for redemption. The redemption
price is equal to the greater of the Canada Yield Price (as defined in the relevant Indenture) and 100% of the principal
amount of the Debentures being redeemed. If the Debentures are redeemed anytime on or after two months prior
to the maturity date of the series, the redemption price will be equal to 100% of the aggregate principal amount
outstanding on the Debentures together with accrued and unpaid interest to the date of the redemption.
•
The trust indentures governing the Debentures (the Trust Indentures) include the following covenants:
Negative pledge – which restricts the ability of TMX Group and each of its material subsidiaries (as defined
in the Trust Indentures) to create a lien on these entities’ assets unless the Debentures are similarly secured
on an equal and rateable basis.
Limitation on indebtedness of material subsidiaries of TMX Group – the Trust Indentures impose restrictions
on the ability of material subsidiaries to enter into certain types of indebtedness.
Repurchase on change of control of TSX Inc. or MX coupled with a triggering event – in the event of a change
of control (as such term is defined in the Trust Indentures) of either TSX Inc. or MX and if the rating of the
Debentures is lowered to below investment grade (as defined in the Trust Indentures), TMX Group will be
Page 42
2017 Annual Report
48
TMX Group Limited
required, at the option of the Debenture holder to repurchase, in whole or in part the holder’s Debentures
at a cash price of 101% of the outstanding principal amount of the Debentures plus all accrued and unpaid
interest up to the date of repurchase.
Requirement for TMX Group to maintain at least one credit rating from a Specified Credit Rating Agency (as
defined in the Trust Indentures).
(in millions of dollars)
Current Debentures
Non-Current Debentures
Credit Facilities
As at December 31,
2017
as at December 31,
2016
$399.8
$547.6
$947.4
$0.0
$648.7
$648.7
$ increase
$399.8
$(101.1)
$298.7
In 2014, TMX Group entered into a Credit Agreement with a syndicate of lenders establishing a credit facility to provide a
100% backstop to the Commercial Paper Program. It is also available for general corporate purposes. The original amount
available under the TMX Group credit facility was $400.0 million, or USD equivalent, less the amount of: (i) Commercial
Paper outstanding and (ii) inter-company notes payable outstanding to NGX, CDS and CDCC.
In 2016, TMX Group entered into an Amended and Restated Credit Agreement which had a maturity date of May 2, 2019.
The new facility for $500.0 million, or USD equivalent, replaced the $400.0 million Credit Agreement described above,
which had a maturity date of August 1, 2016. The amount available under this facility is also reduced by the amount of
Commercial Paper outstanding and the above-mentioned inter-company notes payable outstanding.
On December 14, 2017 in connection with the acquisition of Trayport and sale of NGX and Shorcan Energy , we amended
the Amended and Restated Credit Agreement to extend the maturity date to May 2, 2020. In addition, certain terms of
the credit agreement were also amended including a less restrictive total leverage ratio as described below:
•
an Interest Coverage Ratio of more than 4.0:1, where Interest Coverage Ratio:
means the ratio of adjusted EBITDA for the period comprised of the four most recently completed
financial quarters to an annualized consolidated interest expense for the first three financial quarters
following the closing date, December 14, 2017;
and thereafter means the ratio of adjusted EBITDA for the period comprised of the four most recently
completed financial quarters to the consolidated interest expense for such four financial quarters;
•
a Total Leverage Ratio of not more than:
3.75:1 on and after January 1, 2017 until December 31, 2018; and
3.5:1 on January 1, 2019 and thereafter
Total Leverage Ratio at any time is the ratio of consolidated debt as at such time to adjusted EBITDA for the period comprised
of the four most recently completed financial quarters. Adjusted EBITDA means earnings on a consolidated basis before
interest, taxes, extraordinary, unusual or non-recurring items, depreciation and amortization, as well as non-cash items.
As at December 31, 2017, all covenants were met under the Amended and Restated Credit Agreement.
The following table summarizes the Applicable Rates and Fee Rates and corresponding Total Leverage Ratios under the
Amended and Restated Credit Agreement. The Standby Fee is charged on the unutilized portion of the revolving facility.
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TMX Group Limited
The Applicable Rate represents the corporate spread that is included in the interest rate that is applied to the drawn portion
of the facility.
Total Leverage Ratio (x)
Standby Fee for undrawn
portion of Revolving Facility
Prime Rate Loans and US
Base Rate Loans
BA Instruments/ LIBOR
Loans / Letters of Credit
Applicable Margin Pricing Matrix
21.5 bps
24.5 bps
27.5 bps
32.5 bps
37.5 bps
40.0 bps
7.5 bps
22.5 bps
37.5 bps
62.5 bps
87.5 bps
100.0 bps
107.5 bps
122.5 bps
137.5 bps
162.5 bps
187.5 bps
200.0 bps
> 3.75
Foreign Exchange Forwards to hedge the Trayport acquisition
On October 27, 2017 we entered into foreign exchange forwards to economically hedge the cash consideration of the
purchase price of the Trayport acquisition. Upon settlement, we realized gains on the FX forwards which are included in
net finance costs (see Additional Information - Net finance costs).
Interest Rate Swaps (IRS)
As at December 31, 2017 we have the following IRS in place:
Interest Rate
1.08%
Maturity Date
May 2, 2019
Principal (in millions)
$100.0
This swap was put in place to economically hedge the issuance of commercial paper starting on October 3, 2016 (see
MANAGING CAPITAL). As this IRS was not designated as a hedge for accounting purposes, it is possible that there will be
fluctuations in net income as we mark to market the fair value of this IRS each quarter until maturity.
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TMX Group Limited
Page 44
Effective Interest Rates
The effective interest rates as at December 31, 2017 for the Debentures and Commercial Paper are shown below:
Debentures and Commercial Paper
Principal
($CAD millions)
Maturity
All-in Rate
Series A Debentures
Series B Debentures
Series D Debentures
Commercial Paper, CAD - interest rate
economically hedged
Commercial Paper, CAD - interest rate
unhedged
Commercial Paper, USD - interest rate
unhedged
Other Credit and Liquidity Facilities
$400.0
Oct. 3, 2018
Oct. 3, 2023
Dec. 11, 2024
3.253%
4.461%
2.997%
Jan 5 - Feb 2, 2018
1.08%40
Jan 5 - Feb 13, 2018
1.39%41
Jan 8 - Jan 22, 2018
1.54%42
250.0
300.0
100.0
276.6
18.8
CDCC maintains daylight liquidity facilities for a total of $600.0 million to provide liquidity on the basis of collateral in the
form of securities that have been received by CDCC. The daylight liquidity facilities must be cleared to zero at the end of
each day.
CDCC also maintains a repurchase facility with a syndicate of six Canadian major chartered banks. This facility is in place
to provide end-of-day liquidity in the event that CDCC is unable to clear the daylight liquidity facilities to zero or if emergency
liquidity is required in the event of a Clearing member default. It will provide liquidity in exchange for securities that have
been pledged to or received by CDCC. The size of this facility increased from $13,638.0 million of uncommitted liquidity
to $13,788.0 million during the year ended December 31, 2017 as a result of Clearing Members' activities. CDCC has the
option to re-size this facility on a quarterly basis in order to stay consistent with its liquidity risk policy.
CDCC maintains a $300.0 million 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 or if emergency liquidity is required in the event of a
Clearing member default. Advances under the facility are secured by collateral in the form of securities that have been
pledged to or received by CDCC. As at December 31, 2017, CDCC did not have any failed REPO settlement and as such did
not require a draw. On March 3, 2017, TMX Group extended the facility from March 3, 2017 to March 2, 2018. In addition,
CDCC has an agreement that would allow the Bank of Canada to provide emergency last-resort liquidity to CDCC at the
discretion of the Bank of Canada. This liquidity facility is intended to provide end-of-day liquidity only in the event that
CDCC is unable to access liquidity from the revolving standby liquidity facility and the syndicated REPO facility or in the
event that the liquidity under such facilities is insufficient. Use of this facility would be on a fully collateralized basis.
CDS maintains unsecured operating demand loans totaling $6.0 million to support short-term operating requirements. To
support processing and settlement activities of Participants, an unsecured overdraft facility and demand loan of $15.0
million and an overnight facility of US$5.5 million are available. The borrowing rates for these facilities are the Canadian
prime rate or the U.S. base rate, depending on the currency drawn. No amounts were drawn on these credit facilities as
at December 31, 2017.
40 Rate denoted in CAD.
41 Rate denoted in CAD.
42 Rate denoted in USD.
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Page 45
CDS also has a US$400.0 million or Canadian dollar equivalent secured standby credit agreement with a syndicate of banks
to support processing and settlement activities in the event of a Participant default. Borrowings under the secured facility
are obtained by pledging or providing collateral pledged by Participants primarily in the form of debt instruments issued
or guaranteed by federal, provincial and/or municipal governments in Canada or U.S. treasury instruments. The facility
can be drawn in either U.S. or Canadian currencies and depending upon the currency drawn, the borrowing rate for the
secured standby credit arrangement is the U.S. base rate or the Canadian prime rate. No amounts were drawn on these
credit facilities as at December 31, 2017. In 2017, we modified the terms of the CDS standby liquid facility to extend the
term from December 6, 2017 to February 28, 2018.
In addition, CDS has an agreement 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.
In compliance with PFMIs and additional Canadian regulatory and oversight guidance, CDS Clearing and CDCC each maintain
a recovery plan, to be applied in the event that the entity is unable to provide defined critical operations and services as
a going concern. These recovery plans are filed with their respective Canadian regulators. In connection with the recovery
plans, and if certain funding conditions are met, TMX Group agreed to provide certain limited financial support to CDS
Clearing and CDCC, if necessary, in the context of a recovery.
AgriClear maintains a US$10.5 million uncommitted letter of credit facility with a major Canadian chartered bank. The
facility is being used to issue letters of credit to support the operations of the AgriClear business. As at December 31, 2017,
C$0.1 million and US$9.2 million of letters of credit were outstanding. TMX Group has issued a US$10.5 million guarantee
for this facility. AgriClear maintains an uncommitted credit agreement for $3.0 million and US$3.0 million. The borrowing
rates for these facilities, if drawn, are the Canadian prime or the US prime rate, depending on the currency drawn. The
facilities are to be used by AgriClear to support its settlement operations.
Shorcan maintains a facility with a major chartered bank to provide end of day liquidity to cover any shortfalls due to timing
of payments and receipts. Utilization of this facility is secured by collateral in the form of securities.
Contractual Obligations
(in millions of dollars)
Commercial Paper
Debentures
Financial Lease Obligation
Operating Leases
Clearing and Other Obligations43
MANAGING CAPITAL
Total
395.3
950.0
0.1
162.0
Less than 1
year
395.3
400.0
0.1
22.8
20,082.3
20,066.3
1 - 3 years
3 - 5 years
5+ years
—
—
—
27.2
8.0
—
—
—
21.6
8.0
—
550.0
—
90.4
—
Our primary objectives in managing capital, which we define to include our cash and cash equivalents, marketable securities,
share capital, Commercial Paper, Debentures, and various credit facilities, include:
43 Clearing and Other Obligations includes fair value of open energy contracts, energy contracts payable, balances and cash collateral
held with derivatives clearing members and balances with participants of CDS. There are offsetting assets in these clearing operations.
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• Maintaining sufficient capital for operations to ensure market confidence and to meet regulatory requirements
and credit facility requirements (see Commercial Paper, Debentures, Credit and Liquidity Facilities for a
description of certain financial covenants under the Credit Agreement). Currently, we target to retain a minimum
of $170.0 million in cash, cash equivalents and marketable securities. This amount is subject to change;
• Maintaining our credit ratings in a range consistent with our current A (high) and R1 (low) credit ratings from
DBRS;
• Using excess cash to invest in and continue to grow the business;
• Returning capital to shareholders through methods such as dividends paid to shareholders and purchasing shares
for cancellation; and
• Reducing the debt levels to be below the Total Leverage Ratios under the Credit Agreement, which decrease over
time.
We achieve the above objectives while managing our capital subject to capital maintenance requirements imposed on us
and our subsidiaries by regulators. Certain of the requirements described below may impose restrictions on the amount
of upstream dividends or other amounts that a subsidiary may distribute to its shareholders:
•
In respect of TSX, as required by the OSC to maintain certain financial ratios on both a consolidated and non-
consolidated basis, as defined in the OSC recognition order, as follows:
a current ratio of greater than or equal to 1.1:1;
a debt to cash flow ratio of less than or equal to 4:1; and
a financial leverage ratio of less than or equal to 4:1.
•
•
In respect of TSXV, as required by various provincial securities commissions to maintain sufficient financial
resources.
In respect of MX, as required by the AMF to maintain certain regulatory ratios as defined in the AMF recognition
order, as follows:
a working capital ratio of more than 1.5:1;
a cash flow to total debt outstanding ratio of more than 20%; and
a financial leverage ratio of less than 4.0.
•
In respect of CDCC, to maintain certain amounts, as follows:
maintain sufficient financial resources as required by the OSC and AMF;
$5.0 million cash and cash equivalents or marketable securities as part of the Clearing Member default
recovery process plus an additional $5.0 million in the event that the initial $5.0 million is fully utilized
during a default;
sufficient cash, cash equivalents and marketable securities to cover 12 months of operating expenses,
excluding amortization and depreciation; and
$30.0 million total shareholders’ equity.
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•
In respect of Shorcan:
by IIROC which requires Shorcan to maintain a minimum level of shareholder’s equity of $0.5 million;
by the National Futures Association which requires Shorcan to maintain a minimum level of net capital;
and
by the OSC which requires Shorcan to maintain a minimum level of excess working capital.
•
In respect of CDS and CDS Clearing, as required by the OSC and the AMF, to maintain certain financial ratios as
defined in the OSC recognition order, as follows:
a debt to cash flow ratio of less than or equal to 4.0; and
a financial leverage ratio of less than or equal to 4.0.
In addition, the OSC requires CDS and CDS Clearing to maintain working capital to cover 6 months of
operating expenses (excluding, in the case of CDS, the amount of shared services fees charged to CDS
Clearing). CDS Clearing introduced dedicated own resources in the Continuous Net Settlement (CNS)
default waterfall for the CNS function; beginning January 1, 2016, funded with $1.0 million in cash and
cash equivalents or marketable securities to cover the potential loss incurred due to Participant’s default.
•
In respect of Alpha, as required by the OSC, to maintain certain financial ratios on both a consolidated and non-
consolidated basis as defined in the OSC recognition order, as follows:
a current ratio of greater than or equal to 1.1:1;
a debt to cash flow ratio of less than or equal to 4.0:1; and
a financial leverage ratio of less than or equal to 4.0:1.
•
In respect of TSX Trust, as required by the Office of the Superintendent of Financial Institutions, to maintain a
certain minimum capital amount and ratio and a financial leverage ratio of less than or equal to 8%.
As at December 31, 2017, we were in compliance with each of these externally imposed capital requirements, except
those in respect of Shorcan's minimum level of net capital and excess working capital required by the National Futures
Association and the OSC, respectively. See Credit Facility in this MD&A for a description of the financial covenants imposed
on us. Subsequent to year end, we completed a capital contribution to Shorcan which put Shorcan onside its National
Futures Association (NFA) and Ontario Securities Commission (OSC) regulatory requirements.
FINANCIAL INSTRUMENTS
Cash, Cash Equivalents and Marketable Securities
Our financial instruments include cash, cash equivalents and investments in marketable securities which are held to earn
investment income. Marketable securities consist of Federal and Provincial treasury bills.
We have designated our marketable securities as fair value through profit and loss. Fair values have been determined by
reference to quoted market prices. There were no unrealized or realized gains reflected in net income for the year ended
December 31, 2017, compared with unrealized gains of $0.1 million and realized gains of $0.1 million for the year ended
December 31, 2016.
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Page 48
The primary risks related to cash, cash equivalents and marketable securities are credit risk, market risk and liquidity risk.
For a description of these risks, please refer to Credit Risk - Cash and cash equivalents, Credit Risk – Marketable Securities,
Market Risk - Interest Rate Risk – Marketable Securities, Liquidity Risk - Cash and cash equivalents and Liquidity Risk -
Marketable securities.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents contains tax withheld by CDS on entitlement payments made by CDS on behalf of
CDS participants. The restricted cash and cash equivalents related to this withheld tax is ultimately under the control of
CDS; however, the amount is payable to various taxation authorities within a relatively short period of time and so is
restricted from use in normal operations. An equivalent and offsetting amount is included in the consolidated balance
sheet under the caption Participants' tax withholdings. At December 31, 2017, we had restricted cash and cash equivalents
of $116.3 million.
The primary risks related to restricted cash and cash equivalents are credit risk and liquidity risk. For a description of these
risks, please refer to Credit Risk - Restricted Cash and cash equivalents and Liquidity Risk - Restricted Cash and cash
equivalents.
Trade Receivables
Our financial instruments include accounts receivable, which represents amounts that our customers owe us. The carrying
value is based on the actual amounts owed by the customers, net of a provision for that portion which may not be collectible.
The primary risks related to trade receivables are credit risk and market risk. For a description of these risks, please refer
to Credit Risk – Trade Receivables and Market risk - Foreign Currency Risk.
CDS – Participant cash collateral and entitlements and other funds
As part of CDS’s clearing operations, CDS Participant Rules require participants to pledge collateral to CDS in the form of
cash or securities in amounts calculated in relation to their activities. Cash pledged and deposited with CDS is recognized
as an asset and an equivalent and offsetting liability is recognized as these amounts are ultimately owed to the participants.
There is no impact on the consolidated income statement. Securities pledged do not result in an economic inflow to CDS,
and therefore, are not recognized.
Securities held in custody by CDS for participants and associated non-cash entitlement transactions on these securities
are not financial assets of the corporation nor do these transactions give rise to a contractual or constructive obligation.
All cash dividends, interest, and other cash distributions received by the corporation on securities held in custody awaiting
distribution are recognized as an asset and offsetting liability as these amounts are ultimately owed to participants.
The primary risks associated with these financial instruments are credit risk, market risk and liquidity risk. For a description
of these risks, please refer to Credit Risk – CDS, Other Market Price Risk – CDS, Market Risk - Foreign Currency Risk,
Liquidity Risk - Balances with Clearing members and participants, Liquidity Risk - New York Link service - CDS and
Liquidity Risk - Credit and liquidity facilities - Clearing operations.
CDCC – Daily Settlements due to and due from Clearing Members
As part of CDCC’s clearing operations, amounts due from and to Clearing Members as a result of marking to market open
futures positions and settling options transactions each day are required to be collected from or paid to Clearing Members
prior to the commencement of trading the next day. The amounts due from and due to Clearing Members are recognized
in the consolidated assets and liabilities as Balances with Clearing Members and participants. There is no impact on the
consolidated statements of income.
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CDCC – Clearing Members’ cash margin deposits and clearing fund cash deposits
These balances represent the cash deposits of Clearing Members held in the name of CDCC as margins against open
positions and as part of the clearing fund. The cash held is recognized as an asset and an equivalent and offsetting liability
is recognized as these amounts are ultimately owed to the Clearing Members. There is no impact on the consolidated
income statement.
CDCC – Net amounts receivable/payable on open REPO agreements
In February 2012, CDCC launched the clearing of fixed income REPO agreements. OTC REPO agreements between buying
and selling Clearing Members are novated to CDCC whereby the rights and obligations of the Clearing Members under the
REPO agreements are cancelled and replaced by new agreements with CDCC. Once novation occurs, CDCC becomes the
counterparty to both the buying and selling Clearing Member. As a result, the contractual right to receive and return the
principal amount of the REPO as well as the contractual right to receive and pay interest on the REPO is thus transferred
to CDCC. These balances represent outstanding balances on open REPO agreements. Receivable and payable balances
outstanding with the same Clearing Member are offset when they are in the same currency and are to be settled on the
same day, as CDCC has a legally enforceable right to offset and the intention to net settle. The balances include both the
original principal amount of the REPO and the accrued interest, both of which are carried at amortized cost. As CDCC is
the central counterparty, an equivalent amount is recognized in both TMX Group's’ assets and liabilities.
The primary risks associated with these financial instruments are credit risk, market risk and liquidity risk. For a description
of these risks, please refer to Credit Risk - CDCC, Other Market Price Risk - CDCC, Liquidity Risk - Balances with Clearing
members and participants and Liquidity Risk - Credit and liquidity facilities - Clearing operations.
Commercial Paper
TMX Group maintains a Commercial Paper Program to offer potential investors up to $500.0 million (or the equivalent U.S.
dollars) of Commercial Paper to be issued in various maturities of up to one year from the date of issue. The Commercial
Paper bears interest rates based on the prevailing market conditions at the time of issuance.
In connection with the Amended and Restated Credit Agreement (see Credit Facility), we increased the authorized limit
of the Commercial Paper program from $400.0 million to $500.0 million on May 4, 2016.
The Commercial Paper issued represents an unsecured obligation and ranks equally with all other senior unsecured
obligations of TMX Group. The Commercial Paper has been assigned a rating of “R-1 (low)” with a Stable trend by DBRS.
The Commercial Paper is subject to market risk and liquidity risk. For a description of these risks, please refer to Market
Risk – Interest Rate Risk - Commercial Paper and Debentures, Market Risk - Foreign Currency Risk and Liquidity Risk -
Commercial Paper, Debentures and Credit Facility.
Debentures
TMX Group has the following Debentures outstanding: a $400-million principal amount Series A Debentures with a 3.253%
coupon and a five-year term, a $250-million Series B Debentures with a 4.461% coupon and a 10-year term, and a $300.0-
million principal amount Series D Debentures with a 2.997% coupon and a seven-year term. The Debentures received and
maintain a credit rating of A (high) with a Stable trend from DBRS. The fair value of the Debentures was obtained using
market prices as inputs.
On October 3, 2018, the Series A Debentures of $400-million will mature.
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The Debentures are subject to market risk and liquidity risk. For a description of these risks, please refer to Market Risk
– Interest Rate Risk - Commercial Paper and Debentures and Liquidity Risk - Commercial Paper, Debentures and Credit
Facility.
Interest Rate Swaps (IRS)
We have an IRS in place to economically hedge the issuance of commercial paper starting on October 3, 2016 (see
Commercial Paper, Debentures, Credit and Liquidity Facilities – Interest Rate Swaps). We mark to market the fair value
of the IRS, which is determined by using observable market information. At December 31, 2017, the fair value of the IRS
was an asset of $1.1 million. There was a charge of $0.1 million to net income for the year ended December 31, 2017,
representing the net amount of interest paid. The counterparty on this IRS is a major Canadian chartered bank. As this
IRS was not designated as a hedge for accounting purposes, it is possible that there will be fluctuations in net income as
we mark to market the fair value of this IRS each quarter until maturity.
IRSs are subject to credit risk. For a description of this risk, please refer to Credit Risk – Interest Rate Swaps (IRS).
CRITICAL ACCOUNTING ESTIMATES
Goodwill and Intangible Assets – Valuation and Impairment Testing
We recorded goodwill and intangible assets valued at $5,067.6 million as at December 31, 2017, up by $747.8 million from
$4,319.8 million at December 31, 2016, largely reflecting the acquisition of goodwill and intangible assets associated with
Trayport, a world-leading provider of technology solutions for energy traders, brokers and exchanges. On December 14,
2017, we completed this acquisition. We have conducted a preliminary purchase price allocation and intend to finalize
the allocation within twelve months following the acquisition date.. Management has determined that the testing for
impairment of goodwill and intangible assets involves making critical accounting estimates.
Goodwill is recognized at cost on acquisition less any subsequent impairment in value. We measure goodwill arising on
a business combination as the fair value of the consideration transferred less the fair value of the identifiable assets
acquired and liabilities assumed, all measured as of the acquisition date.
Intangible assets are recognized at cost less accumulated amortization, where applicable, and any impairment in value.
Cost includes any expenditure that is directly attributable to the acquisition of the asset. The cost of internally developed
assets includes the cost of materials and direct labour, and any other costs directly attributable to bringing the assets to
a working condition for their intended use.
Assets are considered to have indefinite lives where management believes that there is no foreseeable limit to the period
over which the assets are expected to generate net cash flows.
We test for impairment as follows:
The carrying amounts of our goodwill and intangible assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, are tested for impairment
at least annually even if there is no indication of impairment, and the recoverable amount is estimated each year at the
same time.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other
assets or groups of assets (the cash-generating unit, or CGU). For the purposes of goodwill impairment testing, goodwill
acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the
synergies of the combination and reflects the lowest level at which that goodwill is monitored for internal reporting
purposes.
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The recoverable amount of an asset or CGU is based on the higher of the value in use or fair value. 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.
An impairment loss is recognized if the carrying amount of an asset, or its CGU, exceeds its estimated recoverable amount.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated
to the units, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis. Impairment losses
along with any related deferred income tax effects are recognized in the consolidated income statement.
There was an impairment loss related to goodwill and intangible assets of $6.5 million for the year ended December 31,
2017 (See Results of Operations - Impairment Charges).
Considerable judgement is required to evaluate the impact of operating performance and macroeconomic changes and
to estimate cash flows. Disruptions to our business and economic weakness including a continued decline in the resource
sector, could result in further impairment charges related to goodwill and intangible assets. A further significant impairment
charge in the future could have a significant impact on our reported net income.
Capital Formation – Listings
In 2017, management updated its growth projections. Based on current assumptions, the recoverable amount for the
Listings CGU remains above carrying value, and as such no impairment has been identified. Management has identified
three key assumptions, the pre-tax discount rate, the terminal growth rate, and the cash flow projections, that have a
significant impact on the estimate of the recoverable amount. Changes in these assumptions that would cause the carrying
value to equal the recoverable amount are a 3.5% increase in the pre-tax discount rate, a 5.8% reduction in the terminal
growth rate, or a 22.7% decrease in cash flow.
Capital Markets - Equities Trading
In 2017, management updated its growth projections. Based on current assumptions, the recoverable amount for Equity
Trading remains above carrying value, and as such no impairment has been identified. Management has identified three
key assumptions, the pre-tax discount rate, the terminal growth rate, and the cash flow projections, that have a significant
impact on the estimate of the recoverable amount. Changes in these assumptions that would cause the carrying value to
equal the recoverable amount are a 7.7% increase in the pre-tax discount rate, a 16.0% reduction in the terminal growth
rate, or a 38.8% decrease in cash flow.
Capital Markets - CDS
In 2017, management updated its growth projections. Based on current assumptions, the recoverable amount for the
CDS CGU remains above carrying value, and as such no impairment has been identified. Management has identified three
key assumptions, the pre-tax discount rate, the terminal growth rate, and the cash flow projections, that have a significant
impact on the estimate of the recoverable amount. Changes in these assumptions that would cause the carrying value to
equal the recoverable amount are a 17.1% increase in the pre-tax discount rate, a 60.2% reduction in the terminal growth
rate, or a 65.3% decrease in cash flow.
Global Solutions, Insights & Analytics - TMX Datalinx and TMX Analytics
In 2017, management updated its growth projections. Management has determined that the Datalinx/Analytics CGU may
be subject to a reasonably possible change to one or more of the key assumptions used to determine the recoverable
amount, which could cause this CGU to become impaired. Management has identified three key assumptions, the pre-tax
discount rate, the terminal growth rate, and the cash flow projections, that have a significant impact on the estimate of
the recoverable amount. Changes in these assumptions that would cause the carrying value to equal the recoverable
amount are a 0.8% increase in the pre-tax discount rate, a 1.2% reduction in the terminal growth rate, or a 5.9% decrease
in cash flow.
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Derivatives Trading and Clearing - MX/CDCC
In 2017, management updated its growth projections. Based on current assumptions, the recoverable amount for
Derivatives remains above carrying value, and as such no impairment has been identified. Management has identified
three key assumptions, the pre-tax discount rate, the terminal growth rate, and the cash flow projections, that have a
significant impact on the estimate of the recoverable amount. Changes in these assumptions that would cause the carrying
value to equal the recoverable amount are a 2.5% increase in the pre-tax discount rate, a 3.4% reduction in the terminal
growth rate, or a 26.1% decrease in cash flow.
Other - AgriClear
Launched in 2015, AgriClear is an online transaction platform and payment service for U.S. and Canadian cattle buyers
and sellers. In 2016, management updated its growth projections for AgriClear as we re-assess the tactical plan for this
business, and determined the recoverable value of AgriClear was below its carrying value, which resulted in an impairment
charge of $3.6 million. In 2017 we took a further goodwill impairment charge of $1.7 million, which brought the carrying
value of AgriClear to zero, and a product impairment charge of $1.7 million ($1.2 million after tax).
SELECT ANNUAL AND QUARTERLY FINANCIAL INFORMATION
Certain comparative figures have been reclassified in order to conform with the financial presentation adopted in the
current year. On December 14, 2017, we completed the sale of NGX and Shorcan Energy. TMX Group has classified the
sale of NGX and Shorcan Energy as discontinued operations. Prior to the sale, the operations of NGX and Shorcan Energy
entirely comprised of the Energy Trading and Clearing operating segment and a small portion of the Global Solutions,
Insights and Analytics operating segment.
The classification of discontinued operations occurred at December 14, 2017 which is the date of disposal of the
operations. Accordingly, TMX Group has re-presented the comparative consolidated income statements to show the
discontinued operations separately from continuing operations.
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Select Annual Information
(in millions of dollars except per share amounts)
2017
2016
2015
Revenue
$
668.9 $
683.7 $
662.7
Net income before discontinued operations
Net Income/(loss) attributable to TMX Group shareholders
191.2
368.0
180.0
196.4
(70.8)
(52.3)
Total assets (as at December 31)
Non-current liabilities (as at December 31)
25,624.8
1,433.3
22,204.1
1,547.1
17,017.4
1,536.0
Earnings per share - before discontinued operations44
Basic
Diluted
Earnings (loss) per share:45
Basic
Diluted
Adjusted earnings per share:46
Basic
Diluted
Cash dividends declared per common share
2017 compared with 2016
3.46
3.43
6.66
6.60
4.69
4.65
1.95
3.31
3.30
3.60
3.58
4.49
4.47
1.65
(1.30)
(1.30)
(0.96)
(0.96)
3.64
3.64
1.60
(See RESULTS OF OPERATIONS and LIQUIDITY AND CAPITAL RESOURCES - Year ended December 31, 2017 compared
with Year ended December 31, 2016)
2016 compared with 2015
Revenue
Revenue for 2016 was up $21.0 million compared with 2015. There were increases in all revenue categories with the
exception of Global Solutions, Insights and Analytics due to a decline in Razor Risk revenue, and Other revenue. The
decrease in Other revenue was primarily due to recognizing net foreign exchange losses on U.S. dollar and other non-
Canadian denominated net monetary assets in 2016 compared with net foreign exchange gains in 2015.
Net income/loss attributable to TMX Group Shareholders, Earnings per share and Adjusted earnings per
share
Net income attributable to TMX Group shareholders in 2016 was $196.4 million, or $3.60 per common share on a basic
basis and $3.58 per common share on a diluted basis, compared with a net loss of $52.3 million, or $0.96 per common
share on a basic and diluted basis, for 2015. In 2015, there was a net loss attributable to TMX Group shareholders driven
by non-cash impairment charges related to Capital Formation (Listings), Equity Trading and Derivatives (BOX) and other
assets of $221.7 million ($200.0 million after tax, net of NCI). In 2016, we recorded impairment charges of $8.9 million
($8.9 million after tax) relating to TMX Atrium and AgriClear. The increase in net income in 2016 over 2015 also reflected
44 Earnings per share information is based on net income attributable to TMX Group shareholders, discontinued operations include
NGX and Shorcan Energy.
45 Earnings per share information is based on net income attributable to TMX Group shareholders.
46 Adjusted earnings per share includes discontinued operations, net of gain on sale of NGX and Shorcan Energy, and is a non-IFRS
measure. See discussion under the heading "Non-IFRS Financial Measures".
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higher revenue, lower operating expenses before strategic re-alignment expenses and slightly lower strategic realignment
expenses. During 2016, we recorded a non-cash income tax adjustment relating to a change in the Quebec corporate
income tax rate of approximately $3.2 million, which reduced income tax expense whereas in 2015 we recorded a similar
non-cash income tax adjustment of approximately $7.1 million relating to a change in the Alberta corporate income tax
rate, which increased income tax expense. In addition, we incurred lower net finance costs in 2016 compared with 2015.
Adjusted diluted earnings per share increased by 23% from $3.64 in 2015 to $4.47 in 2016. The increase in adjusted
diluted earnings per share reflected higher revenue and lower operating expenses, before strategic re-alignment
expenses, excluding amortization of intangibles related to acquisitions. In addition, we incurred lower net finance costs
in 2016 compared with 2015. (See 2015 MD&A for a reconciliation of Earnings per share to Adjusted earnings per share)
Total assets
Our consolidated balance sheet as at December 31, 2016 includes outstanding balances on open REPO agreements within
Balances with Clearing Members and Participants. These balances have equal amounts included within Total Liabilities.
The increase in Total Assets of $5,184.0 million from December 31, 2015 to December 31, 2016 was largely attributable
to the significant increase in clearing of REPO agreements by CDCC in 2016 compared with 2015. Balances with Clearing
Members and Participants relating to CDCC were $14,741.3 million at December 31, 2016 compared with $10,731.9
million at December 31, 2015.
Non-current liabilities
Non-current liabilities at December 31, 2016 was essentially unchanged from December 31, 2015.
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QUARTERLY FINANCIAL INFORMATION
(in millions of dollars except per
share amounts - unaudited)
Dec 31
2017
Sept 30
2017
Jun 30
2017
Mar 31
2017
Dec 31
2016
Sept 30
2016
Jun 30
2016
Mar 31
2016
Capital Formation
$49.4
$43.0
$51.6
$44.8
$46.6
$45.9
$51.8
$38.6
Equities and Fixed
Income Trading
Equities and fixed
Income - clearing,
settlement, depository
and other services (CDS)
Derivatives Trading &
Clearing
Global Solutions,
Insights and Analytics
Other
Revenue
Operating expenses
before acquisition costs
and strategic re-
alignment expenses
Income from operations
before acquisition costs
and strategic re-
alignment expenses47
Acquisition costs
Strategic re-alignment
expenses
Income from operations48
Net income before
discontinued operations
Net income from
discontinued operations,
net of tax
Net Income (loss)
attributable to TMX
Group shareholders
Earnings per share -
before discontinued
operations49
Basic
Diluted
Earnings per share:50
Basic
Diluted
25.2
22.9
26.8
29.2
26.5
23.7
26.5
25.6
20.4
18.7
19.9
19.0
18.2
17.4
18.1
17.5
27.6
27.7
31.4
28.1
28.4
27.2
30.4
31.5
48.3
41.6
46.3
50.3
53.2
51.9
52.2
51.0
—
(2.0)
(1.0)
(0.2)
2.0
0.3
0.8
(1.4)
170.9
151.9
175.0
171.2
174.9
166.4
179.8
162.8
87.1
84.1
89.6
95.8
96.1
93.6
97.4
96.4
83.8
67.8
85.4
75.4
78.8
72.8
82.4
66.4
13.4
—
70.4
41.2
0.4
—
67.4
46.6
—
—
85.4
62.5
—
—
75.4
43.3
—
—
78.8
47.6
—
17.7
55.1
36.5
—
2.0
80.4
54.0
—
1.3
65.1
42.8
161.1
5.4
4.0
4.0
5.0
2.7
4.3
3.5
202.3
52.0
66.5
47.3
52.6
39.2
58.3
46.3
0.74
0.74
3.65
3.63
0.84
0.84
0.94
0.93
1.13
1.12
1.20
1.19
0.79
0.78
0.86
0.85
0.87
0.86
0.96
0.95
0.67
0.67
0.72
0.72
0.99
0.99
1.07
1.07
0.79
0.79
0.85
0.85
47 See discussion under the heading "Additional IFRS Financial Measures".
48 See discussion under the heading "Additional IFRS Financial Measures".
49 Earnings per share information is based on net income attributable to TMX Group shareholders, discontinued operations include
NGX and Shorcan Energy Brokers Inc.
50 Earnings per share information is based on net income attributable to TMX Group shareholders.
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Review of Fourth Quarter Results
Q4/17 compared with Q4/16
• Revenue was $170.9 million in Q4/17, down $4.8 million from Q4/16 reflecting a decrease in Global Solutions,
Insights and Analytics due to decreases in TMX Atrium (sold April 30, 2017) of $6.7 million, and Razor Risk (sold
December 31, 2016) of $1.4 million. There were also decreases in Equities and Fixed Income Trading, Derivatives
Trading and Clearing, and Other. These decreases were partially offset by increases in Capital Formation, and
CDS revenue.
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q4/17 decreased by 8.9
million from Q4/16 reflecting reduced expenses related to Razor Risk (sold December 31, 2016) and TMX Atrium
(sold April 30, 2017) of approximately $2.2 million and $8.3 million respectively. There were also lower
Compensation and benefit costs partially offset by higher occupancy and marketing spend.
• Net Income attributable to TMX Group shareholders in Q4/17 was $202.3 million or $3.46 per common share
on a basic and $3.43 on a diluted basis, compared with net income of $52.6 million, or $0.96 per common share
on a basic and $0.95 on a diluted basis in Q4/16. There was a gain on the sale of NGX and Shorcan Energy of
approximately $157.8 million after-tax and a gain on the FX forward in Q4/17.
•
•
•
In Q4/17, Cash flows from operating activities decreased compared with Q4/16 reflecting a decrease in income
from operations (excluding depreciation and amortization) net of acquisition costs.
In Q4/17, Cash flows from financing activities were higher than in Q4/16 when we used cash in financing activities.
During Q4/16, we used $350.0 million in cash when we repaid our Series C Debentures whereas in Q4/17 there
was an increase in cash following the issuance of $300.0 million in Series D Debentures. The impact of this $650.0
million increase in cash was partially offset by a net reduction in the issuance of Commercial Paper of almost
$170.0 million.
In Q4/17, there was a increase in Cash flows used in investing activities compared with Q4/16 reflecting a cash
outflow of $613.5 million related to the purchase of Trayport. In addition, there was an increase in cash outlays
for additions to premises and equipment and intangible assets. These cash outflows were partially offset by a
net sale of marketable securities in Q4/17 compared with a net purchase of marketable securities in Q4/16.
Q4/17 compared with Q3/17
• Revenue was $170.9 million in Q4/17, up $18.4 million from Q3/17 reflecting increases in almost all segments
including Trayport revenue of $4.5 million in the Global Solutions, Insights and Analytics segment.
• Operating expenses before acquisition costs and strategic re-alignment expenses were up in Q4/17 compared
with Q3/17 reflecting operating costs from Trayport, a write down of assets, higher external fees as well as
increased marketing and occupancy costs. The increases were partially offset by lower severance costs and
reduced depreciation and amortization.
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
increased from Q3/17 to Q4/17 due to higher revenue partially offset by higher operating expenses.
• Net Income attributable to TMX Group shareholders in Q4/17 was $202.3 million or $3.46 per common share
on a basic and $3.43 on a diluted basis, compared with net income of $52.0 million, or $0.94 per common share
on a basic and $0.93 on a diluted basis in Q3/17. There was a gain on the sale of NGX and Shorcan Energy of
approximately $157.8 million and a gain on the FX forward in Q4/17.
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Q3/17 compared with Q2/17
• Revenue in Q3/17 decreased over Q2/17 reflecting decreases in Capital Formation, CDS, Derivatives Trading and
Clearing, Equities and Fixed Income Trading as well as Global Solutions, Insights and Analytics revenue, including
approximately $2.3 million related to TMX Atrium (sold April 30, 2017).
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q3/17 decreased by $5.5
million from Q2/17 largely reflecting lower overall Compensation and benefits costs, reduced infrastructure
spending, lower Depreciation and amortization costs and reduced expenses of approximately $2.0 million from
TMX Atrium (sold April 30, 2017).
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
decreased from Q2/17 to Q3/17 due to the lower revenue partially offset by lower operating expenses.
• Net income attributable to TMX Group shareholders for Q3/17 was $51.9 million, or $0.94 per common share
on a basic basis and $0.93 on a diluted basis, compared with net income of $66.5 million, or $1.20 per common
share on a basic basis and $1.19 on a diluted basis, for Q2/17 reflecting significantly lower revenue partially
offset by lower operating expenses and lower net finance costs. In addition, for Q2/17, there was a $2.4 million
increase in deferred income tax assets from a capital loss carryback, which reduced income tax expense and net
income.
Q2/17 compared with Q1/17
• Revenue in Q2/17 increased over Q1/17 reflecting increases in Capital Formation, CDS, and Derivatives Trading
and Clearing revenue. This was somewhat offset by decreases in Equities and Fixed Income Trading as well as
Global Solutions, Insights and Analytics revenue, including approximately $4.5 million related to TMX Atrium
(sold April 30, 2017).
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q2/17 decreased by $6.2
million from Q1/17 largely reflecting lower expenses of approximately $5.5 million from TMX Atrium (sold April
30, 2017).
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
increased from Q1/17 to Q2/17 reflecting both higher revenue and lower operating expenses.
• Net income attributable to TMX Group shareholders for Q2/17 was $66.5 million, or $1.19 per common share
on a diluted basis, compared with net income of $47.3 million, or $0.85 per common share on a diluted basis,
for Q1/17 reflecting higher revenue, lower operating expenses, lower net finance costs and a $2.4 million increase
in deferred income tax assets from a capital loss carryback In addition, during Q1/17, net income was reduced
by a non-cash income tax adjustment of $2.9 million relating to the write off of deferred income tax assets and
a non-cash impairment charge of $4.8 million, both amounts related to TMX Atrium.
Q1/17 compared with Q4/16
• Revenue in Q1/17 decreased over Q4/16 reflecting decreases in Capital Formation and Global Solutions, Insights
and Analytics revenue, including $1.4 million related to Razor Risk in Q4/16. This is somewhat offset by an
increase in Equities and Fixed Income Trading revenue.
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q1/17 were essentially
unchanged from Q4/16 reflecting increased Compensation and benefits expenses, offset by lower Depreciation
and Amortization. The increase in Compensation and benefits expenses reflected higher payroll taxes in Q1/17
compared with Q4/16, partially offset by lower Razor Risk expenses (sold December 31, 2016). Both Information
and trading systems costs as well as Selling, general and administration expenses remained essentially flat.
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
decreased from Q4/16 to Q1/17 reflecting the lower revenue.
• Net income attributable to TMX Group shareholders for Q1/17 was $47.3 million, or $0.85 per common share
on a diluted basis, compared with net income of $52.6 million, or $0.95 per common share on a basic and diluted
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basis, for Q4/16 reflecting the lower revenue, impairment charges related to TMX Atrium, and the write off of
deferred income tax assets related to businesses being sold.
Q4/16 compared with Q3/16
• Revenue in Q4/16 increased over Q3/16 reflecting increases in Equities and Fixed Income Trading, CDS,
Derivatives Trading and Clearing, as well as in Capital Formation, Global Solutions, Insights and Analytics and
Other revenue.
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q4/16 increased by 3%
compared with Q3/16 reflecting an increase in Selling, general and administration expenses including commodity
taxes and external fees, mainly related to clearing house platform consolidation, offset by lower occupancy costs.
The increase was partially offset by a sequential decline in Information and trading systems expenses as we
wrote-off of $2.8 million in costs related to discontinued products in Q3/16. Compensation and benefits costs
declined slightly as lower costs from reduced headcount were partially offset by other Compensation and benefits
expenses including those related to higher long -term employee performance incentive plan costs.
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
increased from Q3/16 to Q4/16 reflecting the higher revenue somewhat offset by slightly higher operating
expenses before strategic re-alignment expenses. Income from operations was higher in Q4/16 compared with
Q3/16 due to the increase in revenue and significant decrease in strategic re-alignment expenses including
severance costs related to the initiative we announced in September 2016.
• Net income attributable to TMX Group shareholders for Q4/16 was $52.6 million, or $0.95 per common share
on a diluted basis, compared with net income of $39.2 million, or $0.72 per common share on a basic and diluted
basis, for Q3/16 reflecting the higher revenue and significantly lower strategic re-alignment expenses.
Q3/16 compared with Q2/16
• Revenue in Q3/16 decreased over Q2/16 reflecting lower revenue from Derivatives Trading and Clearing,
following the de-consolidation of revenue from BOX effective July 1, 2016. The net reduction in Derivatives
Trading and Clearing revenue related to BOX from Q2/16 to Q3/16 was $2.7 million. There was also a reduction
in Capital Formation as well as in Equities and Fixed Income Trading and CDS revenue reflecting less active equity
market conditions compared with Q2/16. Global Solutions, Insights and Analytics revenue also declined from
Q2/16 to Q3/16.
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q3/16 decreased by 4%
compared with Q2/16 reflecting the exclusion of operating expenses related to BOX when we ceased to
consolidate BOX's results from operations and reduction in costs attributable to overall lower headcount. There
were also reduced commodity tax and marketing expenses in Q3/16 compared with Q2/16. These decreases in
expenses were somewhat offset by higher employee performance incentive plan costs and higher overall
Information and trading systems expenses partially attributable to the write-off of $2.8 million in costs related
to discontinued products.
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
decreased from Q2/16 to Q3/16 reflecting the lower revenue somewhat offset by lower operating expenses
before strategic realignment expenses. Income from operations was significantly lower in Q3/16 compared with
Q2/16 due to the increase in strategic re-alignment expenses including severance costs related to the initiative
we announced in September 2016.
• Net income attributable to TMX Group shareholders for Q3/16 was $39.2 million, or 72 cents per common share
on a basic and diluted basis, compared with net income of $58.3 million, or $1.07 per common share on a basic
and diluted basis, for Q2/16 reflecting the lower revenue and higher strategic re-alignment expenses.
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Q2/16 compared with Q1/16
• Revenue in Q2/16 increased over Q1/16 reflecting higher revenue from Capital Formation (largely additional
listing fees), Global Solutions, Insights and Analytics, Equities and Fixed Income Trading and CDS, as well as Other
revenue, somewhat offset by a decline in Derivatives revenue. The increase in Other revenue was primarily due
to recognizing lower net foreign exchange losses on U.S. dollar and other non-Canadian denominated net
monetary assets in Q2/16 compared with Q1/16.
• Operating expenses before acquisition costs and strategic re-alignment expenses for Q2/16 were essentially
unchanged compared with Q1/16. Higher employee performance incentive plan costs and increased selling,
general and administration costs, including higher marketing costs, essentially offset lower compensation and
benefits costs related to reduced payroll taxes and a higher capitalization of labour costs in Q2/16 compared
with Q1/16.
•
Income from operations before acquisition costs and strategic re-alignment expenses and Income from operations
increased from Q1/16 to Q2/16 reflecting the higher revenue.
• Net income attributable to TMX Group shareholders for Q2/16 was $58.3 million, or $1.07 per common share
on a basic and diluted basis, compared with net income of $46.3 million, or 85 cents per common share on a
basic and diluted basis, for Q1/16 reflecting the higher revenue.
ENTERPRISE RISK MANAGEMENT
TMX Group's operating subsidiaries provide essential services to the Canadian capital and global commodity markets and
effectively managing risk is fundamental to our ability to provide products and services to our clients. In providing the
products and services to our clients, we undertake activities that expose us to various risks. The objective of enterprise
risk management (ERM) is to ensure that the outcomes of these risk-taking activities across the enterprise are transparent
and understood, materially consistent with our objectives and risk appetite, and appropriately balance risk and reward.
We have identified a number of principles which guide our management of risks. These include the following:
• We promote and maintain an enterprise-wide ethical culture that values the importance of effective risk
management in day-to-day business activities and decision making, and encourages frank and open
communication.
• Our business units and corporate functions (first line of defence) own all risks assumed in their activities and
are accountable for the effective management of those risks, supported by the risk management (second
line of defence) and internal audit (third line of defence) divisions. We adequately define responsibilities and
levels of authority for risk-taking across the enterprise.
• We employ effective and consistent risk management processes across the enterprise to ensure risks are
transparent and remain within our approved risk appetite.
• We employ sufficient resources and effective tools, methods, models and technology to support risk
management processes.
• Our ERM reflects industry standards, legal and regulatory requirements and is regularly reassessed.
Risks and Uncertainties
The Risk Management Committee (RMC), a management committee of TMX Group, has established a list of Key Enterprise
Risks (KERs) that it believes are the most significant risks that TMX Group is exposed to. The RMC undertakes a formal
review of these KERs at least annually by evaluating the impact and likelihood of each risk after taking into account known
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mitigations and established internal controls. These KERs are evaluated against TMX Group's risk appetite. The RMC also
discusses any new or emerging risks that should be considered. These KERs are grouped under one of the risk categories
of strategic, financial, operational as well as legal and regulatory.
The risks and uncertainties described below are not the only ones facing TMX Group. Additional risks and uncertainties
not presently known to us or that we currently believe are immaterial may also adversely affect our business. If any of the
following risks actually occur, our reputation, business, financial condition, or operating results could be materially
adversely affected.
Strategic Risks
Competition Risk
We are exposed to the risk that established and new competitors (including disruptive technology providers) will challenge
our business model and objectives.
Our Capital Formation business competes with other exchanges and other financing platforms
We compete for listings with North American exchanges in a broad range of sectors and also internationally, particularly
for resource companies and SMEs. We also face competition from North American and international exchanges for
Canadian listings. Domestically, we currently compete for listings with three other exchanges.
While some Canadian issuers seek a listing on another major North American or international exchange, historically, the
vast majority of these issuers also list on TSX or TSXV and do not bypass our markets. We also compete with institutions
and various market participants that offer alternative forms of financing including private equity, venture capital and various
forms of debt financing.
In addition, crowdfunding, a new way for start-ups and SMEs to raise capital through small amounts of money raised from
a large number of investors over the internet via an internet portal intermediary, is emerging. Similarly, Initial Coin Offerings
(ICOs) are emerging as an alternative way to raise capital via a tokenized form of asset or currency.
Toronto Stock Exchange, TSX Venture Exchange and TSX Alpha Exchange face competition from other
exchanges, other marketplaces and trading mechanisms
We face competition for business from other exchanges, especially those in the U.S. as they continue to consolidate and
investing becomes more global. In particular, these competitors could look to attract Canadian issuers that are listed on
one of our exchanges. For example, one of our U.S.-based competitors has acquired a Canadian ATS that has the second
largest market share in Canadian equities trading and has since commenced the process towards obtaining exchange status
to enable it to compete for listings in Canada. It is possible that this competitor could, in addition to competing for listing
and trading of Canadian issuers, enter into other business areas in which we currently operate including the trading of
other asset classes or areas under our Capital Formation, Derivatives or Global Solutions, Insights and Analytics segments.
In addition, the variety of other marketplaces and trading venues in the U.S. that trade Canadian securities, including dark
markets and internalization facilities, places increasing competitive pressure on our business. For example, some market
participants in the U.S., known as wholesalers, are currently able to pay our customers for order flow under U.S. securities
laws and regulations. This practice is not permitted in Canada, and therefore puts us at a competitive disadvantage. IIROC
published guidance and a technical notice to clarify the requirements for investment dealers when orders in Canadian-
listed securities are executed away from Canadian markets, an important step in IIROC’s approach to addressing concerns
about the routing of orders to the U.S. If we are unable to continue to provide competitive trade execution, the volume
traded in all interlisted issuers on our equity exchanges could decrease in the future and adversely affect our operating
results. Our combined market share (including TSX, TSXV, and Alpha) of the total volume traded in Canadian based
interlisted issues was approximately 30% in 2017, compared with approximately 32% in 2016. Our cash equities sales
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TMX Group Limited
team is focused on attracting more foreign participants and order flow by raising the level of awareness of the benefits of
trading on TSX, TSXV and Alpha.
Domestic competition in our cash equities trading business has intensified with the establishment of ATSs in Canada.
Technological advances have lowered barriers to entry and have created a multiple marketplace environment for trading
TSX and TSXV listed securities. There are currently 14 Canadian equity marketplaces which trade TSX and/or TSXV listed
securities, including dark and visible trading venues. There are also sophisticated mechanisms to internalize order flow,
liquidity aggregators and smart order routers that facilitate trading on other venues. New market entrants have fragmented
domestic equities market share and we continue to face significant competitive pressure from existing venues, and potential
new entrants. Excluding intentional crosses, in the issues we trade, our combined domestic equities trading market share
was 69%51 in 2017, down from 71% in 2016. Excluding intentional crosses, in all listed issues in Canada, our combined
domestic equities trading market share was 63% in the year ended December 31, 2017, down from 69% in the year ended
December 31, 2016.
These trading venues may, among other things, respond more quickly to competitive pressures, develop similar or
alternative products and services to those that TSX, TSXV and Alpha offer that are preferred by customers, develop and
expand their network infrastructures and offerings more efficiently, adapt more swiftly to new or emerging technologies
and changes in customer requirements, and adopt better, more user friendly and reliable technology. If these trading
venues attract significant order flow, or other market structure changes occur in the marketplace which negatively impacts
our ability to effectively compete, our listing, trading and data and analytics revenue could be materially adversely affected.
There is also intense price competition in the cash equities markets where competitors may price their trading and data
products more competitively. While we have developed a pricing mix to attract greater liquidity to our markets, the
competitive environment in which we operate places significant pricing pressures on our trading and market data offerings.
Some competitors may seek to increase their share of trading by reducing their transaction fees, by offering larger liquidity
payments, by also offering inverted pricing or by offering other forms of financial or other incentives. We have in the past
lowered our equity trading fees and we may, in the future, be required to adjust our pricing to respond to competitive
pricing pressure. If we are unable to compete successfully with respect to the pricing of our offerings, our business, financial
condition and results of operations could be materially adversely affected.
MX and CDCC face competition from other venues
While MX is the only financial derivatives exchange offering standardized products and CDCC the only clearing house
headquartered in Canada, their various component activities are exposed. MX already competes with, among others,
options and other derivatives exchanges as well as the OTC market. This competition exists particularly in the US, but
also in Europe and Asia. For example, in the U.S., MX competes for market share of trading single stock options on
Canadian-based inter-listings, or dual listings. However, options traded in the U.S. are not fungible with those traded in
Canada. In addition, OTC regulatory reform that is underway in Canada could encourage the entry of new competition
within the Canadian clearing space. OTC inter-dealer and dealer-to-client trading platforms represent increased
competitive risk to MX with their lookalike and substitute products. We may, in the future, also face competition from
other Canadian marketplaces. These competitors may, among other things, respond more quickly to competitive
pressures, develop similar products to those MX offers that are preferred by customers or they may develop alternative
competitive products. Furthermore, they may price their products more competitively, develop and expand their
network infrastructures and offerings more efficiently, adapt more swiftly to new or emerging technologies and
changes in customer requirements and use better, more user friendly and reliable technology. Increased competition
could lead to reduced interest in MX’s products which could materially adversely affect our business and operating
results.
The Canadian clearing services market may become more competitive as some competitors receive exemption orders
from regulators to operate as clearing agencies. For example, in 2013, Canada's central bank designated SwapClear, a
51 Source: IIROC
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global system for clearing over-the-counter interest rate swaps, as subject to its regulatory oversight, citing the
potential to pose systemic risk to the Canadian financial system. SwapClear is operated by LCH, a U.K.-based company
that operates several central counter-party services.
Increasing regulatory requirements imposed upon banks through higher capital requirements imposed under the Basel
regulatory framework, which increase the costs of acting as a futures clearing agent on behalf of end customers may
make clearing services more challenging for end customers to obtain, which could limit growth in the futures clearing
business. Other major competitors may gain some of this business as they have started to offer clearing services
directly to end customers, eliminating challenges end customers may face in obtaining clearing agent services from
banks.
The derivatives trading industry is characterized by intense price competition. While our derivatives markets have
developed a pricing mix to attract greater liquidity to these markets while maintaining our average price per contract,
market conditions may result in increased competition which, in turn, may place significant pricing pressures in the
future. Some competitors may seek to increase their share of trading by reducing their transaction fees, by offering
larger liquidity payments or by offering other forms of financial or other incentives. Our business, financial condition
and results of operations could be materially adversely affected as a result of these developments.
Shorcan faces competition from OTC markets and other sources
Shorcan has several competitors in the fixed income IDB market. If Shorcan fails to attract institutional dealer order flow
from this market, it would adversely affect its operating results.
Global Solutions, Insights & Analytics
With the advent of a multi-marketplace environment in Canada, we face competition in market data and analytics, from
other trading venues and vendors. Market data is generated from trading activity and the success of certain data products
is linked to maintaining order flow.
Economic Risk
We are exposed to the risk that the macroeconomic and industry conditions (among others, the commodity cycle and
economic growth) will challenge our business model and objectives.
We depend on the economy of Canada
Our financial results are, and continue to be affected by the Canadian economy, including by commodity prices in the
resource sector, and especially fluctuations in the price for crude oil. Any prolonged economic downturn could have a
significant negative impact on our business. If the profit growth of Canadian-based companies is generally lower than the
profit growth of companies based in other countries, the markets on which those other issuers are listed may be more
attractive to investors than our equity exchanges. A prolonged economic downturn may also have a negative impact on
investment performance, which could materially adversely affect the number of issuers and new listed issuers, the market
capitalization of our listed issuers, additional securities being listed or reserved, trading volumes across our markets, the
number of transactions related to our equity and fixed income clearing and settlement, depository, custodial and
entitlement services and market data sales.
Our operating results may be adversely impacted by global economic conditions
The economic and market conditions in Canada, the United States, Europe, China and the rest of the world impact the
different aspects of our business and our revenue drivers. In particular, lower commodity prices, including fluctuations in
the price for crude oil, can, and has, negatively impacted our business. Changes in the economic and political climate in
the United States, including potential changes relating to NAFTA, could impact our business. In addition, increased
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uncertainty in Europe, including the impact of Brexit and the possibility of sovereign defaults on debt, can also impact our
business. Because listing, financing, trading and clearing activities are significantly affected by economic, political and
market conditions and the overall level of investor confidence, they impact the level of listing activity (including IPOs), the
market capitalization of our issuers, trading volumes and sales of data across our markets. In addition, our clearing
customers face higher credit costs associated with complying with margining regimes which could result in lower volumes.
Global market and economic conditions have fluctuated in recent years and we have witnessed both high and low levels
of volatility. While higher volatility in markets can generate increased transaction volume, prolonged negative economic
conditions can adversely affect trading volumes and the demand for market data and can lead to slower collections of
accounts receivable as well as increased counterparty risk which, in turn, could adversely affect our business, financial
condition, and operating results. In addition, a low-volatility environment can result in lower levels of trading, particularly
for derivative products.
We depend on market activity that is outside of our control
Our revenue is highly dependent upon the level of activity on our exchanges and clearing houses, including: the volume
of securities traded on our cash markets; the number of transactions, volume of contracts or products traded and cleared
on our derivatives markets; the number and market capitalization of listed issuers; the number of new listings; the number
of active traders and brokerage firms; the number of transactions related to our equity and fixed income clearing and
settlement, depository services; and the number of subscribers to market data.
We do not have direct control over these variables. Among other things, these variables depend upon the relative
attractiveness of securities listed and traded on our exchanges and the relative attractiveness of our exchanges as a place
to list and trade those securities as compared to other exchanges and other trading mechanisms. Those variables are in
turn influenced by:
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the overall economic conditions and monetary policies in Canada, the United States, Europe, and in the world in
general (especially growth levels, political stability and debt crisis);
broad trends in business and corporate finance, including trends in the exchange industry, capital market trends
and the mergers and acquisitions environment;
the condition of the resource sector;
the level and volatility of interest rates and resulting attractiveness of alternative asset classes;
the regulatory environment for investment in securities, including the regulation of marketplaces and other
market participants, both in Canada and other jurisdictions;
the relative activity and performance of global capital markets;
investor confidence in the prospects and integrity of our listed issuers, and the prospects of Canadian-based listed
issuers in general;
pricing volatility of global commodities and energy markets; and
changes in tax legislation that would impact the relative attractiveness of certain types of securities, or listing in
certain countries.
We may be able to indirectly influence the volume of trading by providing efficient, reliable and low-cost trading; maximizing
the availability of timely, reliable information upon which research, advice and investment decisions can be based; and
maximizing the ease of access to listings and trading facilities. However, those activities may not have a positive effect on
or effectively counteract the factors that are outside of our control.
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Strategic Planning Risk
We are exposed to the risk that poorly planned strategy and change initiatives reduce the probability of successful
organizational transformation.
Our strategic planning processes may not enable us to identify and properly respond to opportunities or
threats resulting in our inability to develop new products and services that meet clients’ evolving needs
Our strategic planning process includes a thorough analysis of the environment in which we operate as well as significant
peer and competitive analysis. It is possible that we may not identify or respond to opportunities or threats in our industry
despite the investment of time and resources in this process.
Execution Risk
We are exposed to the risk that we lack capabilities or fail to prioritize initiatives to deliver against our strategy and objectives
in an efficient and effective manner.
We may not be successful in executing our strategy
We invest significant resources in the development and execution of our corporate strategy to grow profitability and
maximize shareholder value. We may not succeed in executing our strategies effectively because of, among other things,
increased global competition, inability to mobilize or co-ordinate internal resources on a timely basis, difficulty developing
and introducing products or regulatory restrictions. In addition, we may have difficulty obtaining financing for new business
opportunities, due to financial restrictions that currently or may in the future be placed on TMX Group under our
Commercial Paper Program, Debentures, Credit Facility, Recognition Orders and under our regulatory oversight
agreements. Any of these factors could materially adversely affect the success of our strategies.
New business activities may adversely affect income
We may enter new business activities which, while they could provide opportunities for us, may also impose restrictions
on us and/or have an adverse effect on our existing profitability. While we would expect to realize new revenue from these
new activities, there is a risk that this new revenue would not be greater than the associated costs or any related decline
in existing revenue sources.
Expansion of our operations internationally involves unique challenges that we may not be able to meet
We continue to expand our operations internationally, including making acquisitions such as Trayport, opening offices and
acquiring distribution, technology and other systems in foreign jurisdictions, obtaining regulatory authorizations or
exemptions to allow remote access to our markets by approved participants outside Canada. We expect that the expansion
of access to our electronic markets will continue to increase the portion of our business that is generated from outside
Canada. We face certain risks inherent in doing business in international markets, particularly in the regulated exchange
and clearing businesses. These risks include:
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restrictions on the use of trading terminals or the contracts that may be traded;
reduced protection for intellectual property rights;
difficulties in staffing and managing foreign operations;
potentially adverse tax consequences;
enforcing agreements and collecting receivables through certain foreign legal systems; and
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foreign currency fluctuations for international business.
We would be required to comply with the laws and regulations of foreign governmental and regulatory authorities of each
country in which we obtain authorizations or exemptions for remote access to our markets. These may include laws, rules
and regulations relating to any aspect of the business. In many cases, the additional costs related to compliance can be
substantial, and could outweigh the potential benefits. International expansion may expose TMX Group to geographic
regions that may be subject to greater political, economic and social uncertainties than countries with developed
economies.
Any of these factors could have a material adverse effect on the success of our plans to grow our international presence
and market products and services and consequently on our business, financial condition and results of operations.
Commercial Risk
We are exposed to the risk that we fail to promote and sell our products and services effectively resulting in loss of revenue.
Our exchanges depend on the development, marketing and acceptance of new products and services
We are dependent to a great extent on developing and introducing new investment, trading and clearing products and
services and their acceptance by the investment community. While we continue to review and develop new products and
services that respond to the needs of the marketplace, we may not continue to develop successful new products and
services or we may not effectively promote and sell our products and services. Our current offerings may become outdated
or lose market favour before we can develop adequate enhancements or replacements. Other exchanges, ATSs or ECNs
may introduce new products or services or enhancements that make our offerings less attractive. Even if we develop an
attractive new product, we could lose trading activity to another marketplace that introduces a similar or identical offering
which offers greater liquidity or lower cost. We also may not receive regulatory approval (in a timely manner or at all) for
our new offerings. Any of these events could materially adversely affect our business, financial condition and operating
results.
Integration/Divestitures Risk
We are exposed to the risk that we fail to integrate acquisitions to achieve the planned economics or divest under-
performing businesses effectively.
We face risks associated with integrating the operations, systems, and personnel of acquisitions
As part of our strategy to sustain growth, we have and expect to continue to pursue appropriate acquisitions of other
companies and technologies. An acquisition will only be successful if we can integrate the acquired businesses’ operations,
products and personnel; retain key personnel; and expand our financial and management controls and our reporting
systems and procedures to accommodate the acquired businesses. It is possible that integrating an acquisition could result
in less management time being devoted to other parts of our core business. In addition, pursuant to the Final Recognition
Orders52, prior regulatory approval is required before TMX Group can implement significant integration, combination or
reorganization of businesses, operations or corporate functions among TMX Group entities. The requirement to obtain
these approvals may restrict or delay TMX Group’s ability to make planned changes to these aspects of its operations in
the future which could have a material adverse effect on TMX Group’s business, financial condition and results of operations.
If an investment, acquisition or other transaction does not fulfill expectations, we may have to write down its value in the
future and/or sell at a loss.
52 Recognition orders issued by the securities regulators with respect to the Maple Transaction.
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We face risks associated with not being able to divest under-performing businesses
Similar to integration risks, we also face the risks of not divesting under-performing businesses in a timely and effective
manner to enable better utilization of our capital and other resources.
Operational Risks
Technology Risk
We are exposed to the risk that our technology and underlying IT processes do not enable us to develop and/or deliver
our products and services effectively.
We depend heavily on information technology, which could fail or be subject to disruptions
We are extremely dependent on our information technology systems. Trading and data on our cash equities markets,
trading and clearing on our derivatives and energy markets and clearing, settlement and depository activity for equities
and fixed income securities are conducted exclusively on an electronic basis. SOLA, the MX proprietary trading system, is
currently in use at BOX and other venues. In addition, we provide the technical operations services related to BOX’s trading
and surveillance platforms.
We have incident and disaster recovery and contingency plans as well as back-up procedures to mitigate the risk of an
interruption, failure or disruption, including those due to cyber attacks on our critical information technology including
that of TSX, TSXV, Alpha, MX, CDCC and CDS. We also test and exercise our disaster recovery plans. However, depending
on an actual failure or disruption, those plans may not be adequate as it is difficult to foresee every possible scenario and
therefore we cannot entirely eliminate the risk of a system failure or interruption. We have experienced occasional
information technology failures and delays in the past, and we could experience future information technology failures,
delays or other interruptions.
The current technological architecture for our cash equities,, derivatives trading and clearing, and market data information
technology systems may not effectively or efficiently support our changing business requirements.
We are continually improving our information technology systems so that we can handle increases and changes in our
trading, clearing, settlement and depository activities and market data volumes to respond to customer demand for
improved performance. This requires ongoing expenditures which may require us to expend significant amounts of
resources in the future. System changes may introduce risk; while we have and follow, standard deployment processes for
managing and testing these changes, we cannot entirely eliminate the risk of a system failure or interruption.
If the TMX Quantum XA trading enterprise, the SOLA derivatives trading enterprise, the SOLA Clearing platform, or CDS's
CDSX system fail to perform in accordance with expectations, our business, financial condition and operating results may
be materially adversely affected.
Information Security
We are exposed to the risk that information security breaches will adversely affect the operations, intellectual property
and reputation of TMX Group.
Our networks and those of our third-party service providers may be vulnerable to security risks, including
cyber attack
Our networks and those of our third-party service providers, our POs and approved participants and our customers may
be vulnerable to cyber risks, including unauthorized access, computer viruses, denial of service attacks, and other security
issues. Persons who circumvent security measures could wrongfully use our information or cause interruptions or
malfunctions in our operations which could damage the integrity of our markets and data provision, any of which could
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have a material adverse effect on our business, financial condition and results of operations. We may be required to expend
significant resources to protect against the threat of security breaches or to alleviate problems, including reputational
harm and litigation, caused by any breaches. Although we intend to continue to implement industry-standard security
measures, these measures may prove to be inadequate and result in system failures and delays that could lower trading
volume and have a material adverse effect on our business, financial condition and results of operations.
Geopolitical & External Disruption Risks
We are exposed to the risks that geopolitical upheavals (e.g. a terrorist attack) or non-political external events (e.g. extreme
weather) will affect the provision of our critical services.
Geopolitical, climate change and other factors could interrupt our critical business functions
The continuity of our critical business functions could be interrupted by geopolitical upheaval, including terrorist, criminal
and political, or by other types of external disruptions, including human error, climate change, natural disasters, extreme
weather, power loss, telecommunication failures, theft, sabotage and vandalism. Given our position in the Canadian capital
markets, we may be more likely than other companies to be a target of such activities.
We have a series of integrated disaster recovery and business continuity plans for critical business functions to mitigate
the risk of an interruption. We currently maintain duplicate facilities to provide redundancy and back-up to reduce the
risk and recovery time of system disruptions for key systems. However, not all systems are duplicated, and any major
disruption may affect our existing and back-up facilities. Any interruption in our key services could impair our reputation,
damage our brand name, and negatively impact our financial condition and operating results.
Talent Management Risk
We are exposed to the risk that we are unable to attract and/or retain talented employees, which adversely affects the
achievement of our objectives.
We need to retain and attract qualified personnel
Our success depends to a significant extent upon the continued employment and performance of a number of key
management personnel whose compensation is partially tied to vested share options and long-term incentive plans that
mature over time. The value of this compensation is dependent upon total shareholder return performance factors, which
includes appreciation in our share price. The loss of the services of key personnel could materially adversely affect our
business and operating results. We also believe that our future success will depend in large part on our ability to attract
and retain highly skilled technical, managerial and marketing personnel. There can be no assurance that we will be successful
in retaining and attracting the personnel we require.
Critical Infrastructure Risk
We are exposed to the risk that we fail to manage our trading, clearing and settlement infrastructure effectively, thereby
exposing ourselves to systemic failure.
Our trading, clearing and depository businesses could be exposed to loss due to operational failures
If our systems are significantly compromised or disrupted or if we suffer repeated failures, this could interrupt our cash
equities trading services, MX’s trading and CDCC’s clearing services, CDS’ clearing, settlement and depository services, as
well as the services we provide to BOX; cause delays in settlement; cause us to lose data; corrupt our trading and clearing
operations, data and records; or disrupt our business operations, including BOX’s operations. This could undermine
confidence in our exchanges and clearinghouses, materially adversely affect our reputation or operating results, and may
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lead to customer claims, litigation and regulatory sanctions. Failure of CDS’ systems could also affect other systemically
important financial infrastructures such as the Large Value Transfer System operated by Payments Canada.
CDS holds securities on behalf of its participants in safe keeping. A small portion of this securities inventory is held in
physical form. This risk is mitigated through layers of physical security arrangements as well as insurance coverage. However,
CDS may be exposed to the risk of the loss or theft of these securities.
The operational processes at CDS and CDCC which provide clearing and central-counterparty services, are subject to the
risk of failure for which they may be held liable. These process failures may result in material financial losses. To mitigate
this risk, CDS and CDCC have instituted a comprehensive set of internal controls, which are audited by an external party
on at least an annual basis. CDS and CDCC are the sole clearers for the transactions they process.
Operations Risk relating to Transfer Agent and Corporate Trust Services Business
Our transfer agent and corporate trust services business could be exposed to losses due to operational
risks
The principal risks associated with the services and products offered by TSX Trust are operational in nature as TSX Trust
does not lend money or trade in marketable securities. The most significant operational risks include securities issuance
and transfers, corporate actions processing, disbursements, escrows, corporate trust and segregated accounts
reconciliation activities. To mitigate these risks, the management has instituted a comprehensive set of internal controls,
which are audited by an external party on at least an annual basis.
Model Risk
We are exposed to the risk that our clearing and settlement risk models are not designed or operating effectively, thereby
exposing us to systemic failure.
We are dependent on the accuracy and effective implementation of risk models
CDS and CDCC use financial models to estimate risk exposures and the value of margin and collateral to mitigate those
exposures. These models are subject to risks including the incorrect use of variables input into the models, the
misspecification of the model or errors in the implementation and/or use of models and their results which could result
in the risks resulting from a clearing member failure being inadequately collaterialized. The model risks are mitigated
through model testing prior to implementation and ongoing internal controls to regularly assess the adequacy of the
models. In addition, our clearinghouse risk models are subject to independent third-party vetting and validation thereby
ensuring that those models continue to perform as they were originally designed to do. Failure of the models may result
in under or over estimation of financial risk exposures and may create systemic risks.
Third Party Risk
We are exposed to the risk that the use of third party vendors or outsourcing service providers for technology and/or
business processes will result in loss of critical business data and/or compromise controls.
We depend on third-party suppliers and service providers
We depend on a number of third parties, such as IIROC, data processors, software and hardware suppliers, communication
and network suppliers, suppliers of electricity, and many other vendors, for elements of our businesses including trading,
clearing, routing, providing market data and other products and services. These third parties may not be able to provide
their services without interruption, or in an efficient, cost-effective manner. In addition, we may not be able to renew our
agreements with these third parties on favourable terms or at all. These third parties also may not be able to adequately
expand their services to meet our needs. If a third party suffers an interruption in or stops providing services and we cannot
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make suitable alternative arrangements, or if we fail to renew certain of our agreements on favourable terms or at all, our
business, financial condition or operating results could be materially adversely affected.
Client Concentration Risk
We depend on an adequate number of clients
If we determine that there is not a fair market, the markets will be shut down. There will not be a fair market if too few
POs, or approved participants are able to access our cash equity or derivatives exchanges, including market data information
generated from these exchanges. If trading on our exchanges is interrupted or ceases, it could materially adversely affect
our equity, derivatives or energy operations, our financial condition and our operating results.
Our trading and clearing operations depend primarily on a small number of clients
During 2017, approximately 73% of our trading and related revenue, net of rebates, on TSX and approximately 65% of our
trading and related revenue on TSXV were accounted for by the top ten POs on each exchange based on volumes traded.
Approximately 58% of CDS’s revenue, net of rebates, in 2017 was accounted for by the top ten customers (excluding
securities regulators).
Approximately 61% of MX and CDCC’s trading and clearing revenue, net of rebates, in 2017 was accounted for by the top
ten participants based on volume of contracts traded.
If there was a significant decrease in revenue from several of these customers, there would be a negative impact on our
business.
Legal & Regulatory Risk
Regulatory Climate & Compliance
We are exposed to the risks that are associated with the complexity and unpredictability of our legal and regulatory
environment, including legislation and regulations that impact our listed issuers. Our response to regulatory requirements
could result in higher operating costs. Moreover, we are also exposed to the risk that we fail to comply with laws and
regulations, resulting in financial and reputational loss.
Cost of Regulation
We incur costs to comply with the regulatory requirements that are imposed pursuant to the Recognition Orders.
For more information on the regulatory impact on our business, please see the TMX Group Annual Information Form,
dated March 30, 2017.
We operate in a highly regulated industry and are subject to extensive regulation and could be subject to
increased regulatory scrutiny in the future
We are subject to significant regulatory constraints. We operate in a highly regulated industry and are subject to extensive
government regulation and we could be subject to increased regulatory scrutiny in the future. Regulators in Canada, as
well as regulators in other jurisdictions where we do business, such as the U.S., regulate us, our exchanges, our clearing
houses and certain of our other businesses. Regulators in other jurisdictions may regulate our future operations. Canadian
regulators propose changes, including amendments to National Instruments, on an ongoing basis.
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In Canada, our exchanges are regulated by certain provincial securities regulators. In addition, MX is recognized as an SRO
in Québec. Shorcan is a registrant under the “exempt market dealer” category and has been approved by Investment
Industry Regulatory Organization of Canada (IIROC) to act as an inter-dealer broker. TSX Trust has been granted the requisite
trust licenses by the Office of the Superintendent of Financial Institutions (OSFI) and the provinces. Our clearing agencies
are regulated by certain provincial securities regulators and CDS and CDCC are also subject to regulation and oversight by
the Bank of Canada (BOC).
In the U.S., MX carries on certain activities as a Foreign Board of Trade (FBOT) in compliance with an Order of Registration
issued by the Commodity Futures Trading Commission (CFTC). CDCC is subject to regulatory requirements of the SEC and
various U.S. state securities regulators. Shorcan is registered as an introducing broker with the National Futures Association,
which enforces CFTC reporting requirements for its members under the U.S. Commodity Exchange Act.
Outside the U.S. and Canada, MX is recognized as a foreign market in France and can undertake certain activities in Israel
subject to the conditions listed in a no-action letter issued by the Israel Securities Authority. TSX Inc. has a representative
office in China for TSX and TSXV, which is subject to regulation by the China Securities Regulatory Commission. CDCC has
been recognized by the European Securities and Markets Authority as a foreign clearing house under European Market
Infrastructure Regulation.
Our regulators have broad powers over the entities they regulate to audit, investigate and enforce compliance with
applicable regulations and impose sanctions for non-compliance. The Canadian Derivatives Clearing Service (CDCS),
operated by CDCC, and CDSX, operated by CDS Clearing, have each been designated by the BOC as being of systemic
importance under the Payment Clearing and Settlement Act (Canada). Under such designation, the BOC has broad powers
relating to the regulation and oversight of CDS Clearing and CDCC.
Our regulators are vested with broad powers to prohibit us from engaging in certain business activities and to suspend or
revoke existing approval to engage in certain business activities, including exchange, clearing agency and SRO related
activities. In the case of actual or alleged non-compliance with legal or regulatory requirements, our regulated entities
could be subject to investigations and administrative or judicial proceedings that may result in substantial penalties,
including the suspension or revocation of approval to act as an exchange, clearing agency or SRO, as applicable. Any such
investigation or proceeding, whether successful or not, would result in substantial costs and diversions of resources and
might also harm our reputation, any of which may have a material adverse effect on our business, financial condition and
results of operations.
The regulation of our businesses may impose barriers or constraints which limit our ability to build an efficient, competitive
organization and may also limit our ability to expand global operations. Securities and other regulators also impose financial
and corporate governance restrictions on us and our equity and derivatives exchanges and clearing agencies and operations.
Some of our regulators must approve or review our regulated entities’ listing rules, trading rules, clearing, settlement and
depository rules, fee structures and features and operations of, or changes to, our systems. These approvals or reviews
may increase our costs and delay our plans for implementation. There could also be regulatory changes that impact our
customers and that could materially adversely affect our business and results of operations.
We could be subject to increased regulatory scrutiny in the future. The multi-market environment in Canada and the impact
of global economic conditions continue to lead to more aggressive regulation of our businesses by securities and other
regulatory agencies in Canada, the U.S. and abroad and could extend to areas of our businesses that to date have not been
regulated.
There may be a conflict of interest, real or perceived, between our regulatory responsibilities and our own business
activities. While we have implemented stringent governance measures and have and will continue to put into place policies
and procedures to manage such conflicts, any failure to diligently and fairly manage such conflicts may significantly harm
our reputation, prompt regulatory action and could materially adversely affect our business, financial condition and results
of operations.
New regulatory requirements may make it more costly to comply with relevant regulation, to operate our
existing businesses or to enter into new business areas
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A number of regulatory initiatives and changes have been identified or proposed or are being implemented by regulators,
including in Canada, the U.S. and Europe. We cannot be certain whether, or in what form, regulatory changes will take
place, and cannot predict with certainty the impact of such changes on our businesses and operations. Changes in, and
additions to, the rules affecting our exchanges and clearing houses could require us to change the manner in which we
and our customers conduct business or govern ourselves. Failure to make the required changes and comply on a timely
basis could result in material reductions to activity or revenue, sanctions and/or restrictions by the applicable regulatory
authorities.
Unexpected and new regulatory requirements could make it more costly to comply with relevant regulations and for
affected entities to operate their existing businesses or to enter into new business areas. In addition, high levels of regulation
may stifle growth and innovation in capital markets generally and may adversely affect our business, financial condition
and results of operations.
CDS Clearing and CDCC operate financial market infrastructures, including central counterparties for cash and derivative
markets, commodity markets, securities settlement systems and central securities depositories that are subject to the
CPMI-IOSCO Principles for Financial Market Infrastructure (PFMIs) for these types of services, which are reflected in the
requirements of such entities’ regulators and applicable securities law including National Instrument 24-102 Clearing
Agency Requirements. The ongoing implementation of PFMIs by regulators of these businesses will continue to impact
the cost of regulatory compliance. In 2016, in compliance with the PFMIs and additional Canadian regulatory and oversight
guidance, CDS Clearing and CDCC each adopted a recovery plan, to be applied in the event that the entity is unable to
provide defined critical operations and services as a going concern. These recovery plans were filed with their respective
Canadian regulators. In connection with the recovery plans, and if certain funding conditions are met, TMX Group agreed
to provide certain limited financial support to CDS Clearing and CDCC, if necessary, in the context of a recovery.
European energy market regulatory changes could potentially affect the structure of these markets and hence the number
of trading venues supported by Trayport.
Our Recognition Orders impose significant regulatory constraints
Under the Recognition Orders, we are subject to extensive regulation and regulatory oversight with respect to, among
other things, fees, fee models, discounts and incentives. The Recognition Orders also impose significant regulatory
constraints on our ongoing business. The additional regulatory and oversight provisions provided for in the Recognition
Orders provide the applicable regulators with broad powers that could, depending on how such powers are exercised in
the future, impose barriers or constraints that limit our ability to build an efficient, competitive organization, which could
have a material adverse effect on our business, financial condition and results of operations.
With respect to the fees charged by all of our equity exchanges (TSX, Alpha, and TSXV), the Recognition Orders impose
restrictions or prohibitions on certain types of fee discounts or incentives that such exchanges may provide, including
discounts or incentives that are accessible only to a particular marketplace participant or class of marketplace participants.
Such prohibitions and restrictions may limit the ability of our equity exchanges to introduce new products in the future
or to introduce them on a timely basis, which could materially adversely affect the success of our future strategies, financial
condition and results of operations. In addition, under the Recognition Orders the OSC has the right to require TSX and
Alpha to submit a fee, fee model or incentive that has previously been approved by the OSC for re-approval. In such
circumstances, if the OSC decides not to re-approve the fee, fee model or incentive, it must be revoked.
Changes to TSX and Alpha fees are filed for approval with the OSC at least seven business days before becoming effective.
Fee changes for TSXV are filed for approval with the Alberta Securities Commission (ASC) and British Columbia Securities
Commission (BCSC) at least seven business days in advance. Prior to becoming effective, changes to MX trading fees are
filed with the AMF and the OSC at least seven business days in advance. It is possible that the AMF, OSC, BCSC or the ASC
may require more time to review the fee filing, object, or require revisions to, the proposed fee changes.
In addition, changes to TMX Datalinx fees related to TSX, TSXV, Alpha and MX market data and co-location are filed with
the OSC, BCSC, ASC and the AMF, as applicable, for approval, seven business days before becoming effective. It is possible
that the regulators may require more time to review the fee filing, object, or require revisions to the proposed fee changes.
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Prior to becoming effective, changes to CDCC fees are filed with the AMF and OSC.
With respect to CDS, under the applicable Recognition Orders certain fees charged by it and its subsidiaries are subject to
prior approval of the applicable regulators. Under the CDS Recognition Orders granted by the OSC, AMF and BCSC, fees
for services and products offered by certain CDS subsidiaries will be those fees in effect on November 1, 2011 (the 2012
base fees). We cannot adjust such fees without the approval of the OSC, AMF and BCSC. In addition, we may only seek
approval for fee increases on clearing and other core CDS Clearing services (which services are outlined in the OSC and
AMF Recognition Orders) where there has been a significant change from circumstances as at August 1, 2012, the effective
date of the Recognition Orders, and approval may or may not be granted. Accordingly, even where costs may be rising in
the future (including as a result of trading volumes falling), we would only be permitted to seek a fee increase on such
services if we could establish to the applicable regulators that there has been a significant change. Under the CDS
Recognition Orders the OSC and the AMF each have the right to require the applicable CDS entity to submit a fee, fee
model or incentive that has been previously approved by the OSC and/or the AMF for re-approval. In such circumstances,
if the OSC and/or AMF, as applicable, decide not to re-approve the fee, fee model or incentive, it must be revoked. Such
constraints on the ability to amend CDS fees could have a material adverse impact on our business, financial condition
and results of operations in the future. (see OUR BUSINESS - CAPITAL MARKETS - Equities and Fixed Income Clearing,
Settlement, Depository and Other Services - CDS.)
We have incurred increased costs to comply with the additional regulatory requirements that are imposed pursuant to
the Recognition Orders. In addition, we and certain of our businesses are subject to participation and activity fees imposed
by provincial securities regulators. The overall scope of the additional regulatory costs may have a material adverse effect
on our business, financial condition, and results of operations.
Pursuant to the Recognition Orders, prior regulatory approval is also required before we can implement changes to a
number of aspects of our operations. This includes prior regulatory approval of (a) changes to internal cost allocation
models and any transfer pricing between affiliated entities, (b) significant integration, combination or reorganization of
businesses, operations or corporate functions between TMX Group entities, (c) non-ordinary course changes to TSXV’s
operations, and (d) any outsourcing of key services or systems by a marketplace. The requirement to obtain approvals may
restrict or delay our ability to make planned changes to these aspects of our operations in the future which could have a
material adverse effect on our business, financial condition and results of operations.
Our Recognition Orders impose ownership restrictions on our voting shares
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 or direction over more than 10% of any class or series of voting shares of TMX Group
without prior approval of the OSC and the AMF.
Litigation/Legal Proceedings Risk
We are exposed to the risk that litigation or other legal proceedings are launched against us.
We are subject to risks of litigation and other legal proceedings
Some aspects of our business involve risks of litigation. Dissatisfied customers, among others, may make claims with respect
to the manner in which we operate or they may challenge our regulatory actions, decisions or jurisdiction. Although we
may benefit from certain contractual indemnities and limitations on liabilities, these rights may not be sufficient. In addition,
with civil liability for misrepresentations in our continuous disclosure documents and statements and for the failure to
make timely disclosures of material changes in Ontario and certain other jurisdictions, dissatisfied shareholders can more
easily make claims against us. We could incur significant legal expenses defending claims, even those without merit. If a
lawsuit or claim is resolved against us, it could materially adversely affect our reputation, business, financial condition and
operating results.
Intellectual Property Risk
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We are exposed to the risk that we fail to protect our intellectual property resulting in material financial loss to us. We
are exposed to the risk that an infringement claim may be asserted against us.
We may be unable to protect our intellectual property
To protect our intellectual property rights, we rely on a combination of trademark laws, copyright laws, patent laws, trade
secret protection, confidentiality agreements, and other contractual arrangements with our affiliates, customers, strategic
partners, and others. This protection may not be adequate to deter others from misappropriating our proprietary
information. We may not be able to detect the unauthorized use of, or take adequate steps to enforce, our intellectual
property rights. We have registered, or applied to register, our trademarks in Canada and in some other jurisdictions. If
we are unable to protect our intellectual property adequately, it could harm our brand, affect our ability to compete
effectively and may limit our ability to maintain or increase revenue. It could also take significant time and money to defend
our intellectual property rights, which could adversely affect our business, financial condition, and operating results.
We are subject to risks of intellectual property claims
We license a variety of intellectual property from third parties. Others may bring infringement claims against us or our
customers in the future because of an alleged breach of such a license. We may also be subject to claim alleging that we
are infringing on a third party's intellectual property rights without a license. If someone successfully asserts an
infringement claim, we may be required to spend significant time and money to develop or license intellectual property
that does not infringe upon the rights of that other person or to obtain a license for the intellectual property from the
owner. We may not succeed in developing or obtaining a license on commercially acceptable terms, if at all. In addition,
any litigation could be lengthy and costly and could adversely affect us even if we are successful.
Financial Risks
Foreign Exchange
We are exposed to the risk that future movements in exchange rates will adversely affect the valuation of our revenues,
expenses, assets or liabilities (For details, see Foreign Currency Risk under Market Risk section - Financial Risk
Management).
Cost Structure Risk
Our cost structure is largely fixed
Most of our expenses are fixed and cannot be easily lowered in the short-term if our revenue decreases, which could have
an adverse effect on our operating results and financial condition.
Market Event Risk
Our derivatives and cash markets clearing businesses may be harmed by a systemic market event
In the case of sudden, large price movements, certain market participants may not be able to meet their obligations to
brokers who, in turn, may not be able to meet their obligations to their counterparties. The impact of such an event could
have a material adverse effect on CDCC and CDS’ businesses. In such cases, it could be possible that Clearing Members
and/or participants default with CDCC and/or CDS. As referred to in the Financial Risk Management – Credit Risk – CDS
and Credit Risk – CDCC sections, CDCC and/or CDS would use its risk management mechanisms to manage such a default.
In extreme situations such as large-scale market price moves or multiple defaults occurring at the same time, all these
mechanisms may prove insufficient and could result in significant losses.
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Capital Structure Risk
We are exposed to the risk that we fail to develop, implement and maintain the appropriate corporate finance model and
capital structure.
We have approximately $950 million of indebtedness and are subject to ongoing covenants under the Trust Indentures
governing the Debentures and the terms of our Credit Facility and Commercial Paper Program.
The Trust Indentures governing the Debentures impose various restrictions on TMX Group and its subsidiaries, including
restrictions on the ability of TMX Group and each of its material subsidiaries (as defined in the Trust Indentures) to create
a lien on these entities’ assets, limitations on the ability of material subsidiaries of TMX Group to enter into certain types
of indebtedness, and requirements to repurchase outstanding Debentures on change of control of TSX Inc. or MX coupled
with a triggering event (i.e., rating of the Debentures is lowered to below investment grade). Some, or all, of these
restrictions could limit our flexibility to change our capital structure.
The terms of our Credit Facility and Commercial Paper Program
Our Credit Agreement requires us to satisfy and maintain an interest coverage ratio and a leverage ratio, among other
covenants, including the timely payment of principal and interest when due. It is important that we meet all of the terms
under our Credit Facility since it provides a 100% backstop to our Commercial Paper Program (see Liquidity and Capital
Resources - Commercial Paper, Debentures, Credit and Liquidity Facilities - Credit Facility). Our ability to meet the financial
ratios under the Credit Facility and other covenants, including the timely payment of principal and interest when due,
under the Credit Agreement and Trust Indentures are dependent on our cash flows and earnings, level of indebtedness
and other financial performance measures, which are affected by prevailing interest rates and general economic, market,
financial, competitive, regulatory and other factors, such as the volume of securities traded on our equity markets, the
number of transactions cleared and settled in our cash market clearing, settlement and depository services, the number
of transactions, volume of contracts or products traded and cleared on our cash and derivatives markets, the number of
new and additional listings on our equity markets, the number and market capitalization of listed issuers, the number of
subscribers to market data, fee regulation by securities regulatory authorities, and increased competition from other
exchanges and marketplaces, all of which are beyond our control, as well as on our ability to control our expenses.
Based on the current level of operations and anticipated growth, we believe that our cash flows from operations and our
available cash are adequate to meet our current liquidity needs. However, we cannot guarantee that our businesses will
generate sufficient earnings or cash flows from operations or that anticipated growth will be realized or that we will be
able to control our expenses in an amount sufficient to enable us to satisfy the financial ratios and other covenants, or
pay our indebtedness or fund our other liquidity needs. If we do not have sufficient funds, we may be required to renegotiate
the terms of, restructure, or refinance all or a portion of our indebtedness on or before our stated maturity, reduce or
delay capital investments and acquisitions, reduce or eliminate our dividends, or sell assets. Our ability to renegotiate,
restructure, or refinance our indebtedness would depend on the condition of the financial markets and our financial
condition at that time. Failure to comply with the financial ratios as well as covenants of the Credit Agreement could result
in a default under the Trust Indentures, which, if not cured or waived, could result in TMX Group being required to repay
outstanding borrowings under both the Credit Agreement and the Debentures before their due dates. In addition, an event
of default under the Trust Indentures governing the Debentures that would result in an acceleration of maturity of the
applicable series of Debentures could lead to an acceleration of the maturity of the Credit Agreement.
In addition, if we fail to comply or are reasonably likely to fail to comply with any financial covenant or ratio contained in
any Final Recognition Order, such failure could result in a default under the Credit Agreement as well, if a governmental
authority issues a decision or orders restrictions on us or any of our subsidiaries as a result of the non-compliance where
a requisite majority of the lenders determine that the restrictions have or will have a material adverse effect as defined
in the Credit Agreement. It will also be a default under the Credit Agreement if a governmental authority issues a decision
or orders restrictions on our or any of our subsidiaries’ ability to move cash or cash equivalents among TMX Group and
our subsidiaries, where a requisite majority of the lenders determine that the restrictions have or will have a material
adverse effect. If these events of default under the Credit Agreement were to result in an acceleration of maturity under
the Credit Agreement, the event(s) could constitute an event of default under the Trust Indentures, which in turn would
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result in the acceleration of maturity of the outstanding Debentures. If we are forced to refinance these borrowings on
less favourable terms or cannot refinance these borrowings, our business, results of operations, and financial condition
would be adversely affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service
obligations to increase significantly / Our hedging arrangements could also increase indebtedness
Borrowings under the Commercial Paper Program and Credit Agreement incur interest at variable rates and expose us to
interest rate risk. If interest rates increase, our debt service obligations on our variable rate indebtedness would increase
even though the amount borrowed remained the same, and our net income and cash flows, including cash available for
servicing the indebtedness, would correspondingly decrease. Although we have entered into various interest rate hedging
arrangements to partially mitigate this risk, there is no assurance that such hedging arrangements will be effective. In
addition, if interest rates decrease, we would accrue indebtedness in connection with these hedging arrangements, which
may impact our ability to meet our financial ratios under the Credit Agreement. Our exposure to increases in variable
interest rates on indebtedness is also somewhat mitigated by the fact that we hold cash and marketable securities at
variable interest rates.
Our ability to incur additional indebtedness could be impacted by adverse changes to our credit rating
TMX Group has an an issuer rating of A (high) from DBRS with a Stable trend. Our Debentures, including our Series D
Debentures, have the same credit rating from DBRS with a Stable trend. The Commercial Paper has been assigned a rating
of “R-1 (low)” with a Stable trend by DBRS.
DBRS regularly evaluates and monitors the rating of our Commercial Paper and the rating of our Debentures outstanding.
A downgrade from our existing rating could adversely affect our cost of borrowing and/or our ability to access sources of
liquidity and capital and reduce financing options available to us.
The shareholdings of the investors may adversely affect the liquidity of TMX Group shares
In aggregate the Nominating Investors53 hold a significant proportion of the common shares outstanding of TMX Group.
The substantial number of common shares that are held by these investors may adversely affect the liquidity of the common
shares held by the public. The liquidity in our common shares did improve somewhat after August 22, 2016 when three
of the Nominating investors sold a combined 5.4 million common shares, or approximately 9.9% of our common shares
issued and outstanding, on an underwritten block trade basis. Our liquidity continued to improve after the October 2,
2017 transaction when two Nominating Investors sold a combined 5.5 million common shares, or approximately 9.9% of
our common shares issued and outstanding. Based on the criteria for eligibility in the S&P/TSX Composite Index, there is
a continued risk that we could be removed from the index, which could make our shares less attractive to certain investors,
particularly index funds.
53 “Nominating Investors” consist of Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, National Bank
Group Inc., Ontario Teachers’ Pension Plan Board and TD Securities Inc., either directly or through an affiliate as of December 31, 2017.
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Financial Risk Management
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 clearing operations of CDS and CDCC, cash and cash equivalents, restricted
cash and cash equivalents, marketable securities, trade receivables, total return swaps, interest rate swaps, the brokerage
operations of Shorcan and TSX Trust.
In 2016, in compliance with the PFMIs and additional Canadian regulatory and oversight guidance, CDS Clearing and CDCC
each adopted a recovery plan, to be applied in the event that the entity is unable to provide defined critical operations
and services as a going concern. (see Legal & Regulatory Risk - New regulatory requirements may make it more costly
to comply with relevant regulation, to operate our exiting businesses or to enter into new business areas)
Credit Risk – CDS
The primary credit risk of CDS and its subsidiaries is the risk of loss due to the failure of a Participant in CDS Clearing’s
clearing and settlement services to honour its financial obligations. To a lesser extent, CDS is exposed to credit risk through
the performance of services in advance of payment.
Through the clearing and settlement services operated by CDS Clearing, credit risk exposures are created. During the
course of each business day, transaction settlements can result in a net payment obligation of a Participant to CDS Clearing
or the obligation of CDS Clearing to pay a Participant. The potential failure of the Participant to meet its payment obligation
to CDS Clearing results in payment risk, a specific form of credit risk. Payment risk is a form of credit risk in securities
settlement whereby a seller will deliver securities and not receive payment, or that a buyer will make payment and not
receive the purchased securities. Payment risk is mitigated by delivery payment finality in CDSX, CDS' multilateral clearing
and settlement system, as set out in the CDS Participant Rules.
In the settlement services offered by CDS Clearing, payment risk is transferred entirely from CDS Clearing to Participants
who accept this risk pursuant to the contractual rules for the settlement services. This transfer of payment risk occurs
primarily by means of Participants acting as extenders of credit to other Participants through lines of credit managed within
the settlement system or, alternatively, by means of risk-sharing arrangements whereby groups of Participants cross-
guarantee the payment obligations of other members of the group. Should a Participant be unable to meet its payment
obligations to CDS Clearing, these surviving Participants are required to make the payment. Payment risk is mitigated on
behalf of Participants through the enforcement of limits on the magnitude of payment obligations of each Participant and
the requirement of each Participant to collateralize its payment obligation. Both of these mitigants are enforced in real
time in the settlement system.
Through New York Link (NYL) and DTC Direct Link (DDL), credit risk exposures are created. During the course of each
business day, settlement transactions by NSCC/DTC can result in a net payment obligation from NSCC/DTC to CDS Clearing
or the obligation of CDS Clearing to make a payment to NSCC/DTC. As a corollary result, CDS has a legal right to receive
the funds from sponsored participants in a debit position or has an obligation to pay the funds to sponsored participants
in a credit position.
The potential failure of the Participant to meet its payment obligation to CDS Clearing in CDS Clearing’s NYL or DDL services
results in a payment risk. To mitigate the risk of default, CDS Clearing has in place default risk mitigation mechanisms to
minimize losses to the surviving participants as set out in the CDS Participant Rules. The process includes participants
posting collateral with CDS Clearing and NSCC/DTC.
The risk exposure of CDS Clearing in its 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
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supplemented with analysis of the effects of extreme market conditions on a collateral valuation and market risk
measurements which are used to determine additional collateral requirements of Participants to a default fund established
in 2015. 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 Clearing.
As of January 1, 2016, the effective date of a new regulatory requirement based on PFMIs, CDS Clearing also holds $1.0
million of its cash and cash equivalents and marketable securities to contribute pre-funded resources to its CNS default
waterfall. This default fund of $1.0 million would be accessed following the exhaustion of a suspended Participant's CNS
Participant Fund and Default Fund contribution.
As a result of calculations of participants’ exposure at December 31, 2017, the total amount of collateral required by CDS
Clearing was $5,888.3 million (2016 – 5,572.0 million). The actual collateral pledged to CDS Clearing at December 31, 2017
was $6,789.4 million (2016 - $6,630.4 million). The collateral pledged at December 31, 2017 was comprised of Cash
(included within Balances with participants on the consolidated balance sheet) of $505.7 million (2016 - $501.4 million)
and Treasury bills and Fixed Income Securities of 6,283.7 million (2016 - 6,129.0 million). Non-cash collateral is not included
on our consolidated balance sheet.
CDS may receive payment from securities issuers for entitlements, for example, maturity or interest payments, prior to
the date of payment to the participants holding those securities. In rare circumstances, due to the timing of receipt of
these payments or due to market conditions, these funds may be held with a major Canadian chartered bank. As a result,
CDS could be exposed to the credit risk associated with the potential failure of the bank.
See Other Credit and Liquidity Facilities for a description of CDS’ credit and liquidity facilities.
Credit Risk – CDCC
CDCC is exposed to loss 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 credit risk 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. As such, in the event of a Clearing
Member default, the obligations of those defaulting counterparties would become the responsibility of CDCC.
The first line of defense 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.
One of CDCC’s principal risk management practices with regards to counterparty credit risk is the collection of risk-based
margin deposits in the form of cash, equities and liquid government securities. Should a Clearing Member fail to meet
settlements and/or daily margin calls or otherwise not honour its obligations under open futures, options contracts and
REPO agreements, margin deposits would be seized and would then be available to apply against the potential losses
incurred through the liquidation of 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. In 2015, CDCC introduced additional margin surcharges to
manage the risk exposures associated with certain idiosyncratic risks. These include: concentration charges for Clearing
Members that are overly concentrated in certain positions, wrong-way risk charges for those Clearing Members holding
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positions which are highly correlated with their own credit risk profile, mismatched settlement surcharges which are meant
to mitigate the risk of cherry-picking by a potential defaulter in the settlement process.
Global regulatory requirements for central-counterparties (CCP) like CDCC have highlighted the need for CCPs to have a
component of their capital at risk in the default management process. CDCC holds $10.0 million of its cash and cash
equivalents and marketable securities to cover the potential loss incurred due to Clearing Member defaults. This $10.0
million would be accessed in the event that a defaulting Clearing Members’ margin and clearing fund deposits are
insufficient to cover the loss incurred by CDCC. The $10.0 million is allocated into two separate tranches. The first tranche
of $5.0 million is intended to cover the loss resulting from the first defaulting Clearing Member. If the loss incurred is
greater than $5.0 million, and as such the first tranche is fully depleted, CDCC will fully replenish the first tranche using
the second tranche of $5.0 million. This second tranche is in place to ensure there is $5.0 million available in the event of
an additional Clearing Member default.
CDCC’s cash margin deposits and cash clearing fund deposits are held at the Bank of Canada thereby alleviating the credit
risk CDCC were to face with deposits held at commercial banks. The actual cash collateral pledged to CDCC at December
31, 2017 was $877.3 million (2016 - $842.8 million). CDCC’s non-cash margin deposits and non-cash clearing fund deposits
are pledged to CDCC under irrevocable agreements and are held by approved depositories. This collateral may be seized
by CDCC in the event of default by a Clearing Member. At December 31, 2017, non-cash margin deposits of $8,413.5
million (2016 - $6,926.2 million) and non-cash clearing fund deposits of $956.1 million (2016 - $571.3 million) had been
pledged to CDCC. Non cash collateral is held in government securities, put letters of guarantee, and equity securities and
is not included in our consolidated balance sheet.
See Other Credit and Liquidity Facilities for a description of CDCC’s credit facilities.
Credit Risk – Cash and cash equivalents and Restricted cash and cash equivalents
We manage our exposure to credit risk on our cash and cash equivalents and restricted cash and cash equivalents by
holding the majority of our cash and cash equivalents with major Canadian chartered banks or in Federal and Provincial
treasury bills.
Credit Risk – Marketable Securities
We manage exposure to credit risk arising from investments in marketable securities by holding investment funds that
actively manage credit risk or by holding high-grade individual fixed income securities with credit ratings of A/R1-low or
better. In addition, when holding individual fixed income securities, we will limit our exposure to any non-government
security. Our investment policy will only allow excess cash to be invested within money market securities or fixed income
securities.
The majority of the portfolio is held within Bank deposits, notes and Treasury Bills.
Credit Risk – Trade Receivables
Our exposure to credit risk resulting from uncollectable accounts is influenced by the individual characteristics of our
customers, many of whom are banks and financial institutions. We invoice our customers on a regular basis and maintain
a collections team to monitor customer accounts and minimize the amount of overdue receivables. There is no
concentration of credit risk arising from accounts receivable from a single customer. In addition, customers that fail to
maintain their account in good standing risk loss of listing, trading, clearing, data access privileges and other services.
Credit Risk – Total Return Swaps (TRS)
Due to the bilateral nature of the TRSs, we are exposed to the counterparty credit risk. To manage this credit risk, we
only enter into the TRSs with major Canadian chartered banks.
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Credit Risk – Interest Rate Swaps (IRS)
Due to the bilateral nature of the IRSs, we are exposed to the counterparty credit risk. To manage this credit risk, we
only enter into the IRSs with major Canadian chartered banks.
Credit Risk – TSX Trust
TSX Trust 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 TSX Trust deals only with reputable financial
institutions comprised of major Canadian chartered banks.
Market Risk
Market risk is the risk of loss due to changes in market prices and rates such as equity prices, interest rates and foreign
exchange rates.
Equity Price Risk – RSUs, DSUs, TRS
We are exposed to market risk relating to equity prices when we grant DSUs and RSUs to our directors and employees,
respectively, as our obligation under these arrangements are partly based on our share price. We have entered into TRSs
as a partial fair value hedge to the share appreciation rights of these RSUs and DSUs.
Interest Rate Risk – Cash, cash equivalents, and marketable securities
We are exposed to market risk on interest earned on our cash, cash equivalents marketable securities. This risk is partially
mitigated by having variable interest rates on our short-term debt (Commercial Paper). At December 31, 2017, TMX Group
held $50.1 million ($61.8 million at December 31, 2016) n marketable securities of which, 100.0% were held in Federal
and Provincial treasury bills.
Interest Rate Risk – Commercial Paper
We are exposed to market risk relating to interest paid on our Commercial Paper. Assuming Commercial Paper outstanding
of approximately $395.3 million (balance at December 31, 2017), the approximate annual impact on income before income
taxes of a +1.0% rise and a -1.0% fall in interest rates with respect to Commercial Paper is a decrease of $4.0 million and
an increase of $4.0 million, respectively. We partially manage the market risk relating to interest paid on our Commercial
Paper through an interest rate swap with a notional value of 100.0 million. It expires on May 2, 2019. (See Commercial
Paper, Debentures, Credit and Liquidity Facilities – Interest Rate Swaps).
Other Market Price Risk – CDS, CDCC, and Shorcan
We are exposed to market risk factors from the activities of CDS, CDCC, and Shorcan if a customer, contracting party or
clearing member, as the case may be, fails to take or deliver either securities or derivatives products on the contracted
settlement or delivery date where the contracted price is less favourable than the current market price.
CDS is exposed to market risk through its CCP function in the event a Participant defaults it becomes the legal counterparty
to all of the defaulters' novated transactions and must honor the financial obligations that arise from those novated
transactions.
The principal mitigation of the market risk exposure post default is the default management process. CDS has developed
default management processes that would enable it to neutralize the market exposures via open market operations within
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prescribed time periods. Any losses from such operations would be set-off against the collateral contributions of the
defaulting participant to the Participant Fund and Default Fund for the CCP service.
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 which are used to determine additional collateral requirements of participants to a default fund established
in 2015. Should the collateral of a defaulter in a central counterparty service be insufficient, either because the value of
the collateral has declined or the loss to be covered by the collateral exceeded the collateral requirement, the surviving
Participants in the service are required to cover any residual losses.
Settlements in the clearing and settlement services occur in both Canadian and U.S. dollars. Foreign exchange risk is created
when the currency of the payment obligation is different from the valuation currency of the collateral supporting that
payment obligation. This risk is mitigated by discounting the collateral value of securities where these mismatches occur.
CDCC is exposed to market risk through its CCP functions in the event of a Clearing Member default as it becomes the legal
counterparty to all of the defaulter's novated transactions and must honor the financial obligations that arise from those
novated transactions.
The principal mitigation of the market risk exposure post default is the default management process. CDCC has developed
detailed default management processes that would enable it to neutralize the market exposures through either its auction
process or via open market operations within prescribed time periods. Any losses from such operations would be set-off
against the margin and clearing fund (if necessary) collateral that are pre-funded by all Clearing Members for these
purposes.
Shorcan’s risk is limited by its status as an agent, in that it does not purchase or sell securities or commodities for its own
account, the short period of time between trade date and settlement date, and the defaulting customer’s liability for any
difference between the amounts received upon sale of, and the amount paid to acquire, the securities or commodities.
We are also exposed to other market price risk on a portion of our sustaining listing fee revenue, which is based on the
quoted market values of listed issuers as at December 31 of the previous year.
Foreign Currency Risk
We are exposed to market risk relating to foreign currency rates applicable to our cash and cash equivalents, trade
receivables and trade payables, principally denominated in U.S. dollars. We are also exposed to market risk on revenue
and expenses where we invoice or procure in a foreign currency, principally in U.S. dollars. Based on 2017 revenue and
operating expenses (exclusive of TMX Atrium, NGX, and Shorcan Energy), the approximate impact of a 10% rise or a 10%
decline in the Canadian dollar compared with the U.S. dollar on revenue, net of operating expenses, is approximately $6.5
million. Based on Trayport's 2017 revenue and operating expenses, the approximate impact of a 10% rise or a 10% decline
in the Canadian dollar compared with GBP (Sterling) on revenue, net of operating expenses, is approximately $3.1 million.
At December 31, 2017, cash and cash equivalents and trade receivables, net of current liabilities, include US$14.1 million,
which are exposed to changes in the US-Canadian dollar exchange rate (2016 – US$20.3 million), £1.5 million which are
exposed to changes in the British Pound Sterling-Canadian dollar exchange rate (2016 - £0.2 million), and €0.7 million
which are exposed to changes in the Euro-Canadian dollar exchange rate (2016 - €0.6 million).
The approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared with the U.S. dollar, GBP and Euro
on these balances as at December 31, 2017 is a $2.1 million decrease or increase in income before income taxes,
respectively. The approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared with the U.S. dollar,
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GBP and Euro on these transactions as at December 31, 2017 is a $5.3 million decrease or increase in equity attributable
to equity holders, respectively.
We are exposed to market risk relating to foreign currency rates applicable to some of our Commercial Paper. As at
December 31, 2017 we borrowed US$15.0 million under our Commercial Paper Program. The US$15.0 million is not
hedged with forward contracts but is partially hedged by our U.S. dollar assets. With respect to the US$15.0 million of
Commercial Paper, the approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared with the U.S.
dollar is a $1.9 million increase or decrease in income before income taxes, respectively.
Settlements in the clearing and settlement services offered by CDS occur in both Canadian and U.S. dollars. Market risk
relating to foreign exchange rates could be created if there is a default and the currency of the payment obligation is
different from the currency of the collateral supporting that payment obligation. This risk is mitigated by discounting the
collateral value of securities where these mismatches occur.
We do not currently employ currency hedging strategies with respect to our operating activities, and therefore significant
moves in exchange rates, specifically a strengthening of the Canadian dollar against the U.S. dollar can have an adverse
effect on the value of our revenue or assets in Canadian dollars.
Liquidity Risk
Liquidity risk is the risk of loss due to the inability of TMX Group or its participants/customers to meet their financial
obligations in a timely manner or at reasonable prices. We manage liquidity risk through the management of our cash
and cash equivalents and marketable securities, all of which are held in short term instruments, and our Debentures,
Commercial Paper as well as credit and liquidity facilities. In the clearing and depository services, liquidity risk results from
the requirement to convert collateral to cash in the event of the default of a participant.
Cash and cash equivalents and Restricted cash and cash equivalents
Cash and cash equivalents and restricted cash and cash equivalents consist of cash and highly liquid investments.
Marketable securities
Our investment policy will only allow excess cash to be invested within money market securities or fixed income securities.
Individual fixed income securities held have credit ratings of A/R1-low or better and are highly liquid.
As at December 31, 2017 marketable securities were comprised of Federal and Provincial treasury bills.
Balances with Clearing Members and participants
The margin deposits of CDCC and CDS and clearing fund margins of CDCC are held in liquid instruments. Cash margin
deposits and cash clearing fund deposits from Clearing Members, which are recognized on the consolidated balance sheet,
are held by CDCC with the Bank of Canada. Non-cash margin deposits and non-cash clearing fund deposits pledged to
CDCC under irrevocable agreements are in government securities and other securities and are held with approved
depositories. Cash collateral from CDS’ participants, which is recognized on the consolidated balance sheet, is held by CDS
at the Bank of Canada and NSCC/DTC. Non-cash collateral, which is not recognized on the consolidated balance sheet,
pledged by participants under Participant Rules is held by CDS in liquid government and fixed income securities.
New York Link service – CDS
The design of CDS' New York Link service does not apply strict limits to a Participant's end-of-day payment obligation,
creating the potential for unlimited liquidity risk exposure 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
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vast majority of potential Participant default scenarios. Residual liquidity risk in excess of CDS’ liquidity facility is transferred
to surviving participant users of the New York Link service and as a result CDS’ liquidity risk exposure is limited to a maximum
of its available liquidity facility.
Credit and liquidity facilities – Clearing operations
In response to the liquidity risk that CDS and CDCC are exposed to through their clearing operations, they have arranged
various facilities (see Other Credit and Liquidity Facilities).
CDS maintains unsecured operating demand loans totaling $6.0 million to support short-term operating requirements. To
support processing and settlement activities of participants, an unsecured overdraft facility and demand loans of $15.0
million and an overnight facility of US$5.5 million are available.
CDS maintains a secured standby liquidity facility of US$400.0 million, or Canadian dollar equivalent, that can be drawn
in either U.S. 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 U.S. treasury instruments.
CDCC maintains daylight liquidity facilities for a total of $600.0 million 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.
The syndicated revolving standby liquidity facility for a total of $300.0 million is in place to provide end of day liquidity in
the event that CDCC is unable to clear the daylight liquidity facilities to zero as well as to provide a source of overnight
funding for securities that are not eligible to be pledged at the Bank of Canada or for emergency liquidity needs in the
event of a Clearing Member default. Advances under the facility will be secured by collateral in the form of securities that
have been received by CDCC. The syndicated REPO facility is also in place to provide end of day liquidity in the event that
CDCC is unable to clear the daylight liquidity facilities to zero or for emergency liquidity needs in the event of a Clearing
Member default. It will provide liquidity in exchange for securities that have been pledged to or received by CDCC. The
overall size of this facility increased from $13,638.0 million to $13,788.0 million of uncommitted liquidity in 2017. Also,
as of December 31, 2017, the size of the repurchase facility stood at approximately $13,800.0 million as a result of Clearing
Members' activities. CDCC has the option to re-size this facility on a quarterly basis in order to stay consistent with its
liquidity risk policy.
Finally, CDCC's Bank of Canada liquidity facility is intended to provide end of day liquidity only in the event that CDCC is
unable to access liquidity from the revolving standby liquidity facility and the syndicated REPO facility or in the event that
the liquidity under such facilities is insufficient. Use of this facility would be on a fully collateralized basis.
Commercial Paper, Debentures and Credit Facility
Our capital structure includes approximately $950 million of indebtedness. As highlighted in the Capital Structure Risk,
we rely on our Commercial Paper Program, Debentures and Credit Facility as a source of financing. If our indebtedness
under the terms of our Commercial Paper Program, Debentures or Credit Facility (if drawn) was to become due prior to
the maturity dates as a result of not meeting covenants under the Trust Indentures, the terms of the Commercial Paper
Program or the Credit Facility, we could be required to seek more costly sources of financing, or potentially would not be
able to obtain an alternative form of financing. The specific liquidity risk related to Commercial Paper is that we are 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 our Commercial Paper in the market. To mitigate this risk, we maintain a Credit Agreement
that provides 100% coverage or backstop to the Commercial Paper Program (see Liquidity and Capital Resources -
Commercial Paper, Debentures, Credit and Liquidity Facilities - Credit Facility).
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Accounting and Control Matters
Changes in accounting policies
The following new amendments were effective for "the Company" (TMX Group Limited) from January 1, 2017:
• Amendments to IAS 7 Disclosure initiative (Amendments to IAS 7, Statement of Cash Flows) - the Company’s liabilities
arising from financing activities consist of borrowings and certain other financial liabilities. A reconciliation between
the opening and closing balances of the items is provided in note 12;
• Amendments to IFRS 12 included in the 2014-2016 Annual Improvements 2014-2016 cycle - the standard states that
an entity need not provide summarized financial information for interests in subsidiaries, associates or joint ventures
that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that
this is the only concession from the disclosure requirements of IFRS 12 for such interests; and
• Recognition of deferred tax assets for unrealized losses (Amendments to IAS 12, Income Taxes) - the amendments
clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilize
a deductible temporary difference.
There was no impact on the consolidated financial statements as a result of their adoption.
Future changes in accounting policies
A number of other new standards and amendments to standards and interpretations are not yet effective for the year ending
December 31, 2017, and have not been applied in the preparation of the financial statements. These new and amended
standards and interpretations are required to be implemented for financial years beginning on or after January 1, 2018, unless
otherwise noted:
•
•
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, 2018 with either full retrospective
application, retrospective with optional practical expedients or a modified prospective approach with disclosure
requirements.
The Company has undertaken an assessment of each material revenue stream in accordance with the prescribed
five-step model to determine the impact on the timing and measurement of its revenue recognition. Based on this
assessment, the Company has determined that this standard will only have an impact on the timing of revenue
recognition related to listing fees. However, the impact is not expected to be material. The Company intends to adopt
the cumulative effect approach of transition to IFRS 15.
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.
To assess the classification and measurement of its financial assets, the Company analyzed its business model for
managing financial assets, the respective cash flow characteristics, and the contractual terms of these assets. To
assess the impairment of its financial instruments, the Company identified assets or asset classes that are in scope
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and applied a simplified approach or a three-stage model for impairment based on changes in credit quality since
initial recognition. The adoption of IFRS 9 is expected to change the Company’s accounting policy for recognition,
classification and measurement of financial instruments. However, the impact is not expected to be material. The
Company intends to adopt IFRS 9 in its financial statements for the annual period beginning on January 1, 2018.
Annual improvements 2014-2016 cycle (Amendments to IFRS 1 and IAS 28) - The amendments remove out-dated
exemptions for first time adopters under IFRS 1, First-time Adoption of International Financial Reporting Standards
and clarify the election to measure an associate or joint venture at fair value under IAS 28, Investments in
Associates and Joint Ventures for investments held directly, or indirectly, through a venture capital or other
qualifying entity can be made on an investment-by-investment basis. The amendments are effective
retrospectively for annual periods beginning on or after January 1, 2018.
The Company intends to adopt these amendments in its financial statements for the annual period beginning on
January 1, 2018. The Company does not expect the amendments to have a material impact on the financial
statements.
•
•
•
Classification and measurement of share-based payment transactions (Amendments to IFRS 2, Share-based
Payments) - The amendments clarify the accounting for the effects of vesting conditions on cash-settled share-based
payment transactions, the classification of share-based payment transactions with net settlement features for
withholding tax obligations and the accounting for a modification to the terms and conditions of a share-based
payment that changes the transaction from cash- settled to equity-settled. The amendments are effective for annual
periods beginning on or after January 1, 2018 with earlier application permitted. The Company intends to adopt the
amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, 2018. The Company
does not expect the amendments to have a material impact on the financial statements.
IFRIC 22, Foreign currency transactions and advance consideration (Interpretation of IAS 21, The Effects of Changes
in Foreign Exchange Rates) - This interpretation clarifies the accounting for transactions that include the receipt or
payment of advance consideration in a foreign currency. The interpretation is effective for annual periods beginning
on or after January 1, 2018. The Company intends to adopt the Interpretation in its financial statements for the
annual period beginning on January 1, 2018. The Company does not expect the Interpretation to have a material
impact on the financial statements.
IFRS 16, Leases - The IASB issued a new standard on leases which provides a comprehensive model for the
identification of lease arrangements and their treatment in the financial statements. IFRS 16 supersedes IAS 17,
Leases and its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases,
differentiating between leases and service contracts on the basis of whether there is an identified asset controlled
by the customer. Among other significant changes, the distinction between operating and finance leases is removed
and assets and liabilities are recognized in respect of all leases. Further, IFRS 16 requires a front-loaded pattern for
the recognition of lease expense over the life of the lease. The mandatory effective date for IFRS 16 is for annual
periods beginning on or after January 1, 2019 with earlier application permitted for entities that have also adopted
IFRS 15. The Company intends to adopt IFRS 16 in its financial statements for the annual period beginning on January
1, 2019. The extent of the impact of adoption of the standard has not yet been determined.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Disclosure Controls and Procedures
TMX Group’s disclosure controls and procedures (DCP) as defined in National Instrument 52-109 – Certification of Disclosure
in Issuers’ Annual and Interim Filings (NI 52-109) are designed to provide reasonable assurance that information required
to be disclosed in our filings under securities legislation is recorded, processed, summarized and reported within the time
periods specified in securities legislation. They are also designed to provide reasonable assurance that all information
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required to be disclosed in these filings is accumulated and communicated to management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO) as appropriate, to allow timely decisions regarding public disclosure. We
regularly review our disclosure controls and procedures; however, they cannot provide an absolute level of assurance
because of the inherent limitations in control systems to prevent or detect all misstatements due to error or fraud.
Our management, including the CEO and CFO, conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2017. Based on this evaluation, the CEO and CFO have concluded that our disclosure
controls and procedures were effective as of December 31, 2017.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in NI 52-109. Internal control over financial reporting means a process designed by or under the supervision of the CEO
and CFO, and effected by our board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS, and includes those policies and procedures that: (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of TMX Group; (2) are designed
to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with IFRS, and that receipts and expenditures of TMX Group are being made only in accordance with
authorizations of management and directors of TMX Group; and (3) are designed to provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of TMX Group’s assets that could have a
material effect on the financial statements.
All internal control systems have inherent limitations and therefore our internal control over financial reporting can only
provide reasonable assurance and may not prevent or detect misstatements due to error or fraud.
Our management, including the CEO and CFO, subject to the limitation on scope of design as discussed below, conducted
an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017 using the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework (2013). Based on this evaluation,
the CEO and CFO have concluded that our internal control over financial reporting was effective as of December 31, 2017.
Limitation on Scope of Design
TMX Group has limited the scope of design of DCP and our Internal Controls over Financial Reporting (ICFR) to exclude
controls, policies and procedures of Trayport acquired on December 14, 2017. The scope limitation is in accordance with
section 3.3(1)(b) of NI 52-109 which allows an issuer to limit its design of ICFR to exclude controls, policies and procedures
of a business that the issuer acquired not more than 365 days before the end of the fiscal period.
The tables below presents the summary financial information of Trayport:
(in millions of dollars)
Current assets
Non-current assets54
Current liabilities
Non-current liabilities
As at December 31,
2017
28.6
1,015.8
22.7
0.7
54 Trayport non-current assets as at December 31, 2017 includes $1,005.1 million of goodwill and intangibles related to the acquisition
of Trayport.
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(in millions of dollars)
Revenue
Expense
Income from operations
Year ended
December 31, 2017
100.3
66.2
34.1
Changes in Internal Control over Financial Reporting
There were no changes to internal control over financial reporting during the quarter ended December 31, 2017 that
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Related Party Relationships and Transactions
Parent
The shares of TMX Group are widely held and, as such, there is no ultimate controlling party of TMX Group. While in
aggregate the Nominating Investors55 own a significant portion of the common shares outstanding of TMX Group, under
the OSC and AMF Recognition Orders, no person or combination of persons, acting jointly or in concert, is permitted to
beneficially own or exercise control or direction over more than 10% of any class or series of voting shares of TMX Group
without prior approval of the OSC and the AMF.
Key management personnel compensation
Compensation for key management personnel, including TMX Group’s Board of Directors, was as follows for the year:
(in millions of dollars)
Salaries and other short-term employee benefits
Post-employment benefits
Share-based payments
Related party transactions
2017
$8.2
0.7
6.0
14.9
2016
$9.9
1.0
15.1
26.0
In aggregate, the Nominating Investors hold a significant proportion of our common shares outstanding. TMX Group and
its subsidiaries transact with a number of the Nominating Investors on a regular basis through their normal operations.
Transactions are conducted at prevailing market prices and on general market terms and conditions.
55 “Nominating Investors” consist of Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, National Bank
Group Inc., Ontario Teachers’ Pension Plan Board, and TD Securities Inc., either directly or through an affiliate. In October 2017, Alberta
Investment Management Corporation, and Scotia Capital Inc. sold down their positions and are no longer Nominating Investors. CIBC
World Markets Inc. is also no longer a Nominating Investor.
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CAUTION REGARDING FORWARD-LOOKING INFORMATION
This MD&A of TMX Group contains “forward-looking information” (as defined in applicable Canadian securities legislation)
that is based on expectations, assumptions, estimates, projections and other factors that management believes to be
relevant as of the date of this MD&A. Often, but not always, such forward-looking information can be identified by the
use of forward-looking words such as “plans,” “expects,” “is expected,” “budget,” “scheduled,” “targeted,” “estimates,”
“forecasts,” “intends,” “anticipates,” “believes,” or variations or the negatives of such words and phrases or statements
that certain actions, events or results “may,” “could,” “would,” “might,” or “will” be taken, occur or be achieved or not be
taken, occur or be achieved. Forward-looking information, by its nature, requires us to make assumptions and is subject
to significant risks and uncertainties which may give rise to the possibility that our expectations or conclusions will not
prove to be accurate and that our assumptions may not be correct.
Examples of forward-looking information in this MD&A include, but are not limited to, the anticipated benefits of the
Trayport acquisition to TMX Group; the expected impact of the Trayport acquisition on TMX Group’s earnings and adjusted
earnings per share; estimated 2018 transaction costs; the ability and timing to integrate Trayport into TMX Group and the
potential synergies; the acquisition of Trayport bolstering TMX Group’s strategy to shift towards recurring data and analytics
revenue globally; the impact of the Trayport acquisition on certain of TMX Group’s segments, including capital markets,
derivatives markets and global solutions, insights and analytics businesses as a result of a European presence; Trayport's
expected conversion to the SaaS model and the timing thereof; the potential for geographic expansion; the ability for TMX
Group to accelerate Trayport’s growth; the ability of TMX Group to de-leverage and the timing thereof; TMX Group's
business integration initiative including the integration of clearing platforms, including the expected cash expenditures
related to the integration of our clearing platforms and the anticipated cost savings resulting from this initiative and the
timing of the integration and the anticipated savings; costs associated with the consolidation of office premises and
anticipated cost savings related to consolidation of office premises statements; other statements related to cost reductions
and strategic realignment expenses; the impact of changes to each of our equity trading fees, market data fees, and
additional listing fees on TMX Group's revenue; the impact of the increase of market capitalization of TSX and TSXV issuers
overall (from 2016 to 2017) net of changes to sustaining fees on TMX Group's revenue; anticipated increases to severance
costs as a result of organizational changes, the expected annual cost savings related to these changes, and the timing
thereof; TMX Group's anticipated statutory income tax rate for 2018; factors relating to stock, and derivatives exchanges
and clearing houses and the business, strategic goals and priorities, market conditions, pricing, proposed technology and
other initiatives, financial results or financial condition, operations and prospects of TMX Group which are subject to
significant risks and uncertainties.
These risks include: competition from other exchanges or marketplaces, including alternative trading systems and new
technologies, on a national and international basis; dependence on the economy of Canada; adverse effects on our results
caused by global economic conditions or uncertainties including changes in business cycles that impact our sector; failure
to retain and attract qualified personnel; geopolitical and other factors which could cause business interruption;
dependence on information technology; vulnerability of our networks and third party service providers to security risks,
including cyber-attacks; failure to properly identify or implement our strategies; regulatory constraints; constraints imposed
by our level of indebtedness, risks of litigation or other proceedings; dependence on adequate numbers of customers;
failure to develop, market or gain acceptance of new products; failure to effectively integrate acquisitions, including the
Trayport acquisition, to achieve planned economics, or divest under performing businesses; currency risk; adverse effect
of new business activities; adverse effects from business divestitures; not being able to meet cash requirements because
of our holding company structure and restrictions on paying dividends; dependence on third-party suppliers and service
providers; dependence of trading operations on a small number of clients; risks associated with our clearing operations;
challenges related to international expansion; restrictions on ownership of TMX Group common shares; inability to protect
our intellectual property; adverse effect of a systemic market event on certain of our businesses; risks associated with the
credit of customers; cost structures being largely fixed; the failure to realize cost reductions in the amount or the time
frame anticipated; dependence on market activity that cannot be controlled; the regulatory constraints that apply to the
business of TMX Group and its regulated subsidiaries, costs of on exchange clearing and depository services, trading
volumes (which could be higher or lower than estimated) and revenues; future levels of revenues being lower than expected
or costs being higher than expected.
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Forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not
limited to, assumptions in connection with the ability of TMX Group to successfully compete against global and regional
marketplaces; business and economic conditions generally; exchange rates (including estimates of exchange rates from
Canadian dollars to the U.S. dollar or British pound sterling), commodities prices, the level of trading and activity on
markets, and particularly the level of trading in TMX Group’s key products; business development and marketing and sales
activity; the continued availability of financing on appropriate terms for future projects; productivity at TMX Group, as
well as that of TMX Group’s competitors; market competition; research and development activities; the successful
introduction and client acceptance of new products; successful introduction of various technology assets and capabilities;
the impact on TMX Group and its customers of various regulations; TMX Group’s ongoing relations with its employees;
and the extent of any labour, equipment or other disruptions at any of its operations of any significance other than any
planned maintenance or similar shutdowns.
While we anticipate that subsequent events and developments may cause our views to change, we have no intention to
update this forward-looking information, except as required by applicable securities law. This forward-looking information
should not be relied upon as representing our views as of any date subsequent to the date of this MD&A. We have
attempted to identify important factors that could cause actual actions, events or results to differ materially from those
current expectations described in forward-looking information. However, there may be other factors that cause actions,
events or results not to be as anticipated, estimated or intended and that could cause actual actions, events or results to
differ materially from current expectations. There can be no assurance that forward-looking information will prove to be
accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking information. These factors are not intended to represent a
complete list of the factors that could affect us. A description of the above-mentioned items is contained under the heading
RISKS AND UNCERTAINTIES in this MD&A.
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Financial
Statements
2017 Annual Report
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TMX Group Limited
Management
Statement
Management is responsible for the preparation, integrity and fair
presentation of the consolidated financial statements (the financial
statements), management’s discussion and analysis, and other
information in this annual report. The financial statements were
prepared in accordance with International Financial Reporting
Standards and, in the opinion of management, fairly reflect the
financial position, financial performance and changes in the
financial position of TMX Group Limited. Financial information
contained throughout this annual report is consistent with the
financial statements, unless otherwise specified.
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 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 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
Chief Executive Officer
TMX Group Limited
John McKenzie
Chief Financial Officer
TMX Group Limited
February 12, 2018
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KPMG LLPTelephone(416) 777-8500Chartered Professional AccountantsFax(416) 777-8818Bay Adelaide CentreInternet: www.kpmg.ca333 Bay Street, Suite 4600Toronto ON M5H 2S5KPMG 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 LLPINDEPENDENT AUDITORS’ REPORTTo 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, 2017and 2016,the consolidated income statements, the consolidated statements of comprehensive income(loss),consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standardsas 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.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our auditsin 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 consolidatedfinancial 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 auditsis sufficient and appropriate to provide a basis for our audit opinion. 2017 Annual Report
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TMX Group Limited
Page 2OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of TMX Group Limited as at December 31, 2017and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standardsas issued by the International Accounting Standards Board.Chartered Professional Accountants, Licensed Public AccountantsFebruary 12,2018Toronto, Canada 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
Debt
Credit and liquidity facilities drawn
Other current liabilities
Non-current liabilities:
Fair value of open energy contracts
Debt
Other non-current liabilities
Deferred income tax liabilities
Total Liabilities
Equity:
Share capital
Contributed surplus
Retained earnings (deficit)
Accumulated other comprehensive income
Total Equity
Commitments and contingent liabilities
Total Liabilities and Equity
Note
December 31, 2017
December 31, 2016
15 $
15
15
16
4 & 10
4 & 10
10
23
4 & 10
17
23
9
$
19 $
15
4 & 10
4 & 10
10
12
12
23
4 & 10
12
23
9
26
24
175.0 $
116.3
50.1
102.3
—
—
19,946.0
18.1
20,407.8
—
5,067.6
134.4
15.0
25,624.8 $
90.3 $
116.3
—
—
19,946.0
795.0
—
61.1
21,008.7
—
547.6
61.3
824.4
22,442.0
2,915.5
11.8
252.6
2.9
3,182.8
240.6
66.0
61.8
84.9
781.3
122.8
16,315.5
16.2
17,689.1
27.4
4,319.8
128.3
36.8
22,201.4
77.5
66.0
781.3
122.8
16,315.5
309.9
4.6
56.0
17,733.6
27.4
648.7
58.0
813.0
19,280.7
2,896.4
10.3
(5.3)
19.3
2,920.7
21 & 22
$
25,624.8 $
22,201.4
See accompanying notes which form an integral part of these consolidated financial statements.
Approved on behalf of the Board of Directors on February 12, 2018:
/s/ Charles Winograd
Chair
/s/ William Linton
Director
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TMX Group Limited
TMX GROUP LIMITED
Consolidated Income Statements
(In millions of Canadian dollars,
except per share amounts)
Revenue
REPO interest:
Interest income
Interest expense
Net REPO interest
Total revenue
Expenses:
Compensation and benefits
Information and trading systems
Selling, general and administration
Depreciation and amortization
Total operating expenses before acquisition costs and
strategic re-alignment expenses
Income from operations before acquisition costs and
strategic re-alignment expenses
Acquisition costs
Strategic re-alignment expenses
Income from operations
Share of income from equity accounted investees
Impairment charges
Other income
Finance income (costs):
Finance income
Finance costs
Net finance costs
Income before income tax expense
and income from discontinued operations
Income tax expense
Net income before income from discontinued operations, net of tax
Income from discontinued operations, net of tax
Net income
Net income attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share (attributable to equity holders of the Company):
Net income before discontinued operations, net of tax - basic
Net income before discontinued operations, net of tax - diluted
Net income - basic
Net income - diluted
Consolidated Financial Statements
For the year ended December 31,
Note
6 $
2017
668.9 $
78.4
(78.4)
—
668.9
171.4
51.2
82.1
51.6
356.3
312.6
13.8
—
298.8
2.9
(6.5)
—
13.1
(28.1)
(15.0)
280.2
89.0
191.2
176.8
368.0 $
368.0 $
—
368.0 $
3.46 $
3.43 $
6.66 $
6.60 $
3
21
18
17
3 & 7
4 & 7
9
4
$
$
$
8 $
8 $
8 $
8 $
2016
683.7
61.7
(61.7)
—
683.7
183.1
67.2
76.7
56.6
383.6
300.1
—
21.0
279.1
2.4
(8.9)
0.6
1.7
(33.1)
(31.4)
241.8
61.8
180.0
15.7
195.7
196.4
(0.7)
195.7
3.31
3.30
3.60
3.58
See accompanying notes which form an integral part of these consolidated financial statements.
TMX GROUP LIMITED
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TMX Group Limited
TMX GROUP LIMITED
Consolidated Statements of Comprehensive Income (Loss)
(In millions of Canadian dollars)
For the year ended December 31,
Consolidated Financial Statements
Net income
$
368.0 $
Note
2017
Other comprehensive income (loss):
Items that will not be reclassified to the
consolidated income statements:
Actuarial losses on defined benefit pension and other post-retirement
benefit plans (net of tax benefits of $0.9,
2016 – tax benefit of $0.3)
25
Total items that will not be reclassified to the
consolidated income statements
Items that may be reclassified subsequently to the consolidated income
statements:
Unrealized loss on translating financial statements of foreign
operations
Reclassification to net income of losses on interest rate swaps
(2016 – tax expense of $0.4)
12
Total items that may be reclassified subsequently to the
consolidated income statements
Total comprehensive income
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
$
$
$
(2.3)
(2.3)
(16.4)
—
(16.4)
349.3 $
349.3 $
—
349.3 $
See accompanying notes which form an integral part of these consolidated financial statements.
2016
195.7
(0.7)
(0.7)
(5.6)
1.1
(4.5)
190.5
193.1
(2.6)
190.5
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TMX Group Limited
Consolidated Financial Statements
TMX GROUP LIMITED
Consolidated Statements of Changes in Equity
(In millions of Canadian dollars)
For the year ended December 31, 2017
Attributable to equity holders of the Company
Note
Share capital
Contributed
surplus
Accumulated
other
comprehensive
income
Retained
earnings
(deficit)
Total
equity
Balance at January 1, 2017
$
2,896.4 $
10.3 $
19.3 $
(5.3) $
2,920.7
Net income
Other comprehensive (loss) income:
Foreign currency translation
differences
Actuarial losses on defined benefit
pension and other post-retirement
benefit plans, net of taxes
25
Total comprehensive income (loss) income
Dividends to equity holders
Proceeds from exercised share
options
Cost of exercised share options
Cost of share option plan
28
24
—
—
—
—
—
17.3
1.8
—
—
—
—
—
—
—
(1.8)
3.3
—
368.0
368.0
(16.4)
—
(16.4)
—
—
—
—
—
(16.4)
(2.3)
365.7
(107.8)
—
—
—
(2.3)
349.3
(107.8)
17.3
—
3.3
Balance at December 31, 2017
$
2,915.5 $
11.8 $
2.9 $
252.6 $
3,182.8
See accompanying notes which form an integral part of these consolidated financial statements.
TMX GROUP LIMITED
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TMX Group Limited
TMX GROUP LIMITED
Consolidated Statements of Changes in Equity
(In millions of Canadian dollars)
For the year ended December 31, 2016
Attributable to equity holders of the Company
Consolidated Financial Statements
Share
capital
Contributed
surplus
Note
Accumulated
other
comprehensive
income
Retained
earnings
(deficit)
Total
attributable
to equity
holders
2,788.0 $
Non-
controlling
interests
Total
equity
30.3 $
2,818.3
Balance at January 1, 2016
$
2,861.7 $
11.0 $
21.9 $
(106.6) $
Net income (loss)
Other comprehensive (loss) income:
Foreign currency translation
differences
12
25
28
Net change in interest rate
swaps designated as cash flow
hedges, net of taxes
Actuarial losses on defined
benefit pension and other
post-retirement benefit plans,
net of taxes
Total comprehensive (loss) income
Dividends to equity holders
Dividend to non-controlling
interests
Changes to BOX Holdings
non-controlling interests
Proceeds from exercised share
options
Cost of exercised share
options
Cost of share option plan
24
—
—
—
—
—
—
—
—
31.6
3.1
—
—
—
—
—
—
—
—
—
—
(3.1)
2.4
—
196.4
196.4
(0.7)
195.7
(3.7)
1.1
—
(2.6)
—
—
—
—
—
—
—
—
(3.7)
(1.9)
(5.6)
1.1
—
1.1
(0.7)
195.7
(90.2)
(0.7)
193.1
(90.2)
—
—
—
(2.6)
—
(3.4)
(0.7)
190.5
(90.2)
(3.4)
(4.2)
(4.2)
(24.3)
(28.5)
—
—
—
31.6
—
2.4
—
—
—
31.6
—
2.4
Balance at December 31, 2016
$
2,896.4 $
10.3 $
19.3 $
(5.3) $
2,920.7 $
— $
2,920.7
See accompanying notes which form an integral part of these consolidated financial statements.
TMX GROUP LIMITED
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TMX Group Limited
TMX GROUP LIMITED
Consolidated Statements of Cash Flows
(In millions of Canadian dollars)
For the year ended December 31,
Consolidated Financial Statements
Note
2017
4 $
507.5 $
Cash flows from (used in) operating activities:
Income (including discontinued operations) before income taxes
Adjustments to determine net cash flows:
Depreciation and amortization
Impairment charges and write-offs
Gain on sale of NGX and Shorcan Energy before income taxes
Other income
Net finance costs
Share of income of equity accounted investees
Cost of share option plan
Employee defined benefits expense
Unrealized foreign exchange losses
Trade and other receivables, and prepaid expenses
Trade and other payables
Provisions
Deferred revenue
Other assets and liabilities
Cash paid for employee defined benefits
Income taxes paid
Cash flows from (used in) financing activities:
Interest paid
Net settlement on derivative instruments
Reduction in obligations under finance leases
Proceeds from exercised options
Dividends paid to equity holders
Dividend paid to non-controlling interests
Credit facility and debt financing fees
Repayment of debenture
Proceeds from issuance of debenture
Net movement of Commercial Paper
Credit and liquidity facilities drawn, net
17
4
7
18
24
25
25
7
12
22
24
28
12
12
12
12
12
Cash flows from (used in) investing activities:
Interest received
Dividends received
Additions to premises and equipment and intangible assets, net of grants
Marketable securities, net
Acquisition of Trayport and sale of NGX and Shorcan Energy, net of cash
Proceeds from sale of operations, net of cash disposed of
Decrease in cash from loss of control of BOX Holdings
Other investing activities
3 & 4
5
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Unrealized foreign exchange losses on cash and cash equivalents
held in foreign currencies
Cash and cash equivalents, end of the period
$
175.0 $
See accompanying notes which form an integral part of these consolidated financial statements.
TMX GROUP LIMITED
2017 Annual Report
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TMX Group Limited
56.1
8.3
(203.2)
—
14.4
(2.9)
3.3
3.8
(2.5)
(11.8)
0.8
(7.9)
(2.8)
11.0
(2.2)
(95.3)
276.6
(29.0)
10.2
(0.1)
17.3
(107.8)
—
(2.0)
—
300.0
86.4
(4.6)
270.4
3.6
0.5
(39.6)
11.7
(613.5)
25.3
—
—
(612.0)
(65.0)
240.6
(0.6)
2016
261.5
61.2
10.7
—
(0.6)
30.9
(2.4)
2.4
3.7
0.3
(9.5)
1.5
14.0
7.7
7.2
(5.2)
(69.0)
314.4
(31.8)
(1.1)
(1.0)
31.6
(90.2)
(3.4)
(1.0)
(350.0)
—
235.2
4.4
(207.3)
2.2
1.6
(13.5)
9.4
—
—
(17.6)
(0.4)
(18.3)
88.8
154.1
(2.3)
240.6
9
TMX GROUP LIMITED
Notes to the Consolidated Financial Statements
(In millions of Canadian dollars, except per share amounts)
NOTE 1 – GENERAL INFORMATION
TMX Group Limited 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. MX also holds an investment in BOX Holdings
Group LLC ("BOX Holdings"), which wholly-owns BOX Market LLC (“BOX”). BOX provides a market for the trading of United
States ("US") equity options. The Company accounts for its investment in BOX Holdings using the equity method (note 18);
•
•
•
•
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;
Trayport Limited (“Trayport”), a world-leading provider of technology solutions for energy traders, brokers and exchanges
based in London, UK. The Company acquired Trayport on December 14, 2017 from Intercontinental Exchange Inc. (“ICE”)
(note 3);
Shorcan Brokers Limited ("Shorcan"), a fixed income inter-dealer broker and registered exempt market dealer; and
TSX Trust Company , a provider of corporate trust, registrar, transfer agency and foreign exchange services).
On December 14, 2017, the Company sold Natural Gas Exchange Inc. (“NGX”) and its subsidiaries, which operates 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”), a broker of crude oil contracts to ICE (note 4). As a result, the Company has reclassified the operations of
NGX and Shorcan Energy as discontinued, and has restated the consolidated income statements on a comparative basis.
The audited annual consolidated financial statements as at and for the year ended December 31, 2017 and 2016 (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 2 – BASIS OF PREPARATION
(A) BASIS OF ACCOUNTING
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 12, 2018.
The Company's significant accounting policies 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. The
Company has applied its judgement in presenting its significant accounting policies together with related information in the notes
to the consolidated financial statements. The Company has also ordered its notes to the consolidated financial statements to
emphasize the areas that are most relevant to the Company's financial performance and financial position, as viewed by
management.
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(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:
•
•
•
•
Certain financial instruments (note 14);
Investment in privately-owned company (note 23);
Liabilities arising from share-based payment plans (note 24); and
Legal obligations associated with the restoration costs on the retirement of premises and equipment (note 21).
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 –
valuation using observable market information as inputs; and Level 3 – valuation using unobservable market information.
(C) JUDGEMENTS AND ESTIMATES
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.
Judgements made in applying accounting policies that have the most significant effects on the amounts recognized in these
financial statements are included in the following notes:
•
Consolidation of a subsidiary – As of July 1, 2016, the Company does not hold majority voting power on the board of directors
of BOX Holdings and determined that it does not exercise control. The Company uses the equity method to account for its
investment in BOX Holdings (note 18); and
• Reallocation of goodwill and certain intangibles – as a result of a strategic re-alignment which began in 2015, the Company
revised its operating segments. The reorganization of the Company's reporting structure has changed the composition of
one or more cash-generating units to which goodwill and certain intangibles have been allocated for impairment purposes
(note 17).
Information about assumption and estimate uncertainties that have a significant risk of resulting in a material adjustment in
these financial statements is included in the following notes:
•
•
Fair values of assets acquired and liabilities assumed – for the acquisition of Trayport and the sale of NGX and Shorcan Energy,
the provisional fair values under the acquisition method are based on management’s best estimates using established
methodologies of the fair value of the assets and liabilities acquired and disposed (note 3 and 4);
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 17);
• 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 25);
•
•
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 21);
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 24); and
TMX GROUP LIMITED
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
•
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 9).
(D) 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.
(E) FUNCTIONAL AND PRESENTATION 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
within equity.
Revenues earned, expenses incurred and 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 other revenue in the consolidated income statement for the period.
(F) 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) Capital formation
Capital formation revenue includes revenue from listings 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 issuer’s 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 include revenue from registrar and transfer agency, corporate trust services, and trading of securities
in the exempt market which is recognized as the services are provided. Margin income from funds held and administered
on behalf of clients is also included in other issuer services revenue.
(ii) Derivatives trading and clearing
Derivatives trading and clearing revenue includes revenue from trading, clearing and licensing technology to BOX.
Trading and related revenues for derivatives markets are recognized in the month in which the trades are executed or when
the related services are provided. Fees earned are recognized on the novation date of the related transaction.
BOX revenue from the Options Price Reporting Authority (“OPRA”) is received quarterly based on BOX's pro-rata share of
industry trade (not contract) volume. Estimates of OPRA’s quarterly revenue are made and accrued each month. Subsequent
to July 1, 2016, the Company accounts for its investment in BOX Holdings using the equity method (note 18).
TMX GROUP LIMITED
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(iii) Global solutions, insights & analytics (formerly Market insights)
Global solutions, insights & analytics revenue includes real time data, other market data products, data delivery solutions
and technology solutions.
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 collectibility of the revenue is reasonably assured.
Other global solutions, insights & analytics revenue is recognized when the services are provided.
(iv) Equities and fixed income trading and clearing
Equities and fixed income trading and clearing includes revenue from equities and fixed income trading, clearing, settlement,
and depository services.
Trading and related revenues for equities and fixed income trading are recognized in the month in which the trades are
executed or when the related services are provided.
Revenues related to equities and fixed income clearing, settlement and depository services 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’s
Continuous Net Settlement (“CNS”) service prior to settlement. The related fees are recognized as follows:
Reporting fees are recognized when the trades are delivered to CDS;
Netting and novation fees are recognized when the trades are netted and novated;
Other clearing related fees are recognized when services are performed; and
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. Beginning January 1, 2015 and subsequent years, CDS also shares with Participants, on a 50:50 basis, any
annual increases in revenue applicable to the New York Link/Depository Trust Company Direct Link Liquidity Premium.
•
These rebates are recorded as a reduction in revenue in the consolidated income statement in the period to which they
relate.
Other equities and fixed income trading and clearing revenues are recognized when the services are performed.
(v) Energy trading and clearing
Energy trading, clearing, settlement and related revenues 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.
(vi) Other income
Other income is recorded and recognized as revenue over the period the service is provided.
(vii) 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.
(G) COMPARATIVE FIGURES
Certain comparative figures in these consolidated financial statements have been reclassified to reflect financial presentation
adopted in the current year.
TMX GROUP LIMITED
13
2017 Annual Report
109
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 3 – ACQUISITION OF TRAYPORT
On December 14, 2017, the Company completed the acquisition of Trayport, a world-leading provider of technology solutions
for energy traders, brokers and exchanges from Intercontinental Exchange, Inc. (ICE) for £551.8 ($951.7). The UK Competition
and Markets Authority has approved the sale of Trayport to the Company. The transaction was announced in October 2017.
In conjunction with the Trayport acquisition, the Company completed the sale of NGX and Shorcan Energy to ICE, at a combined
value of £220.5 ($379.2) (note 4). The sale of NGX and Shorcan Energy was used as partial consideration by the Company for the
Trayport acquisition. The net purchase price of £331.3 ($572.5) was funded through $173.0 from commercial paper, $101.2 of
cash on hand and $298.3 from the Series D Debentures offering, net of fees (note 12). The Company completed foreign exchange
forward transactions to economically hedge £352.7 ($610.0). As a result, a gain of $10.2 was recognized as finance income (note
7).
The acquisition has been accounted for as a business combination with the Company consolidating 100% of the results of
operations of Trayport from the date of the acquisition. The assets and liabilities of Trayport are included in the consolidated
financial statements. Trayport is included in the Global Solutions, Insights & Analytics operating segment (note 6).
The preliminary purchase price allocation is as follows:
Goodwill
Intangible assets
Other assets and liabilities, net
Deferred tax liabilities on identifiable intangible assets
Fair value of net assets acquired
$
$
621.7
383.4
11.0
(64.4)
951.7
In determining the preliminary purchase price allocation, the Company considered, among other factors, the intended future
use of acquired assets, analysis of historical financial performance and estimates of future performance of Trayport's business.
The Company has not yet obtained all the information related to the fair value of the acquired assets and liabilities to finalize the
purchase price allocation, including the valuation of identifiable intangible assets, income taxes, certain other assets and liabilities,
and final working capital adjustments. The allocation of the purchase price will be finalized within twelve months following the
acquisition date.
The following table sets forth the preliminary estimate of the components of the intangible assets associated with the acquisition
as at December 31, 2017:
Intangible assets
Customer relationships
Trade name
Developed technology
Total
Acquisition date
fair value
Accumulated
amortization
Net book value
Useful life (Years)
$
$
307.6 $
39.2
36.6
383.4 $
(0.5) $
—
(0.2)
(0.7) $
307.1
39.2
36.4
382.7
25
Indefinite
2 to 10
Approximately $13.8 of acquisition related costs have been recognized as an expense in the consolidated income statement.
Had the acquisition of Trayport occurred as of January 1, 2017, the Company’s consolidated income statement for the year ended
December 31, 2017 would have included revenue of $100.3 and income from operations of $34.1, inclusive of pre-acquisition
revenue of $95.9 and income from operations of $31.6. In determining these amounts, management has assumed that the fair
value adjustments, determined provisionally, that arose on the acquisition date, would have been the same if the acquisition
had occurred on January 1, 2017.
TMX GROUP LIMITED
14
2017 Annual Report
110
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 4 – SALE OF NGX AND SHORCAN ENERGY
In conjunction with the acquisition of Trayport (note 3), the Company completed the sale of NGX and Shorcan Energy to ICE on
December 14, 2017, at a combined value of £220.5 ($379.2). The sale of NGX and Shorcan Energy was used as partial consideration
for the acquisition of Trayport. The Commissioner of Competition has issued a "no action" letter in respect of the sale of NGX
and Shorcan Energy to ICE.
The financial information relating to the gain on sale of NGX and Shorcan Energy is as follows:
Gross proceeds from sale of NGX and Shorcan Energy
Net assets disposed
Transaction costs
Gain on sale of NGX and Shorcan Energy before income taxes
Income tax expense
Gain on sale of NGX and Shorcan Energy, net of tax
Goodwill
Intangible assets
Other assets and liabilities, net
Total assets disposed
December 31, 2017
379.2
(174.0)
(2.0)
203.2
(45.4)
157.8
December 31, 2017
10.4
188.0
(24.4)
174.0
$
$
$
$
The Company has classified the sale of NGX and Shorcan Energy as a discontinued operation. Prior to the sale, the operations of
NGX and Shorcan Energy entirely comprised of the Energy Trading & Clearing operating segment and a small portion of the Global
Solutions, Insights & Analytics operating segment. A discontinued operation is a component of the Company's business, the
operations and cash flows of which can be clearly distinguished from the rest of the Company and which: (i) represents a separate
major line of business or geographic area of operations; (ii) is part of a single co-ordinated plan to dispose of a separate major
line of business or geographic area of operations; or (iii) is a subsidiary acquired exclusively with a view to re-sale.
The operations of NGX and Shorcan Energy were not previously classified as held-for-sale or as a discontinued operation. The
classification of discontinued operation occurred at December 14, 2017 which is the date of disposal of the operations.
Accordingly, the Company has re-presented the comparative consolidated income statements to show the discontinued
operations separately from continuing operations.
The financial performance and cash flow information presented in the following table are for the beginning of the period to the
date of sale and the year ended December 31, 2016:
December 14, 2017
December 31, 2016
Revenue
Operating expenses
Income from operations
Finance income
Income before income taxes and gain on sale
Income tax expense
Gain on sale of NGX and Shorcan Energy, net of tax
Income from discontinued operations
Net cash provided by operating activities
Net cash used in financing activities
Net cash generated by (used in) investing activities
Net cash flow from discontinued operations
$
$
$
$
58.3 $
34.9
23.4
0.7
24.1
4.9
157.8
176.8 $
58.3
39.1
19.2
0.5
19.7
4.0
—
15.7
December 14, 2017
December 31, 2016
19.1 $
0.1
(3.1)
16.1 $
20.7
—
(4.7)
16.0
15
TMX GROUP LIMITED
2017 Annual Report
111
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 5 – SALE OF TMX ATRIUM
In February 2017, the Company entered into an agreement to sell its wireless and extranet infrastructure services business known
as TMX Atrium. As at March 31, 2017, the Company determined that the recoverable amount of the TMX Atrium cash generating
unit ("CGU") was lower than its carrying amount. In making its assessment of the recoverable amount of the TMX Atrium CGU,
the Company used the expected proceeds on sale, net of disposal costs. For the three months ended March 31, 2017, the impact
of the calculation resulted in an impairment charge of $4.8 related to goodwill in the consolidated income statement. Further,
the Company determined that tax losses incurred by TMX Atrium were no longer recoverable and has written off $2.9 of deferred
income tax assets within the income tax expense line item in the consolidated income statement.
The sale of TMX Atrium closed on April 30, 2017. For the year ended December 31, 2016, TMX Atrium earned revenue of $26.3
and incurred operating expenses before acquisition costs and strategic re-alignment expenses of $30.3. For the four months
ended April 30, 2017, TMX Atrium earned revenue of $8.6 and incurred operating expenses before acquisition costs and strategic
re-alignment expenses of $9.5.
NOTE 6 – SEGMENT INFORMATION
The Company has four operating segments. 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 and for which discrete financial information is available. Operating segments are reported
in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (“CODM”). The CODM, who
is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief
Executive Officer.
(A) INFORMATION ABOUT REPORTABLE SEGMENTS
Prior to the sale of NGX and Shorcan Energy (note 4), the Company had five reportable segments which included the Energy
Trading & Clearing segment. The Energy Trading & Clearing segment fully comprised of NGX and Shorcan Energy. As a result of
the sale, the Company's four reportable segments are as follows:
• Global Solutions, Insights & Analytics (formerly Market Insights): to deliver integrated data sets to fuel high-value proprietary
and third party analytics to help clients make better trading and investment decisions. The Company's operations included
in the Global Solutions, Insights & Analytics segment are TMX Datalinx, TMX Insights and as of December 14, 2017, Trayport
(note 3). On April 30, 2017, the Company completed the sale of TMX Atrium (note 5).
•
Capital Formation: to energize and expand the "capital market community" to better facilitate capital raising for issuers of
all types at all stages of their development and to provide access to alternative sources of capital. The Company's operations
included in the Capital Formation segment are: Toronto Stock Exchange ("TSX"), a national stock exchange serving the senior
equities market; TSX Venture Exchange, a national stock exchange serving the public venture equity market; TSX Private
Markets, a registered exempt market dealer and TSX Trust, a provider of corporate trust, registrar, transfer agency and foreign
exchange services.
• Derivatives Trading & Clearing: to intensify new product creation and leverage our unique market position to benefit from
increasing demand for derivatives products both in Canada and globally. The Company's operations included in the Derivatives
Trading and Clearing segment are Montréal Exchange, a national derivatives exchange; and Canadian Derivatives Clearing
Corporation ("CDCC"), a clearinghouse for options and futures contracts and certain over-the-counter products and fixed
income repurchase agreements.
As of July 1, 2016, the Company determined that it did not hold majority voting power in BOX Holdings Group LLC ("BOX
Holdings"), which wholly-owns BOX Market LLC ("BOX"), an exchange for trading of United States ("US") equity options.
Beginning July 1, 2016, the Company no longer consolidates BOX and accounts for its investment in BOX Holdings using the
equity method. With the equity method, the results of BOX are not included other than the Company's share of BOX's net
income (loss). Beginning the same date, the results from licensing technology to BOX are included in the Derivatives Trading
& Clearing segment. The income from licensing technology to BOX was previously eliminated when BOX's operating results
were consolidated.
•
Equities and Fixed Income Trading & Clearing: to operate innovative, efficient, reliable, fast, easy to use platforms for equities
trading and clearing. The Company's operations included in the Equities and Fixed Income Trading and Clearing segment are
the trading operations of Toronto Stock Exchange, TSX Venture Exchange, and TSX Alpha Exchange; CDS Clearing and
TMX GROUP LIMITED
16
2017 Annual Report
112
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
Depository Services Inc. ("CDS Clearing"), an automated facility for the clearing and settlement of equities and fixed income
transactions and custody of securities in Canada and Shorcan Brokers Limited, a fixed income inter-dealer broker.
The Company has certain revenue and corporate costs not allocated to the operating segments. Revenue related to foreign
exchange gains and losses and other services are presented in the Other segment. Costs and expenses related to the amortization
of purchased intangibles, along with certain consolidation and elimination adjustments, are also presented in the Other segment.
Information related to each reportable segment is as follows:
For the year ended
Global
Solutions
Insights &
Analytics
Capital
Formation
Derivatives
Trading &
Clearing
Equities and
Fixed Income
Trading &
Clearing
186.5 $
188.7 $
114.8 $
182.1 $
0.6
—
—
1.5
187.1 $
188.7 $
114.8 $
183.6 $
December 31,
2017
Other
(3.2) $
(2.1)
(5.3) $
Total
668.9
—
668.9
117.7 $
107.0 $
55.0 $
84.0 $
(51.1) $
312.6
1.9 $
— $
0.1 $
— $
0.2 $
— $
0.5 $
— $
48.9 $
6.5 $
51.6
6.5
Global
Solutions
Insights &
Analytics
Capital
Formation
Derivatives
Trading &
Clearing
Equities and
Fixed Income
Trading &
Clearing
208.3 $
1.8
210.1 $
182.9 $
—
182.9 $
117.5 $
—
117.5 $
173.5 $
1.8
175.3 $
December 31,
2016
Other
1.5 $
(3.6)
(2.1) $
Total
683.7
—
683.7
108.2 $
113.6 $
46.0 $
75.2 $
(42.9) $
300.1
3.0 $
— $
0.2 $
— $
2.9 $
— $
0.4 $
— $
50.1 $
8.9 $
56.6
8.9
Revenue (external)
Inter-segment revenue
Total revenue
Income from operations before
acquisition costs and strategic re-
alignment expenses
Selected items:
Depreciation and amortization
Impairment charges
For the year ended
Revenue (external)
Inter-segment revenue
Total revenue
Income from operations before
acquisition costs and strategic re-
alignment expenses
Selected items:
Depreciation and amortization
Impairment charges
$
$
$
$
$
$
$
$
$
$
The CODM assesses the performance of the operating segments based on income from operations before acquisition costs and
strategic re-alignment expenses, which is not a term defined within IFRS. This measure of profit excludes share of income from
equity accounted investees, impairment charges, strategic re-alignment expenses, acquisition costs and other costs and expenses
that relate to individual events of an infrequent nature.
Income from operations before acquisition costs and strategic re-alignment expenses and income from operations are important
indicators of the Company's ability to generate liquidity through operating cash flow to fund future working capital needs, service
outstanding debts, and fund future capital expenditures. Impairment charges includes impairment of goodwill and intangibles
originating from acquisitions and is not considered an operating item. The intent of these performance measures is to provide
additional useful information to investors and analysts; however, should not be considered in isolation.
TMX GROUP LIMITED
17
2017 Annual Report
113
TMX Group Limited
(B) INFORMATION ABOUT GEOGRAPHICAL AREAS
The Company’s revenue by geography is as follows:
For the year ended
Canada
US
UK
Other
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
December 31, 2017
511.0 $
118.2
16.7
23.0
668.9 $
$
$
December 31, 2016
493.2
145.6
16.2
28.7
683.7
Revenue is allocated based on the country to which customer invoices are addressed.
No single customer generates revenues greater than ten percent of the Company's total revenues.
The Company’s non-current assets by geography is as follows:
As at
Canada
UK
US
Other
December 31, 2017
5,150.5 $
20.5
21.3
0.8
5,193.1 $
$
$
December 31, 2016
4,373.6
—
45.9
10.6
4,430.1
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.
NOTE 7 – FINANCE INCOME AND FINANCE COSTS
Finance income comprises interest income on funds invested, and changes in the fair value of marketable securities. Finance
costs comprise interest expense on borrowings and finance leases. Any realized gains or losses on interest rate swaps and foreign
currency forward contracts are also included within net finance costs in the consolidated income statement.
Net finance costs for the period is as follows:
For the year ended
Note December 31, 2017 December 31, 2016
Finance income
Interest income on funds invested
Net settlement on derivative instruments
Finance costs
Interest expense on borrowings, including foreign exchange and
amortization of financing fees
Net settlement on interest rate swaps
Unwinding of the discount on provisions
15 $
3
12
12
21
2.9 $
10.2
13.1
(29.0)
1.0
(0.1)
(28.1)
$
(15.0) $
1.7
—
1.7
(31.8)
(1.1)
(0.2)
(33.1)
(31.4)
TMX GROUP LIMITED
18
2017 Annual Report
114
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 8 – 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.
Basic and diluted earnings per share both before and including discontinued operations (note 4) for the period are as follows:
For the year ended
December 31, 2017
December 31, 2016
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
Before
discontinued
operations
Discontinued
operations
Before
discontinued
operations
Total
Discontinued
operations
Total
$
191.2 $
176.8 $
368.0 $
180.7 $
15.7 $
196.4
55,285,668
55,285,668
55,285,668
54,616,160
54,616,160
54,616,160
444,769
444,769
444,769
194,378
194,378
194,378
55,730,437
55,730,437
55,730,437
54,810,538
54,810,538
54,810,538
Basic earnings per share
Diluted earnings per share
$
$
3.46 $
3.43 $
3.20 $
3.17 $
6.66 $
6.60 $
3.31 $
3.30 $
0.29 $
0.28 $
3.60
3.58
NOTE 9 – INCOME TAXES
(A) INCOME TAX EXPENSE RECOGNIZED IN THE CONSOLIDATED INCOME STATEMENT
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.
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
Adjustments in respect of prior years
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
Income tax expense before discontinued operations
Income tax expense on discontinued operations before gain on sale (note 4)
Income tax expense on sale of NGX and Shorcan Energy (note 4)
Total income tax expense
December 31, 2017
December 31, 2016
$
$
$
83.3 $
0.1
(3.3) $
(2.3)
8.3
2.9
89.0
4.9
45.4
139.3 $
79.8
0.6
(15.7)
0.3
(3.2)
—
61.8
4.0
—
65.8
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 operates and any adjustments
to income tax payable in respect of previous years.
Uncertain income tax positions are recognized in the financial statements using management’s best estimate of the amount
expected to be paid.
TMX GROUP LIMITED
19
2017 Annual Report
115
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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.
Income tax expense attributable to income differs from the amounts computed by applying the combined federal and provincial
income tax rate of 26.5% (2016 – 26.5%) to income before discontinued operations and income taxes as a result of the following:
For the year ended
Income before income tax expense and income from discontinued operations
Computed expected income tax expense
Impairment charges (note 17)
Non-deductible expenses
Adjustments in respect of prior years
Changes in substantively enacted income tax rates
Write-down of deferred income tax assets
Acquisition costs, net of realized foreign exchange gains (note 3)
Sale of TMX Atrium (note 5)
Loss of control of BOX Holdings
Rate adjustments due to US tax legislative changes
Other
Income tax expense before discontinued operations
December 31, 2017
280.2 $
December 31, 2016
241.8
74.3 $
1.7
0.9
(2.2)
8.3
2.9
2.3
1.4
—
—
(0.6)
89.0 $
64.1
2.4
0.9
0.9
(3.2)
—
—
—
(2.8)
(0.8)
0.3
61.8
$
$
$
During the year ended December 31, 2017, the British Columbia general corporate income rate was increased to 12% from 11%,
effective January 1, 2018. The Company recognized $2.5 in deferred income tax expense as a result of the rate change, which
became substantively enacted on October 26, 2017.
As part of the US tax reform that was enacted on December 22, 2017, the US federal corporate tax rate was reduced from 35%
to 21%, effective January 1, 2018. As a result of this rate change the Company recognized $5.8 in deferred income tax expense.
During the year ended December 31, 2016, the Province of Quebec decreased the general corporate income tax rate from 11.9%
to 11.5% over four years, effective January 1 of each year, as follows: 2017 – 11.8%, 2018 – 11.7%, 2019 – 11.6% and 2020 –
11.5%. The Company recognized $3.2 in deferred income tax recovery as a result of the rate change, which became substantively
enacted on November 15, 2016.
(B) DEFERRED INCOME TAX ASSETS AND LIABILITIES
The Company recognizes a deferred income tax asset 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.
Deferred income tax assets (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
Share-based payments
Other
Deferred income tax assets (liabilities)
Set off of tax
Net deferred income tax
assets (liabilities)
$
$
$
2017
6.0 $
22.8
6.1
4.9
10.6
3.9
54.3 $
(39.3)
Assets
2016
5.4 $
29.2
27.4
4.7
9.0
6.4
82.1 $
(45.3)
2017
(0.7) $
(860.6)
—
(2.0)
—
(0.4)
(863.7) $
39.3
Liabilities
2016
(2.6) $
(852.2)
—
(2.5)
—
(1.0)
(858.3) $
45.3
2017
5.3 $
(837.8)
6.1
2.9
10.6
3.5
(809.4) $
—
Net
2016
2.8
(823.0)
27.4
2.2
9.0
5.4
(776.2)
—
15.0 $
36.8 $
(824.4) $
(813.0) $
(809.4) $
(776.2)
TMX GROUP LIMITED
20
2017 Annual Report
116
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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.
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
Share-based
payments
Other
Total
Balance at January 1, 2016
$
Recognized in net income
Recognized in discontinued operations
Recognized in other comprehensive loss
Recognized in equity
Effect of movements in exchange rates
Balance at December 31, 2016
Recognized in net income
Recognized in discontinued operations
Recognized through acquisition of Trayport
Recognized in other comprehensive loss
Effect of movements in exchange rates
3.5 $
(0.7)
—
—
0.3
(0.3)
2.8
2.0
(0.1)
0.5
—
0.1
(834.7) $
20.1 $
2.4 $
4.3 $
8.7 $
(795.7)
10.8
0.5
—
0.7
(0.3)
(823.0)
1.7
49.4
(65.0)
—
(0.9)
7.4
(0.2)
—
(0.1)
0.2
27.4
(9.7)
(11.3)
—
—
(0.3)
(0.5)
—
0.3
—
—
2.2
0.4
(0.6)
—
0.9
—
4.7
—
—
—
—
9.0
1.6
—
—
—
—
(3.1)
0.3
(0.4)
(0.1)
—
5.4
(1.6)
(0.3)
0.1
—
(0.1)
18.6
0.6
(0.1)
0.8
(0.4)
(776.2)
(5.6)
37.1
(64.4)
0.9
(1.2)
Balance at December 31, 2017
$
5.3 $
(837.8) $
6.1 $
2.9 $
10.6 $
3.5 $
(809.4)
As at December 31, 2017, nil and $6.1 of the above deferred income tax assets related to tax losses incurred in Canada and the
US, respectively (2016 – $15.0 and $12.4, respectively). 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, 2017
46.5 $
203.6
250.1 $
December 31, 2016
46.9
170.4
217.3
$
$
At December 31, 2017, $4.8 of the above income tax losses will expire by 2034 (2016 – $12.3 by 2034). 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, 2017, deferred income tax liabilities for temporary differences of $1.1 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 (2016 – $130.2). Temporary
differences relating to the remaining domestic subsidiaries have not been recognized as the temporary difference can be settled
without tax consequences.
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TMX Group Limited
NOTE 10 – BALANCES WITH PARTICIPANTS, CLEARING MEMBERS, AND CONTRACTING PARTIES
Balances with Participants, Clearing Members, and Contracting Parties on the consolidated balance sheets are comprised of:
As at
December 31, 2017
December 31, 2016
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
Balances with Participants
Balances with Clearing Members
Clearing Members cash collateral
Balances with Clearing Members and Participants
Energy contracts
Fair value of open energy contracts
Balances with Contracting Parties
$
$
$
$
691.7 $
18,377.0
877.3
19,946.0 $
— $
—
— $
731.4
14,741.3
842.8
16,315.5
781.3
150.2
931.5
There is no impact on the consolidated balance sheets as an equivalent amount is recognized in both assets and liabilities.
(A) CDS CLEARING, SETTLEMENT AND PARTICIPANT BALANCES
Balances with Participants includes the cash collateral pledged and deposited with CDS Clearing and cash dividends, interest and
other cash distributions awaiting distribution (“entitlements and other funds”) on securities held under custody in the depository.
Cash collateral is held by CDS Clearing at the Bank of Canada and National Securities Clearing Corporation (“NSCC”)/Depository
Trust Company (“DTC”) and is recognized as an asset and an equivalent and offsetting liability is recognized as these amounts
are ultimately owed to the Participants.
Entitlements and other funds
Participants cash collateral
Balances with Participants
December 31, 2017
December 31, 2016
$
$
186.0 $
505.7
691.7 $
230.0
501.4
731.4
The margin deposits of CDS Clearing are held in liquid instruments. CDS Clearing's New York Link ("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 Clearing 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 Clearing’s liquidity facility is transferred to surviving Participant users of the NYL service and as a result CDS
Clearing’s liquidity risk exposure is limited to a maximum of its available liquidity facility.
At December 31, 2017, as a result of calculations of Participants’ exposure, the total amount of collateral required by CDS Clearing
was $5,888.3 (2016 – $5,572.0). The actual collateral pledged to CDS Clearing at December 31 is summarized below:
Cash (included within Balances with Participants
on the consolidated balance sheet)
Treasury bills and fixed income securities
Total collateral pledged
December 31, 2017
December 31, 2016
$
$
505.7 $
6,283.7
6,789.4 $
501.4
6,129.0
6,630.4
Non-cash collateral is not included in the Company’s consolidated balance sheets.
(B) CDCC CLEARING, SETTLEMENT AND CLEARING MEMBER BALANCES
Balances with Clearing Members 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.
At December 31, 2017, the gross amount of daily settlements due from, and to, Clearing Members was $25.2 and $25.2,
respectively (2016 – $180.0 and $180.0). These balances are then netted by Clearing Member at the balance sheet date, for
cash to be paid or received on mark-to-market on futures, options premium and cash margin shortage or excess.
• 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
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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. At December 31, 2017, the gross amount of
open REPO contracts receivable and payable was $30,585.7 and $30,585.7 (2016 – $27,037.7 and $27,037.7). These contracts
when broken down by Clearing Member give rise to gross receivable and gross payable positions. As allowed under CDCC
rules, receivable and payable balances outstanding with the same Clearing Member are offset when they are in the same
currency and are to be settled on the same day, as CDCC has a legally enforceable right to offset and the intention to net
settle. The balances include both the original principal amount of the REPO and the accrued interest, both of which are
carried at amortized cost. As CDCC is the central counterparty, an equivalent amount is recognized in both the Company’s
assets and liabilities.
The following table sets out the carrying amounts of Balances with Clearing Members that are subject to offsetting, enforceable
master netting arrangements and similar arrangements:
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 asset or (liability)
for counterparties in a
net asset / (net liability)
position
Liabilities / (assets)
offset against net assets/
(net liabilities) by
counterparties
Net amounts presented
in the consolidated
balance sheet
December 31, 2017
22.7 $
23,072.9
23,095.6
(24.6)
(25,867.6)
(25,892.2)
(2,796.6) $
(0.5) $
(4,718.1)
(4,718.6)
2.4
7,512.8
7,515.2
2,796.6 $
22.2
18,354.8
18,377.0
(22.2)
(18,354.8)
(18,377.0)
—
Gross asset or (liability)
for counterparties in a
net asset / (net liability)
position
Liabilities / (assets)
offset against net assets/
(net liabilities) by
counterparties
December 31, 2016
Net amounts presented
in the consolidated
balance sheet
178.9 $
16,615.4
16,794.3
(178.9)
(24,985.8)
(25,164.7)
(8,370.4) $
(1.1) $
(2,051.9)
(2,053.0)
1.1
10,422.3
10,423.4
8,370.4 $
177.8
14,563.5
14,741.3
(177.8)
(14,563.5)
(14,741.3)
—
For the year ended December 31, 2017, the largest settlement amount due from a Clearing Member was $173.0 (2016 – $179.4),
and the largest settlement amount due to a Clearing Member was $149.9 (2016 – $191.5). These settlement amounts do not
reflect net amounts from open REPO agreements, which are also due from Clearing Members.
Clearing Members’ cash collateral are comprised of cash margin deposits and cash clearing fund deposits from Clearing Members
which are held by CDCC with the Bank of Canada. 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 as an equivalent amount is
recognized in both assets and liabilities.
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
The actual collateral pledged to CDCC at December 31 is summarized below:
Cash collateral held:
Clearing Members’ cash margin deposits
Clearing fund cash deposits
December 31, 2017
December 31, 2016
$
$
727.9 $
149.4
877.3 $
720.0
122.8
842.8
Non-cash margin deposit and non-cash clearing fund deposit collateral pledged to CDCC under irrevocable agreements is held
in government securities, put letters of guarantee and equity securities with approved depositories. Clearing Members may also
pledge escrow receipts directly with CDCC. The non-cash collateral pledged to CDCC at December 31 is summarized below:
Non-cash collateral pledged:
Non-cash margin deposits
Non-cash clearing fund deposits
December 31, 2017
December 31, 2016
$
$
8,413.5 $
956.1
9,369.6 $
6,926.2
571.3
7,497.5
Non-cash collateral is not included in the Company’s consolidated balance sheets.
(C) TSX TRUST ASSETS UNDER ADMINISTRATION
TSX Trust administers various segregated funds, representing amounts held on behalf of clients in connection with corporate
trust and similar services. The actual assets under administration in TSX Trust at December 31 is summarized below:
Cash
Treasury bills and fixed income securities
Total assets under administration
$
$
December 31, 2017
221.1 $
406.0
627.1 $
December 31, 2016
656.3
680.6
1,336.9
Since these amounts are not controlled by TSX Trust or by the Company, assets under administration are not included in the
consolidated balance sheet.
(D) NGX CLEARING AND SETTLEMENT BALANCES
On December 14, 2017, the Company sold NGX to ICE (note 4).
At December 31, 2016, NGX clearing and settlement balances include the following:
•
•
Energy contracts receivable and energy contracts payable – These balances represent the amounts receivable and payable
where physical delivery of energy trading contracts has occurred and/or settlement amounts have been determined but
payments have not yet been made. There is no impact on the consolidated 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. NGX has classified its open
energy contracts receivable and payable as fair value through profit and loss. 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
NGX requires each Contracting Party to sign the Contracting Party’s agreement, which is a standardized agreement that allows
for netting of positive and negative exposures associated with a single Contracting Party.
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
The following table sets out the carrying amounts of recognized financial instruments that are subject to the agreement as at
December 31, 2016:
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, 2016
Net amounts presented in
the consolidated balance
sheet
Gross amount
3,802.4 $
1,668.4
5,470.8
(3,802.4)
(1,668.4)
(5,470.8)
— $
(3,021.1) $
(1,518.2)
(4,539.3)
3,021.1
1,518.2
4,539.3
— $
781.3
150.2
931.5
(781.3)
(150.2)
(931.5)
—
NGX required 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. This
collateral would have been accessed by NGX in the event of default by a Contracting Party. NGX measured 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.
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 Contracting Party under a stressed market scenario. For the year ended December 31,
2016, the largest amount due from a Contracting Party was $45.4 in US dollars ("US$") and the largest amount due to a Contracting
Party was US$61.3.
The actual collateral pledged to NGX at December 31 is summarized below:
Cash collateral deposits
Letters of credit
Total collateral pledged
The actual collateral pledged to NGX is not included in the consolidated balance sheet in 2016.
NOTE 11 – FINANCIAL RISK MANAGEMENT
$
$
December 31, 2016
495.7
2,080.5
2,576.2
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 CDS Clearing, and CDCC, the operations of
TSX Trust, the brokerage operations of Shorcan, cash and cash equivalents, restricted cash and cash equivalents, marketable
securities, trade receivables, interest rate swaps and total return swaps.
(i) Clearing and/or brokerage operations
The Company is exposed to credit risk in the event that Participants, in the case of CDS Clearing; Clearing Members, in the
case of CDCC; and clients, in the case of TSX Trust and Shorcan, fail to fulfill their financial obligations.
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TMX Group Limited
CDS Clearing
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
CDS Clearing 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 Clearing 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 Clearing’s multilateral clearing and
settlement system, as set out in the CDS Clearing 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 NYL and DTC Direct Link (“DDL”), credit risk exposures at CDS Clearing are created. During the course of each business
day, settlement transactions by the NSCC/DTC can result in a net payment obligation from NSCC/DTC to CDS Clearing or the
obligation of CDS Clearing to make a payment to NSCC/DTC. As a corollary result, CDS Clearing 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 Clearing Participant Rules. The process includes Participants posting
collateral with CDS Clearing and NSCC/DTC (note 10).
The risk exposure of CDS Clearing in these central counterparty services is mitigated through a daily mark-to-market of each
Participant’s obligations as well as risk-based collateral requirements calculated daily. These mitigants are intended to cover
the vast majority of market changes and are tested against actual price changes on a regular basis. This testing is supplemented
with analysis of the effects of extreme market conditions on a collateral valuation and market risk measurements which are
used to determine additional collateral requirements of Participants to a Default Fund established in 2015. 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 Clearing (note 10).
As of January 1, 2016, CDS Clearing also holds $1.0 of its cash and cash equivalents and marketable securities to contribute
pre-funded resources to its CNS default waterfall. This Default Fund of $1.0 would be accessed following the exhaustion of
a suspended Participant's CNS Participant Fund and Default Fund contribution.
CDS Clearing 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 Clearing could be exposed to the credit risk associated with the potential failure of the bank.
CDCC
CDCC is exposed to risk of loss 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 credit risk 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. As such, in the event of a Clearing Member
default, the obligations of those defaulting counterparties would become the responsibility of CDCC.
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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.
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 under open future, option contracts
and REPO agreements, margin deposits would be seized and would then be available to apply against the potential losses
incurred through the liquidation of 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. In 2015,
CDCC introduced additional margin surcharges to manage the risk exposures associated with specific business related risks.
These include: concentration charges for Clearing Members that are overly concentrated in certain positions, wrong-way
risk charges for those Clearing Members holding positions which are highly correlated with their own credit risk profile,
mismatched settlement surcharges which are meant to mitigate the risk of cherry-picking by a potential defaulter in the
settlement process.
Global regulatory requirements for central-counterparties (CCPs), like CDCC, have highlighted the need for CCPs to have a
component of their capital at risk 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 13). 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 10). This collateral
may be seized by CDCC in the event of default by a Clearing Member.
TSX Trust
TSX Trust 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 TSX Trust deals only with reputable financial
institutions comprised of Canadian major chartered banks.
Shorcan
Shorcan is 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 has the right to withdraw its normal policy of anonymity and advise the two counterparties to
settle directly.
(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
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
market securities or fixed income securities; however the majority of the portfolio is held within bank deposits, notes and
treasury bills.
(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 and total return swaps
The Company limits its exposure to counterparty credit risk on its interest rate swaps and its total return swaps by contracting
with major Canadian chartered banks.
(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. As at December 31, 2017, cash and cash equivalents and trade receivables,
net of current liabilities, include US$14.1, which are exposed to changes in the US-Canadian dollar exchange rate, £1.5, which
are exposed to changes in the British Pound Sterling-Canadian dollar exchange rate, €0.7, which are exposed to changes in
the Euro-Canadian dollar exchange rate (2016 – US$20.3, £0.2 and €0.6). In addition, net assets related to Trayport and other
foreign operations are denominated in US dollars, Euros (“EUR”) and British Pound Sterling ("GBP"), and the effect of foreign
exchange rate movements on the Company’s share of these net assets is included in accumulated other comprehensive
income in the consolidated balance sheet.
The Company is also exposed to foreign currency risk on its US dollar advances on Commercial Paper. At December 31, 2017,
advances on Commercial Paper include US$15.0, which is exposed to changes in the US-Canadian dollar exchange rate (2016
– US$15.0).
The Company does not currently employ currency hedging strategies with respect to its operating activities, and therefore
significant moves in exchange rates, specifically a strengthening of the Canadian dollar against the US dollar could have an
adverse effect on the value of the Company's net income or net assets in Canadian dollars.
Settlements in the clearing and settlement services offered by CDS Clearing 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.
At December 31, 2017, the Company held $50.1 in marketable securities, all of which were held in treasury bills (2016 –
$61.8, all of which were held in treasury bills).
The Company also has $395.3 of Commercial Paper (note 12). The Company has entered into an interest rate swap agreement
to partially manage its exposure to interest rate fluctuations on its Commercial Paper.
(iii) Equity price risk
The Company is exposed to equity price risk arising from its share-based payments, 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 economic
hedge to the share appreciation rights of these share-based payments.
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(iv) Other market price risk
The Company is exposed to market risk factors from the activities of CDCC, CDS Clearing and Shorcan, if a Clearing Member,
Participant or client, as the case may be, fails to take or deliver either derivative products or securities on the contracted
settlement date where the contracted price is less favourable than the current market price.
CDCC
CDCC is exposed to market risk through its CCP function in the event of a Participant default as it becomes the legal
counterparty to all of the defaulters’ novated transactions and must honor the financial obligations that arise from those
novated transactions.
The principal mitigation of the market risk exposure post default is the default management process. CDCC has developed
detailed default management processes that would enable it to neturalize the market exposures through either its auction
process or via open markets operations within prescribed time periods. Any losses from such operations would be set-off
against the margin and clearing fund (if necessary) colleteral that are pre-funded by all Clearing Members for these purposes.
CDS Clearing
CDS Clearing is exposed to market risk through its CCP function in the event of a Participant default as it becomes the legal
counterparty to all of the defaulters’ novated transactions and must honor the financial obligations that arise from those
novated transactions.
The principal mitigation of the market risk exposure post default is the default management process. CDS Clearing has
developed detailed default management processes that would enable it to neutralize the market exposures via open market
operations within prescribed time periods. Any losses from such operations would be set-off against the collateral
contributions of the defaulting participant to the Participant Fund and Default Fund for the CCP service.
Replacement cost risk exposure of CDS Clearing in these central counterparty services is mitigated through a daily mark-to-
market of each participant’s obligations as well as risk-based collateral requirements calculated daily. These mitigants are
intended to cover the vast majority of market changes and are tested against actual price changes on a regular basis. This
testing is supplemented with analysis of the effects of extreme market conditions on collateral valuation and market risk
measurements which are used to determine additional collateral requirements of Participants to a Default Fund established
in 2015. 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 US 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.
TSX and TSX Venture Exchange
The Company is exposed to 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.
Shorcan
Shorcan's risk is limited by their status as an agent, in that they do not purchase or sell securities 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.
TMX GROUP LIMITED
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TMX Group Limited
(v) Market risk sensitivity summary
Foreign currency
USD, EUR and GBP currency
USD, EUR and GBP currency
USD advances on Commercial Paper
USD advances on Commercial Paper
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, 2017 and 2016
Change in underlying
factor
Impact on income
before income taxes
Impact on equity
attributable to equity
holders of the Company
+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%
2.1 $
(2.1)
(1.9)
1.9
(0.1)
0.1
1.4
(1.4)
(4.0)
4.0
n/a
n/a
(10.1)
9.7
8.1
(6.6)
5.3
(5.3)
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 13).
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, 2017
$
Participants’ tax withholdings*
Accrued interest payable
Other trade and other payables
Provision for strategic re-alignment costs
Obligation under finance leases
Balances with Clearing Members and Participants*
Interest rate swaps
Commercial Paper
Debentures
116.3 $
6.5
57.4
4.2
0.1
19,946.0
—
395.3
400.0
— $
—
—
—
—
—
1.1
—
—
—
—
—
—
—
—
—
—
550.0
*The above financial liabilities are covered by assets that are restricted from use in the ordinary course of business.
TMX GROUP LIMITED
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126
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 12 – DEBT, CREDIT AND LIQUIDITY FACILITIES
The Company is exposed to liquidity risk through its clearing operations and capital structure (note 11). To manage this risk, the
Company has arranged various liquidity and credit facilities, Commercial Paper and debentures as a source of financing. 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.
(A) DEBT
The Company has the following debt outstanding at December 31:
Interest rate Maturity date(s)
Principal/
Authorized
2017
Carrying
amount
2016
Carrying
amount
Series A Debentures
Series B Debentures
Series D Debentures
Debentures
Commercial Paper
Commercial Paper
TMX Group Limited credit facility
Credit facility
Total debt
Less: current portion of debt
Non-current debt
(i) Debentures
3.253%
4.461%
2.997%
Oct 3, 2018 $
Oct 3, 2023
Dec 11, 2024
400.0 $
250.0
300.0
1.36%-1.41% /
January 5 -
February 13, 2018
USD 1.47%-1.60%
500.0
1 month B.A./LIBOR + 137.5 bps
May 2, 2020
500.0
$
399.8 $
249.2
298.3
947.3
395.3
395.3
—
—
1,342.6
(795.0)
547.6 $
399.5
249.2
—
648.7
309.9
309.9
—
—
958.6
(309.9)
648.7
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"). On December 11, 2017, the Company completed a private placement offering of $300.0
aggregate principal amount of senior unsecured debentures ("Series D Debentures") to accredited investors. The Company
incurred financing costs of $1.7 for the initial issuance of the Series D Debentures, and these costs are initially recognized in
the carrying value of the Debentures in the Debt caption of the consolidated balance sheet.
The Company has the right, at its option, to redeem, in whole or in part, each of the Series A, Series B and Series D Debentures
at any time prior to their respective maturities. The redemption price is equal to the greater of the applicable Canada Yield
Price (as defined in the relevant Indenture) and 100% of the principal amount of the debentures being redeemed, together
with accrued and unpaid interest to the date fixed for redemption. If redeemed on or after the date that is three months
prior to the maturity date for the Series B Debentures or two months prior to the maturity date for the Series D Debentures,
the redemption price is equal to 100% of the aggregate principal amount outstanding on the series being redeemed, together
with accrued and unpaid interest to the date fixed for redemption.
The debentures are carried at amortized cost and are measured using the effective interest rate method.
For the year ended December 31, 2017, the Company recognized interest expense on its Series A, Series B and Series D
debentures of $13.3, $11.3 and $0.5, respectively (2016 – $13.3, $11.3 and nil, respectively).
(ii) Commercial paper
The Company has a commercial paper program to offer potential investors up to $500 (or the equivalent US$) of Commercial
Paper ($400 or the equivalent of US$, prior to May 4, 2016) 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.
TMX GROUP LIMITED
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
The Commercial Paper issued are unsecured obligations of the TMX Group Limited 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.
During the year ended December 31, 2017, the Company issued and repaid Commercial Paper with a cumulative amount
of $2,681.3 and $2,594.8, respectively (2016 – $1,393.9 and $1,158.7, respectively).
As at December 31, 2017, the carrying amount of Commercial Paper issued that remains outstanding is $395.3 of which
$18.8 represents the Canadian dollar equivalent amount of US dollar Commercial Paper (2016 – $309.9 and $20.1,
respectively).
(iii) TMX Group Limited credit facility
The Company has entered into a 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 credit agreement
is to mitigate the Company's exposure 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.
On December 14, 2017, the Company modified the terms of the TMX Group Limited credit facility to extend the term from
May 2, 2019 to May 2, 2020. In addition to extending the maturity date, certain terms of the credit agreement were also
amended including less restrictive financial covenants (note 13). The Company incurred financing costs of $0.3 for modifying
the terms of the credit facility and have included these costs as an expense in the consolidated income statement.
The amount available to be drawn under the TMX Group Limited credit facility is limited to $500 less the aggregate amount
of: (i) Commercial Paper outstanding; and (ii) inter-company notes payable to CDS Clearing and CDCC outstanding, at any
point in time (December 31, 2017 – $395.3 and $10.0, respectively).
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 25).
(iv) Interest rate swaps
The interest rate swaps in place as of December 31 are as follows:
Swap
Maturity date
Interest rate the
Company will receive
Interest rate the
Company will pay
Series 5
May 2, 2019
1 month B.A.
1.083% $
Notional value
Fair value asset (liability)
2017
100.0 $
2016
100.0 $
2017
1.1 $
2016
0.1
During the year ended December 31, 2017, the Company recognized $0.1 within net finance costs in the consolidated income
statement, representing the net amount paid on the interest rate swaps (2016 – paid $1.1).
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 payable by the Company on its Commercial Paper 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.
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TMX Group Limited
(B) OTHER CREDIT AND LIQUIDITY FACILITIES
The Company has the following other credit and liquidity facilities drawn and outstanding at December 31:
Interest rate† Maturity date(s)
Authorized
2017
Carrying amount
2016
Carrying amount
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
AgriClear operating line of credit
AgriClear operating line of credit
AgriClear letter of credit
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
CDCC daylight liquidity facilities
CDCC syndicated REPO facility
Shorcan overdraft facility
Liquidity facilities
Total credit and liquidity facilities
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.0 $
US$3.0
US$10.5
6.0
10.0
5.0
US$5.5
– February 28, 2018
US$400.0
Prime less 1.75%
March 2, 2018
–
–
–
n/a
March 2, 2018
n/a
300.0
600.0
13,788.0
50.0
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
2.1
—
—
2.1
—
2.5
—
—
—
2.5
4.6
†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.
(i) AgriClear facilities
AgriClear Limited Partnership ("AgriClear"), an online platform, as well as a payment and settlement system for physical agricultural
product transactions in Canada and the United States. AgriClear maintains two uncommitted and unsecured operating credit
facilities of $3.0 and US$3.0 to support processing and settlement activities of buyers and sellers and short-term operating
requirements. The borrowing rates for these facilities, if drawn, are the Canadian prime or the US prime rate, depending on the
currency drawn.
In addition, AgriClear maintains a letter of credit demand facility of US$10.5 with a major Canadian chartered bank. TMX
Group Limited has guaranteed the obligations under the letter of credit demand facility. As at December 31, 2017, letters of
credit issued and outstanding under this facility were $0.1 and US$9.2.
(ii) 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.
CDS Clearing has a secured standby liquidity facility of US$400.0, or Canadian dollar equivalent that can be drawn in either
US or Canadian currency. This arrangement is available to support processing and settlement activities in the event of a
participant default. Borrowings under the secured facility are obtained by pledging or providing collateral pledged by
Participants primarily in the form of debt instruments issued or guaranteed by federal, provincial and/or municipal
governments in Canada, or US treasury instruments. Depending upon the currency drawn, the borrowing rate for the secured
standby credit arrangement is the US base rate or the Canadian prime rate. During the year, the Company modified the terms
of the CDS standby liquid facility to extend the term from December 6, 2017 to February 28, 2018.
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 Clearing 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.
As at December 31, 2017, CDS Clearing had drawn $nil to facilitate an entitlement payment to a Participant (2016 – $2.1).
TMX GROUP LIMITED
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(iii) 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 $13,788.0 REPO uncommitted facility that 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. During the year ended December 31, 2017, CDCC increased the size of its
repurchase facility from $13,638.0 to $13,788.0 as a result of Clearing Members' activities.
Also on February 6, 2017, the Company increased the size of its repurchase facility from $13,638.0 to $13,788.0 as a result
of Clearing Members' activities.
CDCC also maintains a $300.0 syndicated revolving standby liquidity facility to provide end of day liquidity in the event that
CDCC is unable to clear the daylight liquidity facilities to zero. Advances under the facility are secured by collateral in the
form of securities that have been received by, or pledged to, CDCC. As at December 31, 2017, CDCC did not have any failed
REPO settlements (2016 – $2.5). The amount was fully offset by liquid securities included in cash and cash equivalents and
was fully repaid subsequent to the reporting date.
On March 3, 2017, the Company extended these facilities from March 3, 2017 to March 2, 2018.
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.
(v) 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.
(vi) TMX Group Limited Support Agreement
In 2016, in compliance with the Principles for Financial Market Infrastructures and additional Canadian regulatory and
oversight guidance, CDS Clearing and CDCC each adopted a recovery plan, to be applied in the event that the entity is unable
to provide defined critical operations and services as a going concern. These recovery plans were filed with their respective
Canadian regulators. On January 1, 2017, in connection with the recovery plans, and if certain funding conditions are met,
TMX Group Limited agreed to provide certain limited financial support to CDS Clearing and CDCC, if necessary, in the context
of a recovery.
(C) RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The table below details changes in the Company's liabilities arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in
the Company's consolidated statement of cash flows from financing activities.
Balance at January
1, 2017
Financing cash
flows
Foreign Exchange
(non-cash)
Balance at
December 31, 2017
Debentures
Commercial Paper
CDS Clearing operating demand loan
CDCC syndicated revolving standby liquid facility
$
Interest rate swap and forward exchange contracts
used for hedging (note 23)
Finance lease liabilities (note 22)
Total
648.7 $
309.9
2.1
2.5
(0.1)
0.4
963.5
298.6 $
86.4
(2.1)
(2.5)
1.2
(0.3)
381.4
— $
(1.0)
—
—
—
—
(1.0)
TMX GROUP LIMITED
2017 Annual Report
130
TMX Group Limited
947.3
395.3
—
—
1.1
0.1
1,343.9
34
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 13 – 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 $170 in cash, cash equivalents and marketable
securities. This amount is subject to change;
• 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;
• Returning capital to shareholders through methods such as dividends paid to shareholders and purchasing shares for
cancellation pursuant to normal course issuer bids; and
• Reducing the debt levels to be below the total leverage ratios as discussed in (a) below, which decrease over time.
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 TMX Group Limited credit facility (note 12) that require the Company to maintain:
an interest coverage ratio of more than 4.0:1;
i.
ii. a total leverage ratio of not more than:
3.75:1 until December 31, 2018; and
3.50:1 on January 1, 2019 and 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.
In respect of Alpha Exchange Inc., as required by the OSC to maintain certain financial ratios on both a consolidated and non-
consolidated basis as defined in the OSC recognition order, as follows:
a current ratio of greater than or equal to 1.1:1;
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.
d.
e.
In respect of TSX Venture Exchange, as required by various provincial securities commissions, to maintain sufficient financial
resources.
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 and AMF;
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. $30.0 total shareholder's equity.
g.
In respect of CDS and CDS Clearing, as required by the OSC and the AMF to maintain certain financial ratios as defined in the
OSC recognition order, as follows:
a debt to cash flow ratio of less than or equal to 4:1; and
i.
ii. a financial leverage ratio of less than or equal to 4:1.
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).
CDS is required to dedicate a portion of its own resources in the CNS default waterfall for the CNS function. As of January 1,
2016, the Company maintains $1.0 in cash and cash equivalents or marketable securities to cover potential losses incurred
as a result of a Participant default.
TMX GROUP LIMITED
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TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
h.
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 ("NFA") 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.
iv.
In respect of TSX Trust, as required by the Office of the Superintendent of Financial Institutions, to maintain a certain minimum
capital amount and ratio and a financial leverage ratio of less than or equal to 8%.
As at December 31, 2017, the Company complied with each of these externally imposed capital requirements, except those in
respect of Shorcan's minimum level of net capital and excess working capital required by the NFA and the OSC, respectively.
Subsequent to year end, the Company completed a capital contribution to Shorcan which put Shorcan onside its NFA and OSC
regulatory requirements.
NOTE 14 – FINANCIAL INSTRUMENTS
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 liabilities are initially recognized 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. 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.
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 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 23), 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.
(A) FINANCIAL INSTRUMENTS – CARRYING AMOUNTS AND FAIR VALUES
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 when 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.
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132
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
•
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.
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TMX Group Limited
The classification of the Company’s financial instruments, along with their carrying amounts and fair values are as follows:
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
Assets at fair value through profit or loss
– Designated
Marketable securities
– Classified
Fair value of open energy contracts
Total return swaps
Interest rate 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
Balances with Clearing Members
Balances with Participants
Liabilities at fair value through profit or loss
– Classified
Fair value of open energy contracts
Total return swaps
Other financial liabilities
Other trade and other payables
Accrued interest payable
Participants’ tax withholdings
Energy contracts payable
Clearing Members cash collateral
Balances with Clearing Members
Balances with Participants
Obligations under finance leases
Credit and liquidity facilities drawn
Commercial Paper
Debentures
December 31, 2017
Fair
value
Carrying
amount
December 31, 2016
Fair
value
Carrying
amount
$
50.1 $
50.1
50.1 $
50.1
61.8 $
61.8
—
—
1.1
1.1
0.8
0.8
175.0
116.3
102.3
—
877.3
18,377.0
691.7
20,339.6
—
—
1.1
1.1
0.8
0.8
175.0
116.3
102.3
—
877.3
18,377.0
691.7
20,339.6
150.2
3.3
0.1
153.6
0.8
0.8
240.6
66.0
84.9
781.3
842.8
14,741.3
731.4
17,488.3
—
(0.1)
(0.1)
—
(0.1)
(0.1)
(150.2)
—
(150.2)
(57.4)
(6.5)
(116.3)
—
(877.3)
(18,377.0)
(691.7)
(0.1)
—
(395.3)
(947.3)
(21,468.9) $
(57.4)
(6.5)
(116.3)
—
(877.3)
(18,377.0)
(691.7)
(0.1)
—
(395.3)
(972.1)
(21,493.7) $
(37.1)
(6.0)
(66.0)
(781.3)
(842.8)
(14,741.3)
(731.4)
(0.4)
(4.6)
(309.9)
(648.7)
(18,169.5) $
$
61.8
61.8
150.2
3.3
0.1
153.6
0.8
0.8
240.6
66.0
84.9
781.3
842.8
14,741.3
731.4
17,488.3
(150.2)
—
(150.2)
(37.1)
(6.0)
(66.0)
(781.3)
(842.8)
(14,741.3)
(731.4)
(0.4)
(4.6)
(309.9)
(684.7)
(18,205.5)
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.
TMX GROUP LIMITED
38
2017 Annual Report
134
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(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
Total return swaps
Interest rate swaps
Investment in privately-owned company
As at
Asset/(Liability)
Marketable securities
Fair value of open energy contracts
Total return swaps
Interest rate swaps
Investment in privately-owned company
Fair value of open energy contracts
$
$
Level 1
50.1 $
—
—
—
Level 1
61.8 $
—
—
—
—
—
Fair value measurements using:
Level 3
Level 2
December 31, 2017
— $
(0.1)
1.1
—
— $
—
—
0.8
50.1
(0.1)
1.1
0.8
Fair value measurements using:
Level 3
Level 2
December 31, 2016
— $
150.2
3.3
0.1
—
(150.2)
— $
—
—
—
0.8
—
61.8
150.2
3.3
0.1
0.8
(150.2)
There were no transfers during the periods between any of the levels.
NOTE 15 – CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES
(A) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH AND CASH EQUIVALENTS
Cash and cash equivalents, and restricted cash and cash equivalents are comprised of:
As at
Cash
Term and other deposits
Treasury bills
Overnight money market
Regulatory surplus
Cash and cash equivalents
Restricted cash and cash equivalents – CDS Clearing
Restricted cash and cash equivalents
December 31, 2017
December 31, 2016
$
$
$
$
68.7 $
47.6
52.9
1.8
4.0
175.0 $
116.3 $
116.3 $
64.0
108.8
52.7
11.9
3.2
240.6
66.0
66.0
Cash and cash equivalents consist of cash and highly liquid investments having an original maturity of three months or less and
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 included in trade and other payables.
Restricted cash and cash equivalents contains tax withheld by CDS Clearing on entitlement payments made by CDS Clearing on
behalf of CDS Clearing Participants. The restricted cash and cash equivalents related to this withheld tax is ultimately under the
control of CDS Clearing; 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 as a current liability under the caption Participants’ tax withholdings.
TMX GROUP LIMITED
39
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135
TMX Group Limited
(B) MARKETABLE SECURITIES
Marketable securities are comprised of:
As at
Treasury bills
Marketable securities
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
December 31, 2017
December 31, 2016
$
$
50.1 $
50.1 $
61.8
61.8
The Company has designated its marketable securities as fair value through profit and loss, with changes in fair value being
recorded within finance income in the consolidated income statement in the period in which they occur. Fair values have been
determined based on quoted market prices or are based on observable market information.
NOTE 16 – 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, 2017
89.7 $
(2.7)
87.0
15.3
102.3 $
December 31, 2016
68.6
(2.8)
65.8
19.1
84.9
$
$
Trade and other receivables are regularly reviewed for objective evidence of impairment.
Trade receivables generally have terms of 30 days. Trade receivables that are more than three months past due are considered
to be impaired, and an allowance for doubtful accounts, which varies depending on the age of the receivable, is recorded within
selling, general and administration costs in the consolidated income statement. 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, 2017
Allowance
Gross
Gross
$
$
62.0 $
22.1
5.6
89.7 $
— $
—
2.7
2.7 $
December 31, 2016
Allowance
—
0.1
2.7
2.8
46.7 $
17.5
4.4
68.6 $
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.
December 31, 2017
$
$
2.8 $
1.5
(1.6)
2.7 $
December 31, 2016
2.9
1.4
(1.5)
2.8
TMX GROUP LIMITED
40
2017 Annual Report
136
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 17 – GOODWILL AND INTANGIBLE ASSETS
(A) GOODWILL AND INDEFINITE LIFE INTANGIBLE ASSETS
Goodwill is recognized at cost on acquisition less any subsequent impairment in value. Intangible assets such as trade names,
derivative products, regulatory designations 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.
A summary of the Company’s goodwill and indefinite life intangible assets is as follows:
Goodwill
Trade names
Derivative
products
Regulatory
designations
Structured
products
Balance at January 1, 2016
Impairment
Loss of control of BOX Holdings
Effect of movements in exchange rates
Balance at December 31, 2016
Acquisition of Trayport (note 3)
Sale of NGX and Shorcan Energy (note 4)
Sale of TMX Atrium (note 5)
Impairment
Effect of movements in exchange rates
Balance at December 31, 2017
$
$
1,084.8 $
(8.9)
—
(1.4)
1,074.5
621.7
(10.4)
(18.6)
(6.5)
0.9
1,661.6 $
252.1 $
—
(1.4)
(0.1)
250.6
39.2
(4.9)
(1.6)
—
—
283.3 $
632.0 $
—
—
—
632.0
—
—
—
—
—
632.0 $
1,408.6 $
—
(0.3)
—
1,408.3
—
(1.0)
—
—
—
1,407.3 $
107.0 $
—
—
—
107.0
—
(107.0)
—
—
—
— $
Total
3,484.5
(8.9)
(1.7)
(1.5)
3,472.4
660.9
(123.3)
(20.2)
(6.5)
0.9
3,984.2
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.
(B) DEFINITE LIFE INTANGIBLE ASSETS
Definite life 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
TMX GROUP LIMITED
Basis
Straight-line
Straight-line
Rate
17 – 34 years
1 – 10 years
2017 Annual Report
137
TMX Group Limited
41
A summary of the Company’s definite life intangible assets is as follows:
Technology
Customer
relationships
Open interest
Total
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
Cost:
Balance at January 1, 2016
Additions through general operations
Loss of control of BOX Holdings
Disposals
Adjustments
Effect of movements in exchange rates
Balance at December 31, 2016
Additions through general operations
Acquisition of Trayport (note 3)
Sale of NGX and Shorcan Energy (note 4)
Adjustments
Impairment/write-offs
Effect of movements in exchange rates
Balance at December 31, 2017
Accumulated amortization:
Balance at January 1, 2016
Charge for the year
Loss of control of BOX Holdings
Disposals
Adjustments
Effect of movements in exchange rates
Balance at December 31, 2016
Charge for the year
Acquisition of Trayport (note 3)
Sale of NGX and Shorcan Energy (note 4)
Impairment/write-offs
Effect of movements in exchange rates
Balance at December 31, 2017
Net book values:
At December 31, 2016
At December 31, 2017
(C) IMPAIRMENT OF ASSETS
$
$
$
$
$
$
108.7 $
9.2
(12.4)
(2.2)
(5.0)
(2.4)
95.9
17.4
36.6
(14.5)
(1.1)
(3.2)
(0.1)
131.0 $
68.1 $
13.0
(12.4)
(0.4)
(5.0)
(2.3)
61.0
12.7
0.2
(7.4)
(1.4)
(0.4)
64.7 $
34.9 $
66.3 $
1,021.4 $
—
(50.8)
—
—
(3.2)
967.4
—
307.6
(83.5)
—
—
—
1,191.5 $
146.8 $
34.8
(24.7)
—
—
(2.0)
154.9
34.5
0.5
(15.5)
—
—
174.4 $
812.5 $
1,017.1 $
2.0 $
—
—
—
—
—
2.0
—
—
—
—
—
—
2.0 $
2.0 $
—
—
—
—
—
2.0
—
—
—
—
—
2.0 $
— $
— $
1,132.1
9.2
(63.2)
(2.2)
(5.0)
(5.6)
1,065.3
17.4
344.2
(98.0)
(1.1)
(3.2)
(0.1)
1,324.5
216.9
47.8
(37.1)
(0.4)
(5.0)
(4.3)
217.9
47.2
0.7
(22.9)
(1.4)
(0.4)
241.1
847.4
1,083.4
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
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, which
is the higher of the asset’s fair value less costs of disposal and its value-in-use. Impairment losses recognized in respect of CGUs
TMX GROUP LIMITED
42
2017 Annual Report
138
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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.
For the year ended December 31, 2017, the Company determined that certain CGUs had recoverable amounts that were lower
than their respective carrying amounts. As a result, for the year ended December 31, 2017, the Company recognized an impairment
charge of $6.5 related to goodwill in the consolidated income statement. For the year ended December 31, 2016, the Company
determined that certain CGUs had recoverable amounts that were lower than their respective carrying amounts. As a result, for
the year ended December 31, 2016, the Company recognized an impairment charge of $8.9 related to goodwill in the consolidated
income statement.
At December 31, the carrying values of goodwill and indefinite life intangible assets allocated to each CGU, after the impairment
charges described above, are as follows:
As at
Listings
Datalinx/Analytics
Trayport
Equities Trading
MX/CDCC
CDS
NGX
Other
$
$
Goodwill
13.3 $
707.7
622.4
5.1
159.4
89.5
—
64.2
1,661.6 $
December 31, 2017
Indefinite life
intangibles
1,290.1 $
74.3
39.2
229.6
663.9
22.0
—
3.5
2,322.6 $
December 31, 2016
Indefinite life
intangibles
1,294.4
89.2
—
210.9
663.3
22.0
112.0
6.1
2,397.9
Goodwill
13.3 $
708.4
—
5.1
159.4
89.5
3.2
95.6
1,074.5 $
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 years along with a terminal value. The terminal value is the value attributed to the CGUs’
operations beyond the projected time period. The terminal value for the CGUs is determined using an estimated long-term growth
rate of 2.0% for all significant CGUs, except for MX/CDCC which is 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 11.6% to 14.1%, 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. If future cash flow projections, long-term growth rates or pre-tax discount rates
are different to those used, it is possible that the outcome of future impairment tests could result in a different outcome with a
CGU’s goodwill and/or intangible assets being impaired.
At December 31, 2017, Management has determined that the Datalinx/Analytics CGU may be subject to a reasonably possible
change to one or more of the key assumptions used to determine the recoverable amount, which could cause this CGU to become
impaired. An increase of 0.8% in the discount rate, a 1.2% decrease in the terminal growth rate, or a 5.9% decrease in annual
cash flows could cause the recoverable amount to equal the carrying value.
TMX GROUP LIMITED
43
2017 Annual Report
139
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 18 – INVESTMENTS IN EQUITY ACCOUNTED INVESTEES
Investments in equity accounted investees are comprised of:
As at
Investment in FTSE TMX Global Debt Capital Markets Limited
Investment in BOX Holdings
Other
Investments in equity accounted investees
December 31, 2017
50.2 $
19.8
16.3
86.3 $
December 31, 2016
48.1
21.5
15.6
85.2
$
$
For the year ended December 31, 2017, the Company recognized $2.9 from its share of income from equity accounted investees
(2016 – $2.4).
(A) FTSE TMX GLOBAL DEBT CAPITAL MARKETS LIMITED
At December 31, 2017, the Company has an indirect 24.25% equity interest in FTSE TMX Global Debt Capital Markets Limited
("FTSE"). The investment is accounted for in its functional currency of GBP and using the equity method.
Summary financial information for FTSE in GBP 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 (24.25%)
December 31, 2017
45.5 £
86.2
(24.6)
(12.3)
94.8 £
December 31, 2017
22.6 £
4.3
1.0 £
£
£
£
£
December 31, 2016
25.1
94.3
(10.2)
(11.8)
97.4
December 31, 2016
20.1
2.1
0.5
For the year ended December 31, 2017, the Company recognized $2.7 from its share of income in the consolidated income
statements and a loss of $0.7 from translation of the foreign operation in the consolidated statements of comprehensive income
(2016 – $0.8 and $0.4, respectively). Also for the year ended December 31, 2017, the Company earned $2.3 from FTSE as part
of its royalty program, which is included in the Global Solutions, Insights & Analytics segment (2016 – $2.0).
(B) BOX HOLDINGS GROUP LLC
At July 1, 2016, the Company recognized its retained interest of 41.33% in BOX Holdings at US$15.6, using a discounted cash flow
methodology based on management’s best estimate of the forecasted cash flows for the business discounted at a pre-tax discount
rate. The investment in BOX Holdings is accounted for in its functional currency of USD and using the equity method.
Summary financial information for BOX Holdings in USD is as follows:
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Revenue
Net income and comprehensive income (100%)
Share of income and comprehensive income (41.33%)
US$
US$
US$
US$
December 31, 2017
19.3 US$
5.6
(1.8)
(0.2)
22.9 US$
December 31, 2016
19.5
6.1
(1.8)
(0.1)
23.7
For the year ended
December 31, 2017
For the six months ended
December 31, 2016
15.5 US$
0.5
0.2 US$
9.6
1.0
0.4
44
TMX GROUP LIMITED
2017 Annual Report
140
TMX Group Limited
For the year ended December 31, 2017, the Company recognized $0.3 from its share of income in the consolidated income
statements and a loss of $1.4 from translation of the foreign operation in the consolidated statements of comprehensive income
(for the six months ended December 31, 2016 – income of $0.6 and gain of $0.8, respectively).
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 19 – 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 surplus
Other
Trade and other payables
December 31, 2017
December 31, 2016
$
$
30.2 $
8.7
40.2
6.5
4.0
0.7
90.3 $
28.1
3.9
36.0
6.0
3.2
0.3
77.5
The fair value of trade and other payables is approximately equal to their carrying amount given their short term until settlement.
Short-term payables with no stated interest rate are measured at the original transaction amounts where the effect of discounting
is immaterial. 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.
NOTE 20 – DEFERRED REVENUE
Deferred revenue is comprised of:
As at
Listings
Technology solutions
Energy
Other
Current deferred revenue
Energy
Other
Non-current deferred revenue
December 31, 2017
December 31, 2016
3.6 $
4.0
—
1.1
8.7 $
— $
0.2
0.2 $
2.2
2.1
8.0
9.3
21.6
3.6
—
3.6
$
$
$
$
Deferred revenue mainly comprises of 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 solutions deferred revenue includes annual information services subscription sales from Trayport and CDS and fees
for network and infrastructure solutions and risk management software. At December 31, 2017, technology solutions deferred
revenue no longer includes fees for network and infrastructure solutions and risk management software as a result of the sale
of Razor Risk. Also, energy deferred revenue no longer includes revenue from NGX, which recognizes trading, clearing and related
revenue over the trade, delivery and settlement months of each transaction.
TMX GROUP LIMITED
45
2017 Annual Report
141
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 21 – PROVISIONS AND CONTINGENCIES
(A) PROVISIONS
A provision has been 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.
A summary of the Company’s provisions is as follows:
Onerous leases Decommissioning
liabilities
Commodity tax
Strategic
re-alignment
Balance at January 1, 2016
Provisions recognized during the period
Unwinding of the discount
Provisions used during the period
Balance at December 31, 2016
Current
Non-current
Balance at December 31, 2016
Provisions recognized during the period
Provisions used during the period
Balance at December 31, 2017
Current
Non-current
Balance at December 31, 2017
(i) Onerous leases
$
$
$
$
$
$
$
1.1 $
8.1 $
1.6 $
0.1 $
0.4
—
(0.5)
1.0 $
0.7 $
0.3
1.0 $
0.6
(1.0)
0.6 $
0.3 $
0.3
0.6 $
0.1
0.2
(0.9)
7.5 $
— $
7.5
7.5 $
0.4
(1.1)
6.8 $
0.1 $
6.7
6.8 $
1.6
—
—
3.2 $
3.0 $
0.2
3.2 $
0.3
(2.5)
1.0 $
1.0 $
—
1.0 $
17.8
—
(4.8)
13.1 $
13.1 $
—
13.1 $
—
(8.9)
4.2 $
4.2 $
—
4.2 $
Total
10.9
19.9
0.2
(6.2)
24.8
16.8
8.0
24.8
1.3
(13.5)
12.6
5.6
7.0
12.6
The Company measures a provision for an onerous contract at the present value of the lower of (i) the expected costs of or
penalties for terminating the lease and (ii) the expected net costs of meeting the lease commitments, net of any sub-lease
income. During the year ended December 31, 2017, the Company determined that it will stop using certain office space
under a non-cancellable lease (note 22). The lease will expire in 2018. An obligation of $0.6 for the discounted future payments,
net of expected sub-lease income has been provided for.
(ii) Decommissioning liabilities
The Company recognizes a provision for site restoration in respect of certain lease arrangements when leased premises have
been modified or altered.
(iii) Commodity tax
The Company recognizes a provision for its best estimates of the amounts that are required to be paid to taxation authorities
for input tax credits claimed.
(iv) Strategic re-alignment including termination benefits
In September 2016, the Company provided an update on its strategic re-alignment process which began in 2015 with a
number of organizational changes. With the announcement of this update, the Company committed to a plan to streamline
the organization and accelerate its evolution as a client-driven solutions provider to capital markets in Canada and across
the globe.
Following the announcement of the plan, the Company recognized a provision of $17.8 in 2016 for expected strategic re-
alignment costs, including consulting fees of $1.1 and employee termination benefits of $16.7. Estimated costs were based
on the Company's customary terms or terms of the relevant employee contracts.
TMX GROUP LIMITED
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142
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(B) CONTINGENT LIABILITIES
From time to time in connection with its operations, the Company or its subsidiaries are named as a defendant in actions, including
those for damages and costs sustained by plaintiffs, or as a respondent in proceedings challenging the Company’s or its subsidiaries’
regulatory or other 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 significant payment or other obligation in respect of any such action or proceeding is unlikely.
NOTE 22 – COMMITMENTS AND LEASE OBLIGATIONS
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 16 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
The Company classifies leases in which a significant portion of the risks and rewards of ownership are retained by the lessor 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.
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
December 31, 2017
22.8 $
48.8
90.4
162.0 $
December 31, 2016
18.7
42.6
93.9
155.2
$
$
The Company is responsible for additional taxes, maintenance and other direct charges with respect to its leases. The additional
amount will be approximately $11.8 for 2018 (2017 – $13.2).
The figures above do not include the Company’s obligations to restore certain leased premises to their original condition (note
21).
The company has other commitments in the form of long term contracts related to technology in the amount of $49.8 of which
$21.1 is payable in one year.
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, 2017
1.5 $
3.6
5.1 $
$
$
December 31, 2016
1.5
0.6
2.1
Payments of $33.9 were charged to the consolidated income statement in relation to operating leases, net of sub-lease income
(2016 – $30.0).
(B) FINANCE LEASES
The Company classifies leases for equipment where substantially all of the risks and rewards of ownership have transferred to
the Company 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.
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143
TMX Group Limited
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:
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
December 31, 2017
December 31, 2016
Future
minimum
lease
payments
Present value
of minimum
lease
payments
Future
minimum
lease
payments
Interest
Present value
of minimum
lease
payments
Interest
Less than one year
$
0.1 $
— $
0.1 $
0.5 $
0.1 $
0.4
The fair value of the finance lease liabilities is approximately equal to their carrying amount.
(C) CDS FEE COMMITMENTS AND REBATES
Under the CDS recognition orders granted by the OSC and the AMF, fees for services and products offered by CDS Clearing will
be those fees in effect on November 1, 2011 (“2012 base fees”). CDS Clearing cannot adjust fees without the approval of the
OSC, AMF and the British Columbia Securities Commission (“BCSC”). In addition, CDS Clearing may only seek approval for fee
increases on clearing and other core CDS Clearing services (which services are outlined in the OSC and AMF recognition orders)
where there has been a significant change from circumstances existing as at August 1, 2012, the effective date of the recognition
orders.
Under the CDS recognition orders granted by the OSC and 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. Beginning January 1, 2015 and subsequent years, CDS also shares with
Participants, on a 50:50 basis, any annual increases in revenue applicable to the NYL/DDL Liquidity Premium compared to the
revenues for this service in earned in the twelve-month period ended December 31, 2015.
For the year ended December 31, 2017, the rebate payable amounted to $3.9 (2016 – $3.7).
In addition, the Company is mandated to rebate an additional amount to Participants in respect of exchange clearing services
for trades conducted on an exchange or Alternative Trading System (“ATS”). This rebate gradually increased over the years to
reach its maximum of $4.0 annually in October 2016.
These rebates are accrued and recorded as a reduction against revenue in the year to which they relate.
NOTE 23 – OTHER ASSETS AND OTHER LIABILITIES
(A) OTHER ASSETS
Other current and non-current assets are comprised of:
As at
Prepaid expenses
Total return swaps (note 24)
Other
Current income tax assets
Other current assets
Investment in equity accounted investees (note 18)
Accrued employee benefit assets (note 25)
Premises and equipment
Investment in privately-owned company
Fair value of interest rate swaps (note 12)
Other
Other non-current assets
December 31, 2017
13.6 $
—
—
4.5
18.1 $
86.3 $
7.6
38.0
0.8
1.1
0.6
134.4 $
$
$
$
$
December 31, 2016
10.0
3.3
1.1
1.8
16.2
85.2
9.4
31.4
0.8
0.1
1.4
128.3
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.
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144
TMX Group Limited
(B) OTHER LIABILITIES
Other current and non-current liabilities are comprised of:
As at
Deferred revenue (note 20)
Provisions (note 21)
Obligations under finance leases (note 22)
Total return swaps (note 24)
Current income tax liabilities
Other current liabilities
Deferred revenue (note 20)
Provisions (note 21)
Long-term incentive plan and director compensation obligations (note 24)
Accrued employee benefits payable (note 25)
Other
Other non-current liabilities
NOTE 24 – SHARE–BASED PAYMENTS
$
$
$
$
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
December 31, 2017
8.7 $
5.6
0.1
0.1
46.6
61.1 $
0.2 $
7.0
30.0
18.7
5.4
61.3 $
December 31, 2016
21.6
16.8
0.4
—
17.2
56.0
3.6
8.0
27.5
17.7
1.2
58.0
Under the long-term incentive plan (“LTIP”), certain employees and officers of the Company will receive a mix of LTIP awards
consisting of share options, time-based restricted share units ("RSUs"), and performance-based restricted share units (referred
to as "PSUs"). For the year ended December 31, 2017, the Company recognized compensation and benefits expense under the
following share-based payment arrangements:
•
Share option plan;
• Restricted share unit, performance-based restricted share unit and deferred share unit plans; and
•
Employee share purchase plan.
(A) SHARE OPTION PLAN
The share option plan has options that vest in quarters over 4 years and have a maximum term of 10 years. 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 $72.21 dollars (2016 – $40.39 dollars), and depending on the tranche,
dividend yield of between 2.5% and 2.8% (2016 – 2.6% and 4.0%); expected life of between 2 and 5 years (2016 – 2 and 5 years);
an expected volatility of between 16.0% and 18.5% (2016 – 19.7% and 27.6%); risk-free interest rate of between 1.1% and 1.4%
(2016 – 0.7% and 1.1%); and expected forfeiture rates of between 9.4% and 22.1% (2016 – 9.4% and 22.0%). 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 2017 was $7.68
dollars (2016 – $5.40 dollars).
Options outstanding at December 31, 2017 will expire in 2018, 2019, 2020, 2021, 2025, 2026 and 2027.
Movements in the number of share options outstanding are as follows:
For the year ended
Outstanding, beginning of the period
Granted
Expired
Forfeited
Exercised
Outstanding as at December 31
Number of share
options
December 31, 2017
Weighted average
exercise price
(in dollars)
Number of share
options
December 31, 2016
Weighted average
exercise price
(in dollars)
1,734,569 $
590,578
(586)
(83,468)
(362,167)
1,878,926 $
46.82
72.21
28.67
50.76
47.90
54.41
49.76
1,975,787 $
641,398
—
(253,300)
(629,316)
1,734,569 $
620,445 $
49.83
40.39
—
45.45
50.28
46.82
50.88
49
Vested and exercisable as at December 31
657,399 $
TMX GROUP LIMITED
2017 Annual Report
145
TMX Group Limited
The range of exercise prices and weighted average remaining contractual life of options outstanding are as follows:
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
As at
Exercise price range (in dollars)
$28.67 - $29.99
$40.00 - $49.99
$50.00 - $59.99
$60.00 - $60.73
$70.00 - $72.23
Number of share
options
—
883,672
418,745
3,806
572,703
1,878,926
December 31, 2017
December 31, 2016
Weighted average
remaining
contractual life
—
7.4
4.0
8.6
9.1
7.2
Number of share
options
4,549
1,134,436
591,778
3,806
—
1,734,569
Weighted average
remaining
contractual life
0.1
8.1
4.6
9.6
—
6.9
The Company accounts for its share option plan to eligible employees which calls 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. For the year
ended December 31, 2017, the Company recognized compensation and benefits expense of $3.3 in relation to its share option
plan (2016 – $2.4).
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, 2017,
3,117,745 common shares of the Company remain reserved for issuance upon exercise of share options granted under the plan,
representing approximately 6% of the outstanding common shares of the Company.
(B) RESTRICTED SHARE UNIT (“RSU”), PERFORMANCE-BASED RESTRICTED SHARE UNIT ("PSU") AND DEFERRED SHARE UNIT
(“DSU”) PLANS
RSUs and PSUs vest over a maximum of 35 months 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 and PSUs were granted. In the case of the
PSUs, the amount of the award payable at the end of this vesting period will be determined by a factor of total shareholder return
versus the total gross return of the S&P/TSX Composite Index 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 PSUs vest.
The Company has a plan that, among other things, gives officers who have not met their equity ownership requirements the
opportunity to convert all or part of their short-term incentive award into deferred share units ("DSU"s). 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.
The Company records its obligation for the RSUs and PSUs, 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, 2017, the total
accrual for the Company’s RSUs, PSUs and DSUs was $40.0, which includes $10.0 in trade and other payables and $30.0 in other
non-current liabilities (2016 – RSUs and DSUs of $34.0, $6.5 and $27.5, respectively).
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.
Compensation cost attributable to these employee awards which 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 change in either current or non-current liabilities, depending
on the period in which the award is expected to be paid. For the year ended December 31, 2017, the Company recognized
compensation and benefits expense and selling, general and administration expense of $11.2 and $2.7, respectively, in relation
to its RSUs, PSUs and DSUs (2016 – $16.1 and $10.4, respectively).
The Company has entered into a series of total return swaps ("TRSs") which synthetically replicate the economics of the Company
purchasing its shares as a partial economic hedge to the share appreciation rights of the non-performance element of RSUs and
TMX GROUP LIMITED
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146
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
DSUs. The Company has also entered into a series of TRSs as an economic hedge against the share price appreciation associated
with the DSUs.
The Company has classified its series of TRSs as fair value through profit and loss and marks to market the fair value of the TRSs
as an adjustment to income. The Company also simultaneously marks to market the liability to holders of the units as an adjustment
to income. Fair value is based on the share 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. The contracts are settled in
cash upon maturity.
For the year ended December 31, 2017, unrealized losses and realized gains of $2.1 and $2.5, respectively have been reflected
in the compensation and benefits expense in the consolidated financial statements (2016 – unrealized and realized gains of $4.9
and $4.9, 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, 2017, compensation and benefits expense related to this plan was $1.9 (2016 – $1.9).
NOTE 25 – EMPLOYEE FUTURE BENEFITS
The Company has registered pension plans with both a defined contribution tier and a defined benefit tier covering substantially
all employees, as well as supplementary income plans ("SIP") for senior management. The costs of these programs are being
funded currently, except for the NGX SIP, and MX SIP, where a portion is guaranteed by a letter of guarantee. The Company also
provides other post-retirement and post-employment benefits, such as supplementary medical and dental coverage, which are
funded on a cash basis by the Company, and contributions from plan members in some circumstances.
(A) DEFINED CONTRIBUTION PLANS
For defined contribution plans, the expense is charged to compensation and benefits expense in the consolidated income statement
as it is incurred. The total expense recognized in respect of the Company’s defined contribution plans for the year ended December
31, 2017, was $7.5, which represents the employer contributions for the period (2016 – $7.1).
(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, 2016, and the next required valuation is as at December 31, 2019. For the TSX SIP plans, the
most recent actuarial valuations for funding purposes were as at December 31, 2016, and the next required valuations are as at
December 31, 2017. For the CDS SIP plan, the funding valuation is performed annually with the most recent actuarial funding
valuation completed as of January 1, 2017 and the next required valuation is at January 1, 2018. Lastly, for the non-pension post-
retirement plan, the valuation date was December 31, 2015 with results extrapolated to December 31, 2017 and the next required
valuation is at May 1, 2018.
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:
Accrued employee benefit assets
Accrued employee benefits payable
Pension and SIP
plans
2016
2017
7.6 $
(0.5)
7.1 $
9.4 $
(2.3)
7.1 $
$
$
2017
Other post-retirement
benefit plans
2016
—
(14.4)
(14.4)
(16.9)
(16.9) $
— $
Accrued employee benefits payable on the consolidated balance sheet also includes the obligation under the post-employment
benefit plan of $1.3 (2016 – $1.0).
TMX GROUP LIMITED
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147
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
The Company’s net obligation in respect of pension and SIP 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 benefits are based upon earnings
and years of service. The Company’s net obligation in respect of the post-retirement and post-employment benefit 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. Under all these plans, 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 accrued benefit assets and accrued benefit liabilities are comprised of:
Accrued benefit obligation:
Balance, beginning of the year
Current service cost
Interest cost
Benefits paid
Employee contributions
Actuarial losses (gains)
Sale of NGX and Shorcan Energy (note 4)
Balance at December 31
Plan assets:
Fair value, beginning of the year
Interest income
Employer contributions
Employee contributions
Benefits 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 SIP
plans
2016
2017
Other post-retirement
benefit plans
2016
2017
114.3 $
1.9
4.3
(12.2)
0.1
5.3
(2.0)
111.7 $
121.4 $
4.6
1.5
0.1
(12.2)
(0.4)
3.8
118.8 $
108.5 $
2.5
4.3
(4.4)
0.2
3.2
—
114.3 $
113.8 $
4.7
4.7
0.2
(4.4)
(0.4)
2.8
121.4 $
14.4 $
0.9
0.6
(0.5)
—
1.7
(0.2)
16.9 $
— $
—
0.5
—
(0.5)
—
—
— $
13.0
0.8
0.5
(0.5)
—
0.6
—
14.4
—
—
0.5
—
(0.5)
—
—
—
7.1 $
7.1 $
(16.9) $
(14.4)
December 31, 2017
47.1%
36.7%
16.2%
100.0%
Percentage of plan assets
December 31, 2016
49.9%
34.2%
15.9%
100.0%
The plan assets include units held in a pooled fund investments which holds debentures in TMX Group Limited. These debentures
comprise of less than 0.100% of the fair value of plan assets as at December 31, 2017 (2016 – 0.070%).
MX has provided a letter of guarantee in the amount of $0.6 to the benefit of the trustee of the MX SIP (2016 – $0.6), using a part
of the TMX Group Limited credit facility (note 12).
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148
TMX Group Limited
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
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 compensation and benefits expense in the consolidated income statement.
The elements of the Company’s defined benefit plan costs recognized in the year ended December 31 are as follows:
Pension and SIP
plans
Other post-retirement
benefit plans
Current service cost
Net interest (income) cost
Plan administration cost
$
2017
1.9 $
(0.4)
0.4
2016
2.5 $
(0.4)
0.4
2017
0.9 $
0.6
—
Net benefit plan expense recognized in the consolidated income statement $
1.9 $
2.5 $
1.5 $
2016
0.8
0.5
—
1.3
The Company recognizes all actuarial gains and losses arising from defined benefit plans and post-retirement plans immediately
in other comprehensive income. For the post-employment plans, 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 change
in benefit relating to past service by employees is recognized immediately in the compensation and benefits expense in the
consolidated income statement.
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:
Pension and SIP
plans
Other post-retirement
benefit plans
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
$
$
2016
2017
2016
2017
2.3 $
4.0
(1.0)
(3.8)
— $
1.0 $
4.7
(1.5)
(2.8)
0.7
—
—
1.5 $
0.4 $
1.7 $
—
0.6
—
—
0.6
The significant actuarial assumptions adopted in measuring the obligation as at December 31 are as follows:
Discount rate (weighted average)
Inflation rate (consumer price index)
Commuted value
Rate of compensation increase
Pension and SIP
plans
Other post-retirement
benefit plans
2017
3.50%
1.75%
3.00%
3.25%
2016
3.80%
1.75%
3.00%
3.25%
2017
3.50%
n/a
n/a
n/a
2016
3.80%
n/a
n/a
n/a
Assumptions regarding mortality rates are based on published statistics and mortality tables. The mortality tables used in 2016
and 2017 for the pension, SIP and other post-retirement plans was the Canadian Pensioner Mortality (CPM) RPP2014 private
sector table with projection scale CPM-B and CPM RPP2014 table with projection scale CPM-B for lump sum payments. The
assumed health care cost trend rate at December 31, 2017 was 6.15% decreasing to 4.50% over 12 years (2016 – 6.3% decreasing
to 4.50% over 13 years).
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Reasonably possible changes to one of the relevant actuarial assumptions, holding other assumptions constant, would impact the
accrued benefit obligations as follows:
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Increase)/Decrease
50 bps decrease in the discount rate
50 bps increase in the discount rate
25 bps decrease in inflation assumptions
25 bps increase in inflation assumptions
1 year increase in mortality rates
100 bps decrease in initial and ultimate trend rates
100 bps increase in initial and ultimate trend rates
Pension and SIP
plans
2017
2016
$
(7.3) $
(6.7) $
6.4
—
—
(2.0)
n/a
n/a
6.0
0.2
(0.2)
(1.8)
n/a
n/a
Other post-retirement
benefit plans
2017
(1.2) $
1.1
n/a
n/a
(0.7)
0.8
(0.9)
2016
(1.0)
0.9
n/a
n/a
(0.6)
0.6
(0.7)
In 2018, the Company expects to contribute approximately $3.6 to its pension and other post-retirement benefit plans. Additional
amounts to be contributed to the Company’s SIP plans will be determined by management once the valuations have been prepared.
NOTE 26 – 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 preemptive, 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 commitment
to maintain a specified minimum ownership interest expired in September 2017.
In 2012, the Company entered into nomination agreements 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. As
at December 31, 2017, the nomination agreements with each of Alberta Investment Management Corporation, Scotia Capital
Inc. and CIBC World Markets Inc.terminated. During the six years following September 14, 2012, should a Nominating Investor
(including a Nominating Investor whose nomination agreement has terminated) 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.
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The following transactions occurred with respect to the Company’s common shares during the period:
Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
Balance, beginning of the period
Options exercised
Balance as at December 31
Number of common shares
issued and fully paid
2016
2017
55,021,569
362,167
55,383,736
54,392,253 $
629,316
55,021,569 $
2017
2,896.4 $
19.1
2,915.5 $
Share capital
2016
2,861.7
34.7
2,896.4
The Company’s shares trade on Toronto Stock Exchange under the symbol “X”.
NOTE 27 – RELATED PARTY RELATIONSHIPS AND TRANSACTIONS
(A) PARENT
The shares of the Company are widely held and as such there is no ultimate controlling party of 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, 2017
8.2 $
0.7
6.0
14.9 $
December 31, 2016
9.9
1.0
15.1
26.0
$
$
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 28 – DIVIDENDS
Dividends recognized and paid in the period are as follows:
For the year ended
December 31, 2017
December 31, 2016
Dividend paid in March
Dividend paid in June
Dividend paid in September
Dividend paid in December
Total dividends paid
$
Dividend
per share
0.45
0.50
0.50
0.50
$
$
Total paid
$
24.8
27.6
27.7
27.7
107.8
Dividend
per share
0.40
0.40
0.40
0.45
$
$
Total paid
21.8
21.8
21.9
24.7
90.2
On February 12, 2018, the Company’s Board of Directors declared a dividend of 50 cents per share. This dividend will be paid on
March 16, 2018 to shareholders of record on March 2, 2018 and is estimated to amount to $27.7.
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
NOTE 29 – FUTURE CHANGES IN ACCOUNTING POLICIES
A number of other new standards and amendments to standards and interpretations are not yet effective for the year ending
December 31, 2017, and have not been applied in the preparation of the financial statements. These new and amended standards
and interpretations are required to be implemented for financial years beginning on or after January 1, 2018, unless otherwise
noted:
•
•
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, 2018 with either full retrospective application, retrospective with optional practical expedients or a
modified prospective approach with disclosure requirements.
The Company has undertaken an assessment of each material revenue stream in accordance with the prescribed five-step
model to determine the impact on the timing and measurement of its revenue recognition. Based on this assessment, the
Company has determined that this standard will only have an impact on the timing of revenue recognition related to listing
fees. However, the impact is not expected to be material. The Company intends to adopt the cumulative effect approach of
transition to IFRS 15. The Company is currently assessing the impact of IFRS 15 on Trayport revenue streams. However, the
impact is not expected to be material.
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.
To assess the classification and measurement of its financial assets, the Company analyzed its business model for managing
financial assets, the respective cash flow characteristics, and the contractual terms of these assets. To assess the impairment
of its financial instruments, the Company identified assets or asset classes that are in scope and applied a simplified approach
or a three-stage model for impairment based on changes in credit quality since initial recognition. The adoption of IFRS 9 is
expected to change the Company’s accounting policy for recognition, classification and measurement of financial instruments.
However, the impact is not expected to be material. The Company intends to adopt IFRS 9 in its financial statements for the
annual period beginning on January 1, 2018.
• Annual improvements 2014-2016 cycle (Amendments to IFRS 1 and IAS 28) - The amendments remove out-dated exemptions
for first time adopters under IFRS 1, First-time Adoption of International Financial Reporting Standards and clarify the election
to measure an associate or joint venture at fair value under IAS 28, Investments in Associates and Joint Ventures for investments
held directly, or indirectly, through a venture capital or other qualifying entity can be made on an investment-by-investment
basis. The amendments are effective retrospectively for annual periods beginning on or after January 1, 2018. The Company
intends to adopt these amendments in its financial statements for the annual period beginning on January 1, 2018. The
Company does not expect the amendments to have a material impact on the financial statements.
•
Classification and measurement of share-based payment transactions (Amendments to IFRS 2, Share-based Payments) - The
amendments clarify the accounting for the effects of vesting conditions on cash-settled share-based payment transactions,
the classification of share-based payment transactions with net settlement features for withholding tax obligations and the
accounting for a modification to the terms and conditions of a share-based payment that changes the transaction from cash-
settled to equity-settled. The amendments are effective for annual periods beginning on or after January 1, 2018 with earlier
application permitted. The Company intends to adopt the amendments to IFRS 2 in its financial statements for the annual
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Notes to the Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
•
•
period beginning on January 1, 2018. The Company does not expect the amendments to have a material impact on the
financial statements.
IFRIC 22, Foreign currency transactions and advance consideration (Interpretation of IAS 21, The Effects of Changes in Foreign
Exchange Rates) - This interpretation clarifies the accounting for transactions that include the receipt or payment of advance
consideration in a foreign currency. The interpretation is effective for annual periods beginning on or after January 1, 2018.
The Company intends to adopt the Interpretation in its financial statements for the annual period beginning on January 1,
2018. The Company does not expect the Interpretation to have a material impact on the financial statements.
IFRS 16, Leases - The IASB issued a new standard on leases which provides a comprehensive model for the identification of
lease arrangements and their treatment in the financial statements. IFRS 16 supersedes IAS 17, Leases and its associated
interpretative guidance. IFRS 16 applies a control model to the identification of leases, differentiating between leases and
service contracts on the basis of whether there is an identified asset controlled by the customer. Among other significant
changes, the distinction between operating and finance leases is removed and assets and liabilities are recognized in respect
of all leases. Further, IFRS 16 requires a front-loaded pattern for the recognition of lease expense over the life of the lease.
The mandatory effective date for IFRS 16 is for annual periods beginning on or after January 1, 2019 with earlier application
permitted for entities that have also adopted IFRS 15. The Company intends to adopt IFRS 16 in its financial statements for
the annual period beginning on January 1, 2019. The Company has begun its initial assessment of the potential impact on
its consolidated financial statements. The extent of the impact of adoption of the standard has not yet been determined.
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Board of Directors
AS OF MARCH 28, 2018
Charles Winograd (Chair)
Senior Managing Partner
Elm Park Capital Management
Committees: Governance, Human Resources
Director since: 2012
Harry Jaako
Executive Officer, Director and a Principal
Discovery Capital Management Corp.
Committees: Finance and Audit,
Public Venture Market (Chair)
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 Global Markets
CIBC World Markets Inc.
Committees: Derivatives
Director since: 2015
Jeffrey Heath
Corporate Director
Committees: Derivatives, Finance and Audit
Director since: 2012
Marie Giguère
Corporate Director
Committees: Governance (Chair),
Regulatory Oversight
Director since: 2011
Martine Irman
Senior Vice President, TD Bank Group
and Vice Chair, Head of Global Enterprise
Banking, TD Securities
Committees: Derivatives, Public Venture Market
Director since: 2014
Lise Lachapelle
Strategic and Economic Consultant
and Corporate Director
Committees: Human Resources,
Regulatory Oversight
Director since: 2014
2017 Annual Report
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TMX Group Limited
William Linton
Corporate Director
Committees: Finance and Audit (Chair),
Governance
Director since: 2012
Kevin Sullivan
Deputy Chairman
GMP Capital Inc.
Committees: Derivatives, Public Venture Market
Director since: 2012
Jean Martel
Partner
Lavery, de Billy LLP
Committees: Regulatory Oversight (Chair)
Director since: 2012
Anthony Walsh
Corporate Director
Committees: Finance and Audit,
Public Venture Market
Director since: 2012
Peter Pontikes
Executive Vice President, Public Equities
Alberta Investment Management Corporation
Committees: Governance, Public Venture Market
Director since: 2015
Eric Wetlaufer
Senior Managing Director & Global Head
of Public Market Investments
Canada Pension Plan Investment Board
Committees: Human Resources (Chair)
Director since: 2012
Gerri Sinclair
Managing Partner, Kensington Capital Partners
Digital Technologies Consultant
and Corporate Director
Committees: Human Resources,
Public Venture Market
Director since: 2012
Michael Wissell
Senior Vice-President, Portfolio Construction Group
Ontario Teachers' Pension Plan Board
Committees: Derivatives, Human Resources
Director since: 2014
2017 Annual Report
155
TMX Group Limited
TMX Group Executive
Committee
AS OF MARCH 28, 2018
Mary Lou
Hukezalie
Senior Vice President,
Group Head of
Human Resources
TMX Group
John McKenzie
Chief Financial Officer
TMX Group
Jay Rajarathinam
Chief Information Officer
TMX Group
Louis Eccleston
Chief Executive Officer
TMX Group
Jean Desgagné
President and CEO,
TMX Global Solutions,
Insights and
Analytics Strategies
TMX Group
Luc Fortin
President and Chief
Executive Officer,
Montréal Exchange and
Global Head of Trading
TMX Group
Cheryl Graden
Senior Vice President,
Group Head of Legal
and Business Affairs,
Enterprise Risk
Management and
Government Relations
and Corporate Secretary
TMX Group
2017 Annual Report
156
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:
TSX Trust Company
100 Adelaide St. West
Suite 301
Toronto, ON
M5H 4H1
T +1 416 361-0930 ext 205
+1 866-393-4891 (Toll Free)
F +1 416 361-0470
tmxeinvestorservices@tmx.com
Investor Contact Information
Investor Relations may be contacted at:
T +1 416 947-4277 (Toronto Area)
+1 888-873-8392 (North America)
F +1 416 947-4444
tmxshareholder@tmx.com
Trademarks
Canadian Best Bid and Offer, Capital Pool
Company, CBBO, CDB, CDF, CLS, CPC, Groupe
TMX, Market Book, Market-by-Order, Market-by-
Price, MarketDepth, NEX, TMX, TMX Datalinx,
TMX Group, TMX Atrium, Toronto Stock Exchange,
TSX, TSX NAVex, TSXV and TSX Venture Exchange
are the trademarks of TSX Inc.
BAX, Bourse de Montréal, CGB, Montréal Exchange,
MX, SOLA and SXF are the trademarks of Bourse de
Montréal Inc. and are used under license.
AgriClear is the trademark of Agriclear Limited
Partnership and is used under license.
Alpha and Alpha Exchange are the trademarks of
Alpha Trading Systems Limited Partnership and
are used under license.
BOX is the trademark of BOX Market LLC and is
used under license.
Canadian Derivatives Clearing Corporation,
Corporation canadienne de compensation de
produits dérivés, CDCC and CCCPD are the
trademarks of Canadian Derivatives Clearing
Corporation and are used under license.
CDS and CDSX are the trademarks of The Canadian
Depository for Securities Limited and are used
under license.
Shorcan, Shorcan Energy and Shorcan Energy
Brokers are the trademarks of Shorcan Brokers
Limited and are used under license.
Trayport is the trademark of Trayport Limited
and is used under license.
All other trademarks used are the property
of their respective owners.
Forward-Looking Information
This report contains forward-looking statements,
which are not historical facts but are based on
certain assumptions and reflect TMX Group’s
current expectations. These forward-looking
statements are subject to a number of risks and
uncertainties that could cause actual results
or events to differ materially from current
expectations. We have no intention to update this
forward-looking information, except as required
by applicable securities law.
This forward-looking information should not
be relied upon as representing our views as of
any date subsequent to the date of this report.
Please see “Caution regarding Forward-Looking
Information” in the 2017 Management’s Discussion
and Analysis for some of the risk factors that could
cause actual events or results to differ materially
from current expectations.
2017 Annual Report
157
TMX Group Limited
For more information
Please contact TMX Group if you have any additional questions or require further clarification.
General Enquiries
300-100 Adelaide St. West
Toronto, ON
M5H 1S3
T +1 416 947-4229
F +1 416 947-4547
info@tmx.com
tmx.com
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TMX Group Limited