TMX Group
Annual Report 2020

Plain-text annual report

TMX GROUP LIMITED 2020 A N N U L A R E P O R T 2020 Annual Report 1 TMX Group Limited The future is yours to see. 2020 Annual Report 2 TMX Group Limited Letter from the chair This past year was defined by uncertainty in global markets as the widespread economic impacts of the ongoing COVID-19 pandemic drove higher volatility and created significant challenges for TMX’s issuers, participants and investors across the capital markets ecosystem. As market activity surged, Canada’s markets remained resilient, performing our crucial function for the nation’s economy. I would like to thank TMX’s employees for their dedicated efforts and tremendous accomplishments throughout the year, and also thank our industry stakeholders for their partnership in ensuring our markets stay up and running. In August, we appointed John McKenzie to lead our organization as CEO. John has been with the company for over 20 years, serving in multiple senior roles, most recently as CFO. As we move forward, we believe that TMX Group’s skilled leadership team, diversified business model and balanced strength across the organization have us well-positioned for continued, sustainable long-term growth. In closing, I want to acknowledge my fellow board members for their hard work and commitment to our strategic vision. Christian Exshaw, Harry Jaako, Jean Martel and Gerri Sinclair will be retiring as Directors this year. I thank them for their valued contributions to our Board of Directors. I would like to welcome our new Directors Moe Kermani, Claude Tessier, and, of course, John. Finally, on behalf of the Board of Directors, I offer a sincere thank you to our clients and shareholders for their ongoing support for our company. Charles Winograd Chair, Board of Directors TMX Group Limited March 26, 2021 2020 Annual Report 3 TMX Group Limited Letter from the CEO This past year was largely marked by the COVID-19 pandemic. On behalf of all of us at TMX, I want to send sincere thanks to all of the brave people who have been working on the front lines throughout this crisis; including healthcare workers, first responders and others providing essential services and crucial support to people in our communities. As much as any period in our history, 2020 served as compelling evidence of the benefits of our diversification strategy and the intrinsic strength of our stress-tested business model. In 2020, about 51% of our revenue in 2020 was recurring, and approximately 33% of our revenue was from outside of Canada. Overall, revenue of $865 million was up 7% from 2019 reflecting increases from Equities and Fixed Income Trading and Clearing, Global Solutions, Insights and Analytics, and Capital Formation slightly offset by lower revenue in our Derivatives Trading and Clearing business. 2020 Highlights Capital Formation The 2020 performance of our Capital Formation business highlights the efficacy of our ecosystem and the fundamental role healthy public markets play in maintaining the Canadian economy. Revenue in the Capital Formation business grew 5% in 2020, fueled by strong financing activity on Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV). Canada’s tech sector continued to thrive in 2020, with technology companies listed on our exchanges raising over $8 billion; a record for the sector on TMX exchanges. In September 2020, we announced an agreement to acquire AST Canada, a leading provider of transfer agency, corporate trust and related services to Canadian companies. This acquisition, which is expected to close later this year, subject to regulatory approval, will help to accelerate TSX Trust’s growth and enhance our competitive position. In December 2020, we announced important changes to TSXV’s signature Capital Pool Company, or CPC program. The CPC program is a unique listing vehicle exclusively offered by TSXV and a popular go-public vehicle for growth stage companies. The changes to the program are designed to increase flexibility, reduce regulatory burden, and improve the economics and overall value proposition for issuers. 2020 Annual Report 4 TMX Group Limited Equities and Fixed Income Trading & Clearing Revenue from Equities and Fixed Income Trading and Clearing was up 17% from 2019, driven by significantly higher trading activity. Last year marked the second highest trading volume in TSX history, with over 115 billion securities traded, trailing only 2009. On a combined basis, volumes on our equity markets, including TSX, TSXV and Alpha, were up 42% compared to the previous year, with dramatic spikes in messaging activity. Derivatives Trading & Clearing While overall volumes on the Montreal Exchange (MX) in 2020 were flat year-over-year, revenue was down slightly due to an unfavourable product mix. The historically-low interest rate environment had a negative impact on volumes in some of MX's key products, particularly short-term interest rate contracts, during the second and third quarter of 2020. We have seen encouraging signs recently as MX volumes grew 30% sequentially from the third to fourth quarter of 2020. MX’s plans to roll out our extended hours initiative into Asia remain on track with the expected launch date in the second quarter of 2021. We have seen strong engagement from investors and participants in the region to date. The availability of our products during Asia's business hours will enable investors and risk managers to trade Canada, such as the Canadian yield curve, on a relative value basis against other markets like Australia and Japan. Global Solutions, Insights & Analytics (GSIA) Revenue in our GSIA business was up 8% from 2019. Within this segment revenue from Trayport, including VisoTech, increased by 14% and the rest of our GSIA business was up 4%. Trayport (excluding VisoTech) reported a 6% increase in average trader subscribers, and 7% increase in average total subscribers in 2020. Trayport recently launched a data analytics tool that has met with positive client feedback and expanded the functionality of its AutoTRADER algo product to cover other markets and products as they continue to emerge. Looking Ahead We are firmly committed to advancing our long-term strategy, and executing on our Roadmap for Growth, the plan we rolled out at the end of 2018 to which we aspire to generate mid single digit revenue growth over the long term. While the strategy has not changed, in just over two years, so much has changed in our operating environment and the world around us, reminding us that sustainable long-term growth must be supported by an engaged team and a commitment to the broader stakeholder community. 2020 Annual Report 5 TMX Group Limited In December 2020, we presented an update of our corporate strategy to the Board of Directors, identifying four priority areas of focus: Growth Acceleration Consistent with our strategy, we continue to pursue opportunities to position TMX competitively in chosen areas of high growth potential, including our globally-unique TSXV model, derivatives, Trayport and data analytics. Talent and Culture So much of our success is driven by the exemplary efforts and unwavering commitment of our people. We are undertaking vital work to bolster employee engagement and purpose, ensure a respectful and inclusive workplace, and amplify our employer brand to attract and retain talent, and foster employee development. Public Advocacy for Better Markets We have an important role to play in advocating for measures to ensure Canada remains competitive on the world stage, and ensuring that we elevate the status of our markets to a global leadership position. Advancing Sustainability and Environmental, Social and Governance (ESG) Initiatives We have set about the work of integrating ESG objectives and initiatives into TMX’s core objectives and positioning TMX as a world-leading marketplace for sustainable investment and finance with our products and services. Sustainable investment touches virtually every facet of our business, and today we have a number of initiatives underway, including: • ESG 101, a portal of issuers support services and resources to help listed companies navigate the fundamentals of ESG reporting, • We launched the trading of sustainable bonds issued by governments and quasi- governmental entities this month, enabling retail investors to gain access to an otherwise opaque OTC bond market, • Last July, TMX Datalinx launched a set of ESG indices, including the S&P/TSX 60 ESG Index, which measures the performance of constituents in the S&P/TSX 60 Index that meet sustainability criteria, and • In December, MX launched the trading of S&P/TSX 60 ESG Index Futures. 2020 Annual Report 6 TMX Group Limited In Conclusion Going into my first full year as CEO, I am pleased to be leading such a talented team in advancing our sustainable long-term growth strategy. I look forward to updating you on our progress at our virtual Annual and Special Meeting in May. John McKenzie Chief Executive Officer TMX Group Limited March 26, 2021 2020 Annual Report 7 TMX Group Limited 2020 MD& A Management's Discussion and Analysis 2020 Annual Report 8 TMX Group Limited TMX Group Limited MANAGEMENT'S DISCUSSION AND ANALYSIS February 8, 2021 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, 2020, compared with the year ended December 31, 2019 and as at December 31, 2020 and December 31, 2019. This MD&A should be read together with our audited annual consolidated financial statements for the year ended December 31, 2020 (financial statements). Our financial statements and this MD&A for 2020 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, Client First Vision, Sustainable Growth and Financial Objectives; • Our Response to COVID-19 Pandemic; • Initiatives and Accomplishments - 2020 initiatives and accomplishments; • Organizational Changes - an update on senior management changes; • 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 credit and liquidity facilities; • • Financial Instruments; Critical Accounting Estimates - a review of our goodwill and intangible assets - valuation and impairment; 2020 Annual Report 9 TMX Group Limited Page 1 • • • Select Annual and Quarterly Financial Information - a discussion of select annual information from 2018-2020, the fourth quarter of 2020 compared with the corresponding period in 2019 and the results over the previous eight quarters; 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 2020 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 • Caution Regarding Forward-Looking Information. MISSION, CLIENT FIRST VISION, SUSTAINABLE GROWTH AND FINANCIAL OBJECTIVES Mission Powering capital and commodity markets, investment, and economic growth for clients in Canada, across North America, and around the world. Client First Vision To be an indispensable solution for companies around the world to raise capital and the preferred destination for traders and investors to prosper. Sustainable Growth1 We prioritize four areas in our efforts to drive sustainable growth and in order to thrive in both today and tomorrow’s environmental context: • • • • Growth Acceleration: Accelerate strategies to position TMX Group competitively in areas of high growth potential such as Capital Formation, Derivatives Trading & Clearing, and Trayport Talent and Culture: Invest in our people to both fulfil our employee purpose and to foster long-term sustainable growth Advocate for Better: Collaborate with clients, regulators, and government stakeholders to make the Canadian capital markets more competitive globally Environmental, Social and Governance (ESG): Drive long-term sustainable growth through an integration of ESG objectives and initiatives into divisional and corporate objectives Financial Objectives2 In November 2018, we set long term financial objectives of achieving a mid single digit cumulative average annual growth rate (CAGR)* for revenue and a double digit CAGR for adjusted EPS** based on certain assumptions and expected performance over time. While we continue to believe that these aspirational goals are reasonable, we may 1 The "Sustainable Growth" section 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 The "Financial Objectives" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward- Looking Information" for a discussion of risks and uncertainties related to such statements. 2020 Annual Report 10 TMX Group Limited Page 2 not be able to achieve these financial objectives, as our assumptions may prove to be inaccurate and therefore our actual results could differ materially from our long term objectives. For example, the COVID-19 pandemic is having an unprecedented impact on the global economy and markets. At this point, it is difficult to predict the impact that this will have in the short term on our business, and the longer term impact on our aspirational goals. Our long term objectives do not constitute guidance. Our current profitability and our ability to attain these goals in a given period must be weighed against our need to invest in our business in order to execute on our strategy. Some examples of these assumptions include successful execution of our strategic growth initiatives and business objectives; continued investment in growth businesses; and continued re-prioritization of investment towards enterprise solutions. Our business is organized into the following areas: Capital formation: Our exchanges are integral to the efficient operation of the capital markets. We continually support the capital markets community by providing companies of all types and at all stages of development with access to equity capital, while also providing market oversight to ensure market integrity. 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 fair and transparent markets, with innovative, efficient and reliable 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 and its subsidiaries including CDS Clearing and Depository Services Inc (CDS Clearing) and CDS Innovations (collectively, CDS). Derivatives trading and clearing: Accelerating new product creation and leveraging our unique market position to meet the increasing demand for derivative products both in Canada and globally. Lines of business include Montréal Exchange (MX) and Canadian Derivatives Clearing Corporation (CDCC). Global solutions, insights and analytics: Deliver equities data, index data as well as integrated data sets to fuel high- value proprietary and third party analytics which help clients make better trading and investment decisions. We also provide solutions to European and global wholesale energy markets for price discovery, trade execution, post-trade transparency and straight through processing. 2020 Annual Report 11 TMX Group Limited Page 3 Lines of business include TMX Datalinx (information services), Co-location, and Trayport (acquired December 14, 2017) which includes Vienna-based VisoTech (acquired May 15, 2019). Sustainability and Environmental, Social and Governance (ESG) Integrating sustainability and ESG factors with our overall enterprise strategy goes hand in hand with our mission and Client First Vision. In May 2020, we issued our inaugural ESG report. The goal of the report is to inform all of our stakeholders, including current shareholders and potential investors, of our progress in incorporating ESG matters into our corporate strategy, process and operations. We recognize that this initial report is very much a first step on an important journey for TMX Group. We continue to evaluate our role in Canadian capital markets in a transitioning economy and to engage with the industry as well as our stakeholders as we integrate these factors into the way we do business. We look to: • • • Lead by example by building a strong foundation of our own sustainable company practices and reporting Engage with the market and support our issuer base and clients through a transitioning economy Support transition finance with our products and services OUR RESPONSE TO COVID-19 PANDEMIC The novel coronavirus (COVID-19) pandemic has altered the world and the way we operate. It has impacted individuals, communities, businesses and governments in significant ways. In these extraordinary times, we believe that our core organizational values, enterprise strategy, risk management practices and staff, are guiding us through this changing and highly complex situation. Powered by the dedicated and collaborative efforts of employees, the vast majority of whom are working remotely, TMX Group has been able to fulfil our core mission of keeping Canada’s markets operational throughout the pandemic. The health and safety of our people, our clients and the entire capital markets community is our top priority in this time of great uncertainty, and consistently guides the decisions that we make. Effective March 17, 2020, we directed all staff other than those required to be physically present in the office to complete business critical tasks to work from home and transitioned approximately 95% of our workforce to working remotely by the end of the month. Those employees working remotely will continue to do so until Q2/21 at the earliest. TMX Group will continue to reassess our return to work date as new information becomes available. We have deployed various IT and human resources tools to support both our employees working from home as well as our limited recovery staff who are on site performing critical duties. The TMX Building Back Better initiative was launched in 2020 to reimagine our future work environments. In April 2020, we conducted our first successful all-remote disaster recovery (DR) test on most of our critical systems. There were subsequent tests in both September 2020 and October 2020. Throughout this period, we continue to work closely with our clients, regulators and government representatives to ensure continuity. TMX Group’s markets play a crucial role in the economy, and we strongly believe that it is in the public interest and in the best interest of our stakeholders, including issuers, investors, and market participants, that markets remain open. We have also undertaken a number of significant initiatives to help support our key stakeholders most acutely affected by this ongoing crisis, such as: 2020 Annual Report 12 TMX Group Limited Page 4 • • • • Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) implemented blanket relief measures to lessen the administrative burden on our more than 3,200 listed issuers during the COVID-19 pandemic and provide flexibility in volatile markets. TMX Group successfully advocated for amendments to the federal Government's COVID-19 response package to include public companies in the wage subsidy program – this was an important win for Canadian small businesses and, most importantly, for the thousands of Canadians that they employ. In TSX trading, we made adjustments to relax Market Maker performance levels, and in TSX and TSXV, we waived fees associated with 're-opening' trades after a market-wide circuit breaker. And in CDS, to support our participants, CDS paid $2.0 million of the $4.0 million annual fixed rebate on the May 2020 invoice payable in June 2020. The balance of $2.0 million was paid in November 2020, as planned. As we look into the future, despite prevailing uncertainty looming in our operating environment as the business world prepares to emerge from the COVID-19 pandemic, TMX Group remains firmly focused on serving our clients with excellence, providing our markets with continuity, and executing against our global growth strategy. INITIATIVES AND ACCOMPLISHMENTS Capital Formation3 AST Canada transaction In September 2020, we announced an agreement to acquire AST Investor Services Inc. (Canada), and its subsidiary AST Trust Company (Canada) (collectively, AST Canada), a leading provider of transfer agency, corporate trust and related services to Canadian public and private companies for $165 million in cash consideration, which includes $30 million of cash in their businesses, subject to customary closing conditions and working capital adjustments. The acquisition will significantly strengthen our ability to serve the needs of companies across the marketplace by bringing to our TSX Trust business a proven team of industry professionals, and a wider range of products and technology capabilities. From a strategic perspective, this transaction will help to accelerate TSX Trust’s growth and enhance its competitive position, deepening relationships with existing clients and broadening the scope and scale of its service offerings. AST Canada offer a comprehensive portfolio of products and services, including transfer agency services, equity plan solutions, corporate trust, structured finance and proxy related services. AST Canada has approximately 150 employees4 in offices in Toronto, Montreal, Calgary and Vancouver. 3 The "Capital Formation" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainty related to such statements. 4 As of September 25, 2020. 2020 Annual Report 13 TMX Group Limited Page 5 Transaction details: • AST Trust Company (Canada)’s last twelve months (LTM) unaudited revenue through June 30, 2020 was $46.5 million (including $8.0 million of margin income) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)5 was $11.6 million, excluding indirect allocations from the parent company.6 • Over 50% recurring revenue for the year ended June 30, 2020.7 • The transaction is expected to have a positive impact on TMX Group's adjusted earnings per share (EPS)8(excluding amortization of acquired intangibles as well as transaction and integration costs) in the first full year of ownership, before expected synergies.9 • We expect to realize combined revenue and technology cost synergies of approximately $8.0 million over the first two years, following acquisition. • • The transaction is expected to be financed with a combination of cash and debt capacity. The transaction is expected to close within 12 months from the date of signing the agreement (September 25, 2020), subject to receipt of regulatory approval under the Trust and Loan Companies Act (Canada). We have received regulatory approval under the Competition Act (Canada). Capital Pool Company (CPC) program In December 2020, TSXV announced changes to its Capital Pool Company (CPC) program, following extensive consultation with stakeholders across the TSXV community. The CPC program is a unique listing vehicle exclusively offered by TSXV and accounted for almost 50% of new TSXV listings in the past 10 years. New changes to the policy took effect on January 1, 2021 and provide: • • • Increased flexibility - new jurisdictions added, residency restrictions eased, spending restrictions simplified Reduced regulatory burden - relaxed requirements on shareholder distribution and shareholder approval, fewer restrictions on professional subscriptions Improved economics - increased seed investment, finders' fees and shorter escrow 5Adjusted EBITDA of AST Canada provided above is a Non-IFRS measure and does not have a standardized meaning prescribed by IFRS and is, therefore, unlikely to be comparable to similar measures presented by other companies. TMX Group presents this adjusted EBITDA to indicate operating and financial performance exclusive of adjustments including indirect allocations from the parent company. Management uses this measure because it believes doing so results in a more effective analysis of underlying financial performance, including in some cases, our ability to generate cash. Excluding this item also enables comparability across periods. The exclusion of certain items does not imply that they are non-recurring. Adjusted EBITDA as calculated for the purposes of this acquisition excludes indirect corporate overhead. 6 Revenue and adjusted EBITDA are compilations of financial information provided to us by AST Trust Company (Canada). This information is unaudited and may not be prepared in accordance with IFRS for public companies. 7 Recurring revenue is a compilation of financial information provided to us by AST Trust Company (Canada). This information is unaudited and may not be prepared in accordance with IFRS for public companies. 8 Adjusted EPS provided above is a Non-IFRS measures and does not have a standardized meaning prescribed by IFRS and is, therefore, unlikely to be comparable to similar measures presented by other companies. TMX Group presents adjusted EPS to indicate operating and financial performance exclusive of items such as indirect allocations from the parent company and other items as disclosed in this MD&A. Management uses this measure because it believes doing so results in a more effective analysis of underlying 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. 9 Based on internal analysis. 2020 Annual Report 14 TMX Group Limited Page 6 ESG initiatives At the end of March 2020, we launched ESG 101, a new hub of ESG resources curated for TSX and TSXV issuers by us and by many of Canada’s leading ESG experts. The site includes a collection of guides, articles, events, podcasts and definitions to help issuers understand the fundamentals of ESG reporting. In addition, it provides an Expert Centre which offers contact details to help connect issuers to the right people for answers, including ESG rating agencies. The site is updated regularly with new content from our own library (podcasts, workshops, guides) and from our partners. This tool addresses a growing client need and will complement our in-person mentorship and education initiatives, including the existing governance modules of our Growth Accelerator program, a new ESG-focused Growth Accelerator module launched in September 2020, and our ESG-focused workshops. In August 2020, we released, in partnership with Chartered Professional Accountants of Canada, an updated Primer for Environmental & Social Disclosure with the objective of helping listed issuers get started with, or enhance, their ESG disclosure. Equities and Fixed Income Trading and Clearing10 Market On Close (MOC) Modernization In October 2020, TSX published and filed for regulatory approval a proposed new Closing Auction model, the first substantive changes to the MOC since its introduction in 2004. The MOC Modernization proposal was developed after two years of extensive consultation from market participants unified in supporting a best-in-class closing auction that effectively meets the liquidity and execution needs of Canadian and global investors. The new TSX MOC facility will provide an improved trading experience for market participants, better serve stakeholder needs for enhanced liquidity at the close, and enhance efficiencies in determining closing prices in Canada. The new MOC model is expected to be launched in the second half of 2021, subject to regulatory approvals. The new MOC model has received regulatory approval from the Ontario Securities Commission (OSC). TSX DRK The expansion of TSX’s Dark Trading offering continued throughout 2020 with the successful introduction of new pricing programs and targeted sales campaigns. As a result, TSX DRK made substantial gains in this market segment, increasing its continuous trading market share in TSX listed securities from 18% in 2019 to 26% in 2020. Planned expansion initiatives and investments are expected to increase user adoption, introduce new offerings, and support continued market share growth in 2021. Sustainable Bonds Posted for Trading on TSX TMX Group is introducing on-Exchange trading for Sustainable Bonds issued by governments and quasi-governmental entities. This platform will be activated in 1H/21. For trading in these bonds, we will use the same TSX trading engine, dissemination tools and distribution channels as those used for trading equities and ETFs on TSX. Offering Sustainable Bonds on TSX will enable retail investors efficient access to an otherwise opaque OTC bond market, and respond to issuers' needs for wider investor ownership of their Sustainable Bonds. TSX has also modernized its listing fee schedule to accommodate all reporting issuers (typically corporations) in their listing of bonds. The new fee schedule is scaled to issuance size and maturity. 10 The "Equities and Fixed Income Trading & Clearing" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainty related to such statements. 2020 Annual Report 15 TMX Group Limited Page 7 Derivatives Trading and Clearing 11 In October 2018, MX launched extended trading hours from the previously 6:00 a.m. ET open to a 2:00 a.m. ET open. Initially, this included MX's interest rate products12. Beginning in February 2019, MX offered clients the ability to also trade its equity index futures13 in these extended hours. For 2020, volumes during extended trading hours represented approximately 6% of total volumes in these products. MX is preparing for the next phase of extended hours to align with trading hours in Asia in Q2/21. As part of its global expansion efforts, MX obtained Recognized Oversees Investments Exchange status with the UK Financial Conduct Authority. In June 2020, MX launched a new three-month Canadian Overnight Repo Rate Average (CORRA) futures contract. As many jurisdictions around the world transition away from interbank offered rates (IBOR), which are survey-based, to new transaction-based reference rates, Canada followed suit by enhancing the CORRA benchmark, now under the administration of the Bank of Canada. Since the launch on June 12, 2020, 13,077 contracts traded through December 31, 2020. There was open interest of 5,578 contracts at December 31, 2020. Canada is expected to be a dual-rate jurisdiction for the foreseeable future, so this new instrument will coexist with MX's flagship BAX product for years to come. In December 2020, MX launched the S&P/TSX 60 ESG Index Futures14 (SEG) and launched a new market making program to support the growth of its Two-Year Government of Canada Bond Futures (CGZ). In 2020, 97,912 CGZ contracts traded with open interest of 25,585 contracts at December 31, 2020. The S&P/TSX 60 ESG Index14 measures the performance of constituents in the S&P/TSX 60 Index14 that meet sustainability criteria, while taking into account the industry group weights of the S&P/TSX 60 Index14. The S&P/TSX 60 ESG Index Futures14 (SEG) is an ESG version of the established S&P/TSX 60 Standard Index Futures14 (SXF), enabling investors to align with ESG strategies or UN Principles for Responsible Investing (PRI) objectives. The revitalization of the Two-Year Government of Canada Bond Futures (CGZ) is part of MX's efforts to increase the number of liquid points on the Canadian listed yield curve, as a next step after the successful revitalization of the Five- Year Government of Canada Bond Futures (CGF) started in 2018. Global Solutions, Insights and Analytics (GSIA)15 Trayport Trayport is the primary connectivity network and data and analytics platform for European wholesale energy markets. Trayport's solutions enable price discovery, trade execution, post-trade transparency and post-trade straight through processing. 11 The "Derivatives Trading and Clearing" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainty related to such statements. 12 BAX - Three-Month Canadian Bankers' Acceptance Futures, CRA - Three-month Canadian Overnight Repo Rate Average (CORRA) Futures (launched June 12, 2020), CGZ - Two-Year Government of Canada Bond Futures, CGF - Five-Year Government of Canada Bond Futures and CGB - Ten-Year Government of Canada Bond Futures. 13 SXF - S&P/TSX 60 Index Standard Futures and SXM - S&P/TSX 60 Index Mini Futures. 14 The S&P/TSX 60 ESG Index Futures, S&P/TSX 60 ESG Index, S&P/TSX 60 Index, and S&P/TSX 60 Standard Index Futures are products of the S&P Dow Jones Indices are products 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 Indices 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 Indices or any data related thereto. 15 The "Global Solutions Insights and Analytics" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainty related to such statements. 2020 Annual Report 16 TMX Group Limited Page 8 Trayport successfully supported its trader and broker customers as they transitioned to working from home during the COVID-19 pandemic. Volumes have been strong through December 31, 2020 with record volumes in both the European power and gas markets driven by the market volatility. Volumes for these power and gas products were up 10% and 14%, respectively compared with 2019. Global Gas - Liquid Natural Gas (LNG) Volumes remained strong for the European and Asian benchmark gas contracts, the Dutch Title Transfer Facility (TTF) and the Japan Korea Marker (JKM). TTF volumes rose 27% in 2020 compared with 201916 and we have seen record JKM over the counter (OTC) cleared volumes from Trayport brokered customers. While not directly correlated, the increase in volumes in these markets can result in an expansion in market participants, which can drive growth in the number of subscribers connecting with Trayport to trade these products. Algorithmic Trading and Data Analytics Products The trend of algorithmic power trading in European intraday markets continued through to December 31, 2020. In 2020, intraday volumes on EPEX Spot grew 14% compared with 2019.17 This algorithmic trading trend is also developing across the rest of the markets Trayport serves in Europe. Trayport has responded to this demand by launching a Data Analytics product to store and analyze customers data sets, which is now live and has been well received by customers. Trayport is also expanding its AutoTrader algorithmic design and execution product to cover these additional forward and futures markets. Together, these products provide an end to end solution for customers to design, backtest, and execute algorithmic strategies. Geographic Expansion In October 2019, Trayport and Nodal Exchange, a Washington D.C.-based derivatives exchange serving North American commodities markets, announced an agreement to offer Trayport’s core trading screen, Joule, to trading participants of Nodal Exchange. Nodal has started rolling out screens to trader clients. TMX Datalinx On July 27, 2020, we launched the following S&P/TSX ESG18 indices to enable our clients to gain exposure to ESG investments and manage risks associated with ESG: S&P/TSX 60 ESG Index18 The Index is designed to track the performance of the constituent companies of the S&P/TSX 60 Index18, while taking into account each company's S&P DJI ESG Scores. The index construction methodology is based on the S&P/TSX 60 Index18; companies are then re-weighted according to their sustainability score and relative to industry-specific standards. 16 Source: Trayport's Euro Commodities Report. 17 Sourced from collection of monthly EPEX volume reports. 18 The S&P/TSX 60 Index, S&P/TSX Composite Index, S&P/TSX 60 ESG Index, S&P/TSX Composite ESG Index, S&P/TSX 60 Carbon Price Risk Index and S&P/TSX Composite Carbon Price Risk Index are products of the S&P Dow Jones Indices are products 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 Indices 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 Indices or any data related thereto. 2020 Annual Report 17 TMX Group Limited Page 9 S&P/TSX Composite ESG Index18 The Index is designed to target 75% of the float capitalization of each GICS® industry group within the S&P/TSX Composite Index18, using S&P DJI ESG Scores for constituent selection. S&P/TSX 60 Carbon Price Risk Index and S&P/TSX Composite Carbon Price Risk Index18 S&P Carbon Price Risk Indices are designed to measure the performance of the constituent companies of the S&P/TSX 60 Index18 and S&P/TSX Composite Index18, respectively, reweighed to account for the potential impact of 2030 carbon prices on constituents’ stock prices. The S&P Carbon Price Risk 2030 Adjusted Index18 Series aims to re-balance index constituents in a way that adjusts for their differing levels of future carbon price risk, based on pricing risks arising from industry and geographic distribution of emissions, as well as levels of emissions. Co-location Services In July 2020, we received regulatory approval to increase pricing by 5% for co-location services, which became effective on September 1, 2020. To meet client demand, we plan to increase capacity at our co-location facility by approximately 25% in Q3/21. TMX Market Centre Construction of TMX Market Centre, a state-of-the-art modern digital facility located at the base of our Toronto headquarters, was completed in Q4/20. The 8,500 square foot venue will be utilized for daily market open and close ceremonies, and has the capacity to accommodate up to 320 people for corporate and shareholder events. The official opening will be postponed until COVID-19 restrictions are removed, and external guests can be accommodated safely. TMX Money In Q2/20 we introduced a new TMX Money website, which integrates the prior TMX Money and TMX Matrix digital platforms. This new website has been designed to help increase exposure for our issuers (particularly those on the TSX Venture Exchange) with retail investors. As of Q3/20, all user traffic is now going to this new site, ensuring that our retail investors and trader users can now benefit from the new improved user experience. Update on Modernization of Clearing Platforms19 In 2017, we commenced work on an initiative to modernize the technology platforms for our CDS and CDCC clearing and settlement businesses as well as for our entitlement systems. We have separated the modernization of our clearing houses into two phases. In phase one, we focused on the CDCC risk management element of the project that went live in Q2/19. Phase two of this project involves the replacement of other legacy systems at CDS including those related to clearing and settlement, as well as an expanded scope to address entitlement payment systems. In March 2017, we 18 The S&P/TSX 60 Index, S&P/TSX Composite Index, S&P/TSX 60 ESG Index, S&P/TSX Composite ESG Index, S&P/TSX 60 Carbon Price Risk Index and S&P/TSX Composite Carbon Price Risk Index are products of the S&P Dow Jones Indices are products 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 Indices 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 Indices or any data related thereto. 19 The "Update on Modernization of Clearing Platforms" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainties related to such statements. 2020 Annual Report 18 TMX Group Limited Page 10 implemented an Issuer Services Program that included a number of fee changes in anticipation of the investment that would be required to modernize the entitlement payments system. We spent $43.8 million up to the end of 2019 on capital expenditures related to phase two and $27.8 million in 2020. Overall, we expect to incur between approximately $100 and $110 million in capital expenditures during Phase two of this project. We expect to complete this project in Q1/22. We will continue to provide updates on estimates for capital expenditures and timing as this complex project progresses. ORGANIZATIONAL CHANGES On August 17, 2020, we announced that John McKenzie would lead the organization as its Chief Executive Officer (CEO). Mr. McKenzie, who assumed the role on that date, also became a member of the TMX Group Limited Board of Directors. Mr. McKenzie had served as TMX Group interim CEO, as well as Chief Financial Officer (CFO). Frank Di Liso, Vice President, Corporate Finance and Administration, a member of the Finance department leadership team for over ten years, was named interim Chief Financial Officer until a permanent successor to John McKenzie is appointed. On November 17, 2020, we announced the appointment of Cindy Bush as Chief Human Resources Officer, effective December 7, 2020. Ms. Bush is responsible for leading all aspects of TMX Group's Human Resources function in support of TMX Group's corporate objectives, including strategy development and execution, workplace culture, performance management,employee communications, talent development and acquisition. Ms. Bush has more than twenty-five years of experience in human resources, talent strategies and culture transformation at companies based in Canada as well as in the United States, the United Kingdom and France. REGULATORY CHANGES Equities Trading On January 23, 2020, the Canadian Securities Administrators (CSA) published a notice confirming that it has approved a Trading Fee Rebate Pilot Study that applies temporary pricing restrictions on marketplace transaction fees, to examine the effects of a prohibition of rebate payments by Canadian marketplaces (Pilot Study). The implementation of the Pilot Study was conditional on the implementation of a similar study by the United States Securities and Exchange Commission (SEC). With a Court ruling against the SEC in June 2020, we understand that the U.S. fee pilot study will not proceed, and that the CSA will not be advancing the Pilot Study in Canada. 2020 Annual Report 19 TMX Group Limited Page 11 MARKET CONDITIONS AND OUTLOOK20 The COVID-19 pandemic has had an unprecedented impact on market and general economic conditions. Heightened volatility has resulted in significantly higher trading and clearing volumes for cash equities markets. At this point it is difficult to project the longer term impact from this volatility, when it may subside, and the implications for capital markets activity. The average CBOE Volatility Index (VIX) was 29.3 in 2020 compared with 15.4 in 2019. Overall, Canadian equities trading volumes were up 39% in 2020 compared with 2019.21 Across all of our equities markets, overall trading volumes were up 42% in 2020 compared with last year with trading volumes on Toronto Stock Exchange (TSX), TSX Alpha Exchange (Alpha) and TSX Venture Exchange (TSXV) increasing by 37%, 64% and 47%, respectively. In Canadian derivatives trading, the volume of contracts traded on MX was essentially unchanged in 2020 compared to 2019. While MX experienced significant increases in volumes earlier in 2020, volumes on interest rate products, particularly short-term interest rate contracts, declined substantially throughout the year reflecting reduced trading in a very low interest rate environment. The highly uncertain and volatile economic and market environment has contributed to less favourable conditions for capital raising in 2020. However, in recent months we have seen increased financing activity on both of our exchanges as valuations have improved. On TSX, the total amount of financing dollars raised increased by 4% from 2019 to 2020, and the total number of financings increased by 4% over the same period. On TSXV (including NEX) there was a 57% increase in the total amount of financing dollars raised, and a 25% increase in the total number of financings in 2020 over last year. On January 20, 2021, the Bank of Canada (the Bank) announced that it was maintaining its target overnight rate at ¼ percent. According to the Bank, economic recovery has been interrupted in many countries as new waves of COVID-19 infections force governments to re-impose containment measures. However, the arrival of effective vaccines combined with further fiscal and monetary policy support have boosted the medium-term outlook for growth. Canada’s economy had strong momentum through to late 2020, but the resurgence of cases and the reintroduction of lockdown measures are a serious setback. Growth in the first quarter of 2021 is now expected to be negative. Assuming restrictions are lifted later in the first quarter, the Bank expects a strong second-quarter rebound. After a decline in real GDP of 5 ½ percent in 2020, the Bank projects the economy will grow by 4 percent in 2021, almost 5 percent in 2022, and around 2 ½ percent in 2023. The Bank added that CPI inflation has risen to the low end of the Bank’s 1-3 percent target range in recent months, while measures of core inflation are still below 2 percent. CPI inflation is forecast to rise temporarily to around 2 percent in the first half of the year, as the base-year effects of price declines at the pandemic’s outset — mostly gasoline — dissipate. Excess supply is expected to weigh on inflation throughout the projection period. As it is absorbed, inflation is expected to return sustainably to the 2 percent target in 2023.22 20 The "Markets Conditions and Outlook" section contains certain forward-looking statements. Please refer to "Caution Regarding Forward-Looking Information" for a discussion of risks and uncertainty related to such statements. 21 Source: IIROC (excluding intentional crosses). 22 Source: Extracted from Bank of Canada press release, January 20, 2021. 2020 Annual Report 20 TMX Group Limited Page 12 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 Formation 2. Equities and Fixed Income Trading and Clearing 3. Derivatives Trading and Clearing 3. Global Solutions, Insights and Analytics i. TMX Datalinx ii. Co-location Services iii. Trayport For key statistics related to each business above, please see Results of Operations. TMX 2020 Revenue: $865.1 million Equities and Fixed Income Trading and Clearing: 26% Capital Formation: 22% Derivatives Trading and Clearing: 15% Global Solutions, Insights and Analytics: 37% 2020 Annual Report 21 TMX Group Limited Page 13 Capital Formation Year Ended December 31, 2020 Capital Formation revenue of $189.0 million Other Issuer Services: 14% TSX Venture Exchange: 25% Toronto Stock Exchange: 61% 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, comprised of Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV), to help companies access the public markets, raise capital 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, established issuers initially list on TSX through an Initial Public Offering (IPO), by graduating from TSXV, or by seeking a secondary listing (to complement an existing listing on another 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 program or a reverse takeover. 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, debt or convertible debt instruments, limited partnership units, ETFs, and structured products such as investment funds. We are a global leader in listing small and medium-sized businesses 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. In 2020, we welcomed 300 new listings, of which 47 were innovation companies and 20 were international (non-Canadian) companies. Issuers listed on TSX and TSXV raised a combined $42.8 billion in 2020 ($36.2 billion on TSX and $6.6 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 funding, growth, and success of our listed companies. Together with industry leading service providers, we offer solutions and resources designed to help our clients reach their corporate objectives. 2020 Annual Report 22 TMX Group Limited Page 14 Within Capital Formation is TSX Trust, second by market share, servicing approximately 23% of listed issuers when measured by clients on the TSX, TSXV, and Canadian Securities Exchange (CSE). The business supports approximately 1,200 equity and debt issuers and private companies with corporate trust, transfer agent, registrar and registered plan services. Strategy • • • • • • • • Leveraging our global presence and channel partners to attract international listings across all sectors Accelerating growth in targeted sectors (including the mining, energy, innovation, and ETF sectors) where we are uniquely positioned Activating new pools of capital (including sustainable investing capital) in Canada and globally Accelerating our policy and regulatory advocacy and thought leadership efforts to stimulate investment in the public markets, ease regulatory burdens, and promote fairness for public companies Streamlining and digitizing issuer listing processes to enhance the issuer experience, achieve operational excellence, and facilitate revenue protection and revenue growth Driving policy innovation Adapting to the evolving needs of public and private companies (across their business lifecycle) and their capital providers by offering new platforms and solutions. For TSX Trust, the strategy focuses on three main pillars of growth: ◦ ◦ ◦ Growing from the core - accelerating growth through expanding product line-up and selling more to existing clients Private markets - expand service offering to meet unique needs of the client base Corporate, government and infrastructure debt - leveraging the trust license to expand into adjacent markets with recurring revenue and cash balances Revenue Description We generate Capital Formation revenue from several fees and services, including: Initial Listing Fees 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 listing. Revenues from initial listing fees are deferred over a 12-month period from the date of listing. Additional Listing Fees Issuers already listed on one of our equity exchanges pay fees in connection with subsequent capital market transactions, such as the raising of new capital through the sale of additional securities and reserving additional shares to be issued under stock option plans. Additional listing fees are based on the value of the securities to be listed or reserved, subject to minimum and maximum fees and are recognized in the period the transaction occurred. 2020 Annual Report 23 TMX Group Limited Page 15 Sustaining Listing Fees23 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 after the new listing takes place, based on their market capitalization on the date of listing, 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). The aggregate market capitalization of issuers listed on TSX increased from $3.2 trillion at the end of 2019 to $3.4 trillion at the end of 2020. The market capitalization of issuers listed on TSXV including NEX increased from $45.4 billion at the end of 2019 to $78.4 billion at the end of 2020. We estimate that the increase in the total market capitalization on TSX should result in an increase in TSX sustaining fee revenue of approximately $2.0 million in 2021. We estimate that the increase in the total market capitalization on TSXV should result in an increase in TSXV sustaining fee revenue of approximately $3.0 million in 2021. Other Services TSX Trust has approximately 1,200 clients, and revenue is primarily derived from recurring monthly fees and net interest income on cash balances. 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. TSX Trust launched a new business line in 2020 with its introduction of a Registered Plans custody service to non-bank broker dealers. TSX Trust benefits from periodic and large cash balances that are held in its trust account, which results in net interest income. 23 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. 2020 Annual Report 24 TMX Group Limited Page 16 Equities and Fixed Income Trading & Clearing Year ended December 31, 2020 Equities and Fixed Income Trading and Clearing revenue of $226.2 million Equities and fixed income clearing, settlement, depository and other services (CDS): 44% Equities and fixed income trading: 56% Equities and Fixed Income Trading – TSX, TSXV, Alpha and Shorcan Overview and Description of Products and Services We operate innovative, efficient, reliable, high performance 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 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 for trading in Canada during those times. The closing auctions also establish the industry 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 and optionality to clients. Each of TSX, TSXV and Alpha also allow POs to report their internally matched orders, by printing them 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 that include Government of Canada, provincial, corporate, strip, and mortgage bonds, repurchase agreements (repos) and swaps. Shorcan serves financial institutions that are broker-dealers registered with IIROC and that are CDCC members; the buy-side does not participate. Inter-dealer brokers can be accessed via broker screens that run on desktop computers at a trader’s desk or via voice lines. 2020 Annual Report 25 TMX Group Limited Page 17 Strategy Equities Trading • • Continue to deploy innovative trading features and functionalities aimed at enhancing market efficiency and trading liquidity Continue to maintain leading market share Fixed income Trading • Maintain market leading position in Canada Trading • Continue to grow our Canadian Swaps business 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. Fixed Income Trading Shorcan charges broker commissions on both sides of the trade upon execution. Shorcan broker commission varies by different types of instruments and by execution method, voice vs. electronic. Equities and Fixed Income Clearing, Settlement, Depository and Other Services - CDS Overview and Description of Products and Services CDS is Canada's national securities depository, clearing and settlement hub for domestic and cross-border depository- eligible securities. CDS supports Canada's equities, 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’s domestic clearing and settlement services enable participants to report, confirm or match, reconcile, net and settle exchange and OTC traded equity, debt and money market transactions, as well as 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 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 systemically important, under the Payment Clearing and Settlement Act (Canada). 2020 Annual Report 26 TMX Group Limited Page 18 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. Strategy TMX Group is implementing a post-trade services strategy to replace the existing clearing, settlement and custody system at CDS. During 2020, the development and internal testing of the system was substantially completed. Testing with participants will commence in Q2/21. Under this strategy, TMX Group will continue to invest in modernizing core technology and developing growth opportunities for each of the two businesses under these main focuses: • • • Clearing and Depository: Develop and migrate to an advanced clearing, settlement, and risk management solution, to deliver enhanced client experiences at higher efficiency (see INITIATIVES AND ACCOMPLISHMENTS - Update on Modernization of Clearing Platforms). Global Liquidity Solutions: Provide streamlined access to funding and margining, and continue growth in Repo central-counterparties offering. Global Connectivity Solutions: Create access gateways that connect global clients within an increasingly global marketplace such as the CDS-DTCC (The Depository Trust & Clearing Corporation) link and collateral optimization opportunities through one of 2 European providers. 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: 2020 Annual Report 27 TMX Group Limited Page 19 • • 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, and entitlements and corporate actions management services for which they benefit. The transition period for the discount on entitlement and corporate action event management fees ended on December 31, 2018. 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. 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). In December 2019, CDS filed a proposal to make two changes to the existing fee model. The first and most significant change was the proposal to modify its fee model by eliminating the rebates that are paid annually to participants based on their respective use of CDS services. The second change was the elimination of network connectivity fees currently paid by participants. CDS expects to publish an amended proposal In Q1/21, which includes two changes to the original application: • • CDS is proposing to cease charging for reports that it transmits to participants. These report fees generated $1.2 million of revenue in 2020. The elimination of the report fees are in addition to the originally proposed elimination of network connectivity fees which were $3.1 million in 2020 CDS is proposing to modify the effective date of the proposed rebate elimination to coincide with the Modernization of Clearing Platforms launch which is expected to be in Q1/22 (See Initiatives and Accomplishments - Update on Modernization of Clearing Platforms). The elimination of the rebates is being proposed to ensure that the significant investment required to modernize CDS technology now can be made, and to ensure adequate funding of ongoing future technology upgrades, while enabling us to earn an appropriate rate of return on our capital investments. The elimination of network connectivity fees and report fees is intended to enable participants to obtain a further netting benefit as against the impact of the rebate elimination. For the five-year period from 2016 to 2020 inclusive, CDS rebated an average of approximately $10.0 million annually. In 2020, CDS rebated $14.3 million reflecting increased volumes. The above proposals are all subject to further public comment and regulatory approval. 2020 Annual Report 28 TMX Group Limited Page 20 Derivatives Trading and Clearing Derivatives Trading and Clearing – MX, CDCC and BOX 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, equity and currency derivatives. BOX is an equity options market located in the U.S. for which MX provided transitional technology services in 2019, and the first half of 2020. As at December 31, 2020, MX held approximately 43% ownership interest in BOX. Derivatives - Trading MX MX offers interest rate, index, equity and currency 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. In 2020, approximately 59% of MX’s volume was represented by four futures contracts – the Three-Month Canadian Bankers’ Acceptance Futures contract (BAX), the 5-Year Government of Canada Bond Futures contract (CGF), 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. BOX BOX (BOX Holdings Group LLC and BOX Exchange LLC) 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 ran on our SOLA technology. Effective December 31, 2018, the term of such service offerings ended, and we provided transitional services to BOX until Q2/20. In 2020, Derivatives Trading and Clearing revenue included approximately $1.7 million of revenue from providing transitional services to BOX. 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 central clearing counterparty (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 an 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 a 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). 2020 Annual Report 29 TMX Group Limited Page 21 Derivatives – Regulatory Division MX is recognized by the Autorité des marchés financiers (AMF) as 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 oversees the regulatory functions. It is responsible for the regulation of its markets and its trading participants. The Regulatory Division operates as a separate and independent unit of MX. It is subject to the oversight of MX’s Special Committee – Regulatory Division. The Special Committee – Regulatory Division, which is appointed by the Board of Directors of MX, is composed of a majority of independent members, none of whom is a member of the Board of Directors of MX or CDCC. The Regulatory Division operations are self-funded and are carried out on a not-for-profit basis. The Regulatory Division generates revenue from regulatory fees principally comprised of market surveillance fees collected by MX on behalf of its 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 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 fines are accounted for separately from regulatory fees revenues. The regulatory fines can be used only for specifically approved purposes, such as educational initiatives. Strategy MX sales and business development efforts will focus on: • • Continuation of global expansion through trading hours and access expansion Introduction of new client-focused products and services with new offerings to unlock the yield curve and further build out the equities derivatives complex CDCC strengthens and supports Derivatives markets growth with trusted, deep post-trade capabilities. Enhancements of CDCC’s products and services will focus on: • • • • Supporting a vertically-integrated introduction of new derivatives products and services Providing efficient international access to a global pool of traders and asset owners Upgrading operational, risk and regulatory compliance capabilities Complementing the Derivatives ecosystem with an expanded REPO facility Revenue Description Those who trade on MX are charged fees for buying and selling derivatives products on a per transaction basis, determined by factors that include contract type and volume of contracts traded. Since MX trading fee rates are charged on each transaction based on the number of contracts included in each transaction, MX trading revenue is largely 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. 2020 Annual Report 30 TMX Group Limited Page 22 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. 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. Revenue is recognized as performance obligations are satisfied; this occurs within a short period of time. Clearing revenue for fixed income REPO agreements is recognized on the novation date of the related transaction. Global Solutions, Insights, and Analytics (GSIA) Year ended December 31, 2020 GSIA revenue $323.7 million Other: 4% Index (incl. Benchmarks): 5% Co-location: 5% Feeds: 13% Trayport: 42% Subscribers & Usage: 31% Overview and Description of Products and Services We deliver data 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 – TSX and TSXV 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 2020 Annual Report 31 TMX Group Limited Page 23 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 Level 1, and Level 2 real-time services for TSX, TSXV and Alpha. Level 1 provides trades, quotes, corporate actions and index level information. Level 2 provides a more in-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 was approved in June 2018 for an additional four year period. 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. 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 indices24. In general, these license fees are based on a percentage of funds under management in respect of these proprietary products. The multi- year Index Operation and License Agreement between TSX Inc. and S&P DJI covers the creation and publication of all S&P/TSX indices24, while also providing MX with the rights to list futures and options on the S&P/TSX indices24. Enterprise non-professional (non-pro) fee discount program Under this program we introduced tiered discounts for clients based on the total amount spent on all non-pro TSX and TSXV products and a fee cap after a specific spend limit has been reached. During the 2020 eligibility window for entering the Enterprise non-pro fee discount program, we added two new clients. In Q4/20, we added an international client. As of December 31, 2020, we have 11 clients in the program including the six largest Canadian banks. TMX Datalinx Xpress TMX Datalinx Xpress is our new approach to market data audits. The Xpress program was designed to ensure that the clients and TMX Group have a common ongoing understanding around data feed usage, pricing and policies, and to ensure that the administration of the prior approval, contracts, entitlements, reporting, and billing are all completed as effortlessly as possible. After the introduction of TMX Datalinx Xpress in 2019, this optional program now has over 200 participants. 24 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. 2020 Annual Report 32 TMX Group Limited Page 24 Co-location 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. Trayport 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 TMX Datalinx • • • • Go to market with innovations in product pricing and packaging and secure multiple-year pricing agreements Expand our suite of multi-asset class, real time and historical data and analytics products Capture the global addressable market for TMX Group content and products Provide new distribution platforms for TMX Group proprietary content Trayport Trayport intends to focus on capitalizing on four macro themes in the global energy markets that present growth opportunities in both new markets and in new services to existing clients: • • • • Leverage increasing demand for data and analytics, and provide a new analytic interface and new applications giving clients the ability to mine critical data sets Provide enhanced execution, data and analytics to both new and existing clients globally who need to access developing gas markets. Trayport clients will have one of the most complete views and trading access to the rapidly growing global gas market Leverage new technologies to drive automation and efficiency as business processes become digitized. This will enable Trayport to deliver increased value along the full trade lifecycle by increasing data and analytics tools available for OTC markets and facilitating broker expansion into new asset classes and geographies The rise of renewable energy sources is having an increasing impact on energy generation and trading. Trayport will help clients meet the increasing demand in spot power and gas markets with new trading tools 2020 Annual Report 33 TMX Group Limited Page 25 Revenue Description TMX Datalinx 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. Co-location Services Subscribers to TMX Group’s co-location services, pay a fixed monthly fee depending on the number of cabinets and other related services they receive. Co-location services are normally contracted for a period of one to five years. Trayport Trayport subscribers pay a monthly rate for access to the platform. While some customers are on multi-year contracts, the average term is about one year. In 2020, approximately 48% of our GSIA (excluding Trayport) revenue was billed in U.S. dollars, and approximately 93% of our Trayport 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.) 2020 Annual Report 34 TMX Group Limited Page 26 Results of Operations Non-IFRS Financial Measures Adjusted earnings per share, adjusted diluted earnings per share and adjusted net income are non-IFRS measures and do not have standardized meanings prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other companies. We present adjusted earnings per share, adjusted diluted earnings per share, and adjusted net income to indicate ongoing financial performance from period to period, exclusive of a number of adjustments. These adjustments include amortization of intangibles related to acquisitions, impairment charges, strategic re-alignment expenses, net litigation settlement costs, gain on sale of interest in Bermuda Stock Exchange, transaction related costs, change in net deferred income tax liabilities resulting from decrease in Alberta corporate income tax rate, increase in deferred income tax liabilities relating to a change in the U.K. tax rate, and reduction in commodity tax provision. 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. Year ended December 31, 2020 (2020) Compared with Year ended December 31, 2019 (2019) The information below reflects the financial statements of TMX Group for 2020 compared with 2019. Certain comparative information has been reclassified in order to conform with the financial presentation adopted in the current year. (in millions of dollars, except per share amounts) Revenue Operating expenses Income from operations Net income Adjusted net income25 Earnings per share Basic Diluted Adjusted Earnings per share26 Basic Diluted 2020 $865.1 449.2 415.9 279.7 334.9 4.96 4.91 5.93 5.88 2019 $ increase % increase $806.9 424.5 382.4 247.6 300.2 4.42 4.38 5.36 5.31 $58.2 24.7 33.5 32.1 34.7 0.54 0.53 0.57 0.57 66.9 7% 6% 9% 13% 12% 12% 12% 11% 11% 19% Cash flows from operating activities 410.9 344.0 25 See discussion under the heading "Non-IFRS Financial Measures". 26 See discussion under the heading "Non-IFRS Financial Measures". 2020 Annual Report 35 TMX Group Limited Page 27 Net Income and Earnings per Share Net income in 2020 was $279.7 million, or $4.96 per common share on a basic and $4.91 per common share on a diluted basis, compared with a net income of $247.6 million, or $4.42 per common share on a basic and $4.38 on a diluted basis, for 2019. The increase in net income reflected an increase in income from operations of $33.5 million. The increase in income from operations from 2019 to 2020 was driven by an increase in revenue of $58.2 million, offset by an increase in operating expenses of $24.7 million. The increase in operating expenses was partly attributable to net litigation settlement costs of $12.4 million (16 cents per basic and diluted common share) in Q2/20. There was also an increase in our share of income from BOX. In addition, during 2019, there was an $18.0 million (32 cents per basic and diluted common share) non-cash impairment charge related to Shorcan. The increase in net income and earnings per share was reduced by significantly higher income tax expense, and a higher effective income tax rate, in 2020 compared with 2019. • • During 2020, there was a change in the U.K. corporate income tax rate. This resulted in an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million, which reduced net income. In 2019, the Alberta general corporate income tax rate decreased. This change resulted in a decrease in net deferred income tax liabilities and a corresponding decrease in income tax expense of $4.3 million. In 2019, we incurred non-cash impairment charges of $18.0 million related to Shorcan, which is not deductible for income tax purposes. This resulted in an increase in our effective tax rate, which essentially offset the positive impact from the decrease in the Alberta general corporate income tax rate. The increase in diluted earnings per share was somewhat reduced by an increase in the number of weighted-average common shares outstanding in 2020 compared with 2019. 2020 Annual Report 36 TMX Group Limited Page 28 Adjusted Earnings per Share27 Reconciliation for 2020 and 2019 The following is a reconciliation of earnings per share to adjusted earnings per share: (unaudited) Earnings per share Adjustments related to: Amortization of intangibles related to acquisitions Impairment charges Strategic re-alignment expenses28 Net litigation settlement costs Gain on sale of interest in Bermuda Stock Exchange Transaction related costs29 Change in net deferred income tax liabilities resulting from decrease in Alberta corporate income tax rate Increase in deferred income tax liabilities relating to change in U.K. tax rate Reduction in commodity tax provision Adjusted earnings per share30 Weighted average number of common shares outstanding 2020 2019 Basic $4.96 Diluted $4.91 0.67 — — 0.16 — 0.03 — 0.13 0.67 — — 0.16 — 0.03 — 0.13 (0.02) $5.93 (0.02) $5.88 Basic $4.42 0.68 0.32 0.05 — (0.04) 0.01 (0.08) — — Diluted $4.38 0.67 0.32 0.05 — (0.04) 0.01 (0.08) — — $5.36 $5.31 56,425,302 56,950,290 56,045,211 56,570,669 Adjusted diluted earnings per share increased by 11% from $5.31 in 2019 to $5.88 in 2020 largely driven by increased revenue, somewhat offset by higher operating expenses, excluding net litigation settlement costs of $12.4 million. There was also an increase in our share of income from BOX and lower net finance costs. The increase in adjusted diluted earnings per share was somewhat offset by an increase in the number of weighted- average common shares outstanding in 2020 compared with 2019. 27 See discussion under the heading "Non-IFRS Financial Measures". 28 In 2019 we incurred approximately $3.3 million related to organizational changes, and net expense of $0.4 million related to onerous contracts. The organizational changes generated annual savings of approximately $1.8 million starting in Q2/19. 29 Includes costs related to the AST Canada transaction in 2020 and costs related to the acquisition of Visotech in 2019. See Initiatives and Accomplishments - Capital Formation - AST Canada transaction for more details. 30 See discussion under the heading "Non-IFRS Financial Measures". 2020 Annual Report 37 TMX Group Limited Page 29 Adjusted Net Income31 Reconciliation for 2020 and 2019 The following is a reconciliation of net income to adjusted net income: (in millions of dollars) (unaudited) Net income Adjustments related to: Amortization of intangibles related to acquisitions Impairment charges Strategic re-alignment expenses32 Net litigation settlement costs Gain on sale of interest in Bermuda Stock Exchange Transaction related costs33 Change in net deferred income tax liabilities resulting from decrease in Alberta corporate income tax rate Increase in deferred income tax liabilities relating to change in U.K. tax rate 2020 $279.7 38.1 — — 9.1 — 1.7 — 7.4 Reduction in commodity tax provision Adjusted net income34 (1.1) $334.9 2019 $ increase / (decrease) % increase / (decrease) $247.6 $32.1 13% 37.5 18.0 2.8 — (2.0) 0.6 (4.3) — — $300.2 0.6 (18.0) (2.8) 9.1 2.0 1.1 4.3 7.4 (1.1) $34.7 2% (100)% (100)% n/a (100%) 183% (100%) n/a n/a 12% Adjusted net income increased by 12% from $300.2 million in 2019 to $334.9 million in 2020 largely driven by increased revenue, somewhat offset by higher operating expenses, excluding net litigation settlement costs of $12.4 million. There was also an increase in our share of income from BOX and lower net finance costs. 31 See discussion under the heading "Non-IFRS Financial Measures". 32 In 2019 we incurred approximately $3.3 million related to organizational changes, and net expense of $0.4 million related to onerous contracts. The organizational changes generated annual savings of approximately $1.8 million starting in Q2/19. 33 Includes costs related to the AST Canada transaction in 2020 and costs related to the acquisition of Visotech in 2019. See Initiatives and Accomplishments - Capital Formation - AST Canada transaction for more details. 34 See discussion under the heading "Non-IFRS Financial Measures". 2020 Annual Report 38 TMX Group Limited Page 30 Revenue (in millions of dollars) 2020 2019 $ increase / (decrease) % increase / (decrease) Capital Formation $189.0 $180.7 Equities and Fixed Income Trading and Clearing Derivatives Trading and Clearing Global Solutions, Insights and Analytics Other 226.2 126.2 323.7 0.0 193.5 133.2 299.7 (0.2) $865.1 $806.9 $8.3 32.7 (7.0) 24.0 0.2 $58.2 5% 17% (5)% 8% (100)% 7% Revenue was $865.1 million in 2020, up $58.2 million or 7% compared with $806.9 million in 2019 attributable to increases in revenue from Capital Formation, Equities and Fixed Income Trading and Clearing as well as Global Solutions, Insights and Analytics offset by a decrease in Derivatives Trading and Clearing revenue. Capital Formation (in millions of dollars) Initial listing fees Additional listing fees Sustaining listing fees Other issuer services 2020 $10.1 81.8 69.3 27.8 2019 $11.0 72.7 68.9 28.1 $189.0 $180.7 $ increase / (decrease) % increase / (decrease) $(0.9) 9.1 0.4 (0.3) $8.3 (8)% 13% 1% (1)% 5% • • • • Initial listing fees in 2020 decreased from 2019 due to a decline in the amount of deferred initial listing fee revenue recognized in 2020 compared with 2019 on TSXV, somewhat offset by an increase in the amount of deferred initial listing fee revenue recognized on TSX. We recognized initial listing fees received in 2019 and 2020 of $8.9 million in 2020 compared with initial listing fees received in 2018 and 2019 of $10.0 million in 2019. Based on initial listing fees billed 2020, the following amounts have been deferred to be recognized in Q1/21, Q2/21, Q3/21 and Q4/21: $2.4 million, $2.1 million, $1.4 million and $0.4 million respectively. Total initial listing fees revenue for future quarters will also depend on listing activity in those quarters. Additional listing fees in 2020 increased compared to 2019 reflecting an increase in additional listing fee revenue on TSXV where there was an increase in both the number of financings and total financing dollars raised. There was also an increase in additional listing fee revenue on TSX reflecting an increase of 9% in the number of transactions billed below the maximum fee, from 2019 to 2020 somewhat offset by a 2% decrease in the number of transactions billed at the maximum listing fee of $250,000. 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 TSX, partially offset by a decrease in TSXV from 2019 to 2020. 2020 Annual Report 39 TMX Group Limited Page 31 • Other issuer services revenue in 2020 was lower compared to 2019 reflecting decreased revenue from TSX Trust primarily due to lower margin income and a decrease in recoverable revenue. The decreases were somewhat offset by an increase in transfer agent fee revenue. Equities and Fixed Income Trading and Clearing (in millions of dollars) 2020 2019 $ increase % increase Equities and fixed income trading $127.0 Equities and fixed Income clearing, settlement, depository and other services (CDS) 99.2 $98.0 95.5 $226.2 $193.5 $29.0 3.7 $32.7 30% 4% 17% • • • • • There was an increase in Equities and Fixed Income Trading revenue in 2020 compared with 2019 driven by significantly higher overall volumes across all of our exchanges. The impact from the higher volumes was somewhat offset by a less favourable product mix in 2020 compared with 2019. There was also an increase in fixed income trading revenue reflecting increased activity in swaps. The overall volume of securities traded on our equities marketplaces increased by 42% (186.4 billion securities in 2020 versus 131.4 billion securities in 2019). There was an increase in volumes of 37% on TSX, 47% on TSXV and 64% on Alpha in 2020 compared with 2019. Excluding intentional crosses, for TSX and TSXV listed issues, our combined domestic equities trading market share was approximately 67% in 2020, up 2% from approximately 65% in 2019.35 We only trade securities that are listed on TSX or TSXV. Excluding intentional crosses, in all listed issues in Canada, our combined domestic equities trading market share was 59% in 2020, up 2% from 57% in 201936. CDS revenue increased from 2019 to 2020 reflecting higher clearing and settlement revenue due to higher volumes, increased depository fee revenue as well as higher international revenue. The increases in revenue were partially offset by higher rebates. Derivatives Trading and Clearing (in millions of dollars) 2020 2019 $ (decrease) % (decrease) $126.2 $133.2 $(7.0) (5)% 35 Source: IIROC. 36 Source: IIROC. 2020 Annual Report 40 TMX Group Limited Page 32 • • The decrease in Derivatives Trading and Clearing revenue was primarily attributable to reduced revenue of approximately $3.8 million from BOX relating to our agreement to provide transitional services, which ended on June 30, 2020. The decrease in revenue was also driven by a 3% decrease in revenue from MX and CDCC. While volumes on MX were essentially unchanged from 2019 to 2020 (115.9 million contracts traded in 2020 versus 116.2 million contracts traded in 2019), there was lower revenue per contract attributable to an unfavourable product mix. Global Solutions, Insights and Analytics (in millions of dollars) 2020 2019 $ increase % increase Trayport GSIA (excluding Trayport) $136.7 187.0 $323.7 $119.6 180.1 $299.7 $17.1 $6.9 $24.0 14% 4% 8% The increase in Global Solutions, Insights and Analytics (GSIA) revenue in 2020 compared with 2019 was primarily driven by increased revenue from Trayport, including revenue from VisoTech (acquired May 15, 2019). The higher revenue includes a favourable impact from a weaker Canadian dollar relative to British Pound Sterling (GBP) in 2020 compared with 2019. Revenue from GSIA, excluding VisoTech was up 7% in 2020 from 2019. Trayport The following table summarizes the average number of Trayport subscribers (excluding VisoTech) over the last eight quarters: Trader Subscribers Total Subscribers37 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 5,262 5,149 4,998 5,191 5,072 4,863 4,834 4,716 25,254 24,661 24,276 24,711 24,116 23,201 22,823 22,349 Revenue (in millions of GBP) £20.4 £19.6 £19.7 £19.4 £18.0 £18.2 £17.8 £16.7 Total Subscribers means all chargeable licenses of core Trayport products in core customer segments including Traders, Brokers and Exchanges. Trader Subscribers are a subset of Total Subscribers. Trader Subscribers revenue represents over 50% of total Trayport revenue. Revenue from Trayport, including VisoTech (acquired May 15, 2019), was £79.1 million in 2020, up 12% over 2019. Excluding VisoTech, revenue from Trayport was up 10%. GSIA (excluding Trayport) Revenue from GSIA (excluding Trayport) increased by 4% from 2019 to 2020. There were higher revenues related to usage based quotes, feeds, benchmarks and indices as well as co-location, partially offset by lower revenues related to under-reported usage of real-time quotes in prior periods. The higher revenue includes a favourable impact from a weaker Canadian dollar relative to the U.S. dollar in 2020 compared with 2019. 37 Previous amounts have been restated based on current data. 2020 Annual Report 41 TMX Group Limited Page 33 • • The average number of professional market data subscriptions for TSX and TSXV products was essentially unchanged from 2019 to 2020 (100,635 professional market data subscriptions in 2020 compared with 100,792 in 2019.) The average number of MX professional market data subscriptions decreased 1% from 2019 to 2020 (18,607 MX professional market data subscriptions in 2020 compared with 18,820 in 2019). Other (in millions of dollars) 2020 $— 2019 $ increase % increase $(0.2) $0.2 100% • The increase in Other revenue reflected a decrease in net foreign exchange losses on net monetary assets from 2019 to 2020. 2020 Annual Report 42 TMX Group Limited Page 34 Operating expenses (in millions of dollars) 2020 2019 $ increase / (decrease) % increase / (decrease) Compensation and benefits $226.6 $207.9 $18.7 Information and trading systems Selling, general and administration Depreciation and amortization Strategic re-alignment expenses 57.6 84.7 80.3 — 51.9 81.4 79.6 3.7 $449.2 $424.5 5.7 3.3 0.7 (3.7) $24.7 9% 11% 4% 1% (100)% 6% Operating expenses in 2020 were $449.2 million, up $24.7 million or 6%, from $424.5 million in 2019. The increase in costs was partly attributable to net litigation settlement costs of $12.4 million (16 cents per basic and diluted share) included within Selling, general and administration expenses in Q2/20. There were also higher costs related to our short term employee performance incentive plan of $14.4 million, increased severance costs of $3.1 million (excluding Strategic re- alignment expenses), higher headcount, increased software licensing and information technology professional services, a write-off of leasehold improvements, as well as increased costs related to managing our business during the COVID-19 pandemic. In addition, we incurred $1.7 million (3 cents per basic and diluted share) in transaction related costs related to the proposed AST Canada transaction. The increases were somewhat offset by a decline in recruitment, pension and long term employee performance incentive plan costs, travel and entertainment expenses, consulting fees and marketing costs. There was also a reduction of $1.5 million in a commodity tax provision (2 cents per basic and diluted share), which reduced Selling, general and administration expenses. Lastly, there were Strategic re-alignment expenses of $3.7 million in 2019 with no similar costs in 2020. Compensation and benefits (in millions of dollars) 2020 2019 $ increase % increase $226.6 $207.9 $18.7 9% • • The increase in Compensation and benefits expenses reflected higher short term employee performance incentive plan costs of $14.4 million, increased severance costs of $3.1 million (excluding Strategic re-alignment expenses), higher headcount as well as COVID-19 pandemic related costs, somewhat offset by lower recruitment, pension, and long term employee performance incentive plan costs. There were 1,383 TMX Group employees at December 31, 2020 versus 1,287 employees at December 31, 2019 reflecting an increase in headcount attributable to investing in the various growth areas of our business. 2020 Annual Report 43 TMX Group Limited Page 35 Information and trading systems (in millions of dollars) 2020 $57.6 2019 $51.9 $ increase % increase $5.7 11% • The increase in Information and trading systems expenses from 2019 to 2020 reflected higher software license and information technology professional services costs, as well as increased costs related to the COVID-19 pandemic as employees worked from home. Selling, general and administration (in millions of dollars) 2020 $84.7 2019 $81.4 $ increase % increase $3.3 4% • • Selling, general and administration expenses increased by $3.3 million in 2020 compared with 2019 primarily due to incurring net litigation settlement costs of $12.4 million (16 cents per basic and diluted share) in Q2/20. In addition, we incurred $1.7 million (3 cents per basic and diluted share) in transaction related costs for the proposed AST Canada transaction. The increase was also due to higher costs attributable to the COVID-19 pandemic, and a write-off of leasehold improvement costs. The increases in Selling, general and administration expenses were partially offset by lower travel and entertainment expenses, consulting fees and marketing costs. There was also a reduction of $1.5 million in a commodity tax provision (2 cents per basic and diluted share), which reduced Selling, general and administration expenses. Depreciation and amortization (in millions of dollars) 2020 $80.3 2019 $79.6 $ increase % increase $0.7 1% • • • There were higher Depreciation and amortization costs reflecting increased amortization on new intangible assets. The Depreciation and amortization costs in 2020 of $80.3 million included $47.4 million related to amortization of intangibles assets related to acquisitions (67 cents per basic and diluted share). The Depreciation and amortization costs in 2019 of $79.6 million included $47.1 million related to amortization of intangibles assets related to acquisitions (68 cents per basic and 67 cents per diluted share). 2020 Annual Report 44 TMX Group Limited Page 36 Strategic re-alignment expenses 2020 2019 (in millions of dollars) Pre-tax Amount Basic and Diluted Earnings per Share Impact Pre-tax Amount Basic and Diluted Earnings per Share Impact $— $— $3.7 $0.05 • Strategic re-alignment expenses for 2019 were $3.7 million, which included $3.3 million related to organizational changes we made in our post trade business, elimination of our centralized innovation product development unit, and changes to our enterprise risk approach. There were also non-recurring charges for onerous contracts related to our initiative on modernizing our clearing platforms of $1.3 million. In Q4/19, we recovered approximately $0.9 million of these charges (See INITIATIVES AND ACCOMPLISHMENTS - Update on Modernization of Clearing Platforms). 2020 Annual Report 45 TMX Group Limited Page 37 Additional Information Share of income from equity accounted investees (in millions of dollars) 2020 $5.7 2019 $3.8 $ increase % increase $1.9 50% • In 2020 our share of income from equity accounted investees increased by $1.9 million primarily due to an increase in our share of income from BOX reflecting higher revenues driven by an 80% increase in volumes, somewhat offset by a significant increase in long term employee performance incentive plan costs. Our share of these long term employee performance incentive plan costs was approximately $5.1 million (7 cents per basic and diluted share). Impairment charge (in millions of dollars) 2020 $— 2019 $18.0 $ (decrease) % (decrease) $(18.0) (100)% • In Q4/19 we determined that the fair value of Shorcan was below its carrying value, resulting in a non-cash impairment charge of $18.0 million. There was no impairment charge in 2020. Other income (in millions of dollars) 2020 $— 2019 $2.3 $ (decrease) % (decrease) $(2.3) (100)% • In 2019, we completed the sale of our interest in Bermuda Stock Exchange resulting in a gain on sale of approximately $2.3 million before tax ($2.0 million after income tax, or 4 cents per basic and diluted share). Net finance costs (in millions of dollars) 2020 $32.8 2019 $35.6 $ (decrease) % (decrease) $(2.8) (8)% • The decrease in net finance costs for 2020 compared to 2019 reflected net lower interest expense due to decreased debt levels and lower interest rates. 2020 Annual Report 46 TMX Group Limited Page 38 Income tax expense and effective tax rate Income Tax Expense (in millions of dollars) Effective Tax Rate (%) 2020 $109.1 2019 $87.3 2020 28% 2019 26% Excluding adjustments, primarily related to the items noted below, the effective tax rate would have been approximately 26% for both 2020 and 2019. 2020 • In 2020, there was an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million relating to the U.K. corporate income tax rate. In Q1/20, it was announced that the U.K. corporate income tax rate would not decline as previously anticipated; therefore, we were required to revalue deferred income tax liabilities related to acquired intangible assets. 2019 • In 2019, the Alberta general corporate income tax rate decreased. This change resulted in a decrease in net deferred income tax liabilities and a corresponding decrease in income tax expense of $4.3 million. In 2019, we incurred non-cash impairment charges of $18.0 million related to Shorcan, which is not deductible for income tax purposes. This resulted in an increase in our effective tax rate, which essentially offset the positive impact from the decrease in the Alberta general corporate income tax rate. Total equity (in millions of dollars) Total equity As at December 31, 2020 As at December 31, 2019 $3,611.5 $3,499.1 $ increase $112.4 • • • As at December 31, 2020, there were 56,301,119 common shares issued and outstanding and 1,205,874 options outstanding under the share option plan. At February 1, 2021, there were 56,241,475 common shares issued and outstanding and 1,167,482 options outstanding under the share option plan. The increase in Total equity is primarily attributable to the inclusion of net income of $279.7 million less dividend payments to shareholders of TMX Group of $153.6 million. In addition, the cost of repurchasing 473,400 of our common shares under a normal course issuer bid was largely offset by proceeds received on the exercise of options. 2020 Annual Report 47 TMX Group Limited Page 39 Segments The following information reflects TMX Group’s segment results for 2020 compared with the 2019. 2020 (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 $ 189.0 $ 226.2 $ 126.2 $ 323.7 $ — $ 865.1 Inter-segment revenue 0.2 1.9 — 0.3 Total revenue 189.2 228.1 126.2 324.0 (2.4) (2.4) — 865.1 Income (loss) from operations 100.0 119.0 60.0 207.8 (70.9) 415.9 2019 (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 $ 180.7 $ 193.5 $ 133.2 $ 299.7 $ (0.2) $ 806.9 Inter-segment revenue — 1.6 — 0.3 Total revenue 180.7 195.1 133.2 300.0 (1.9) (2.1) — 806.9 Income (loss) from operations 96.8 85.8 59.3 193.0 (52.5) 382.4 Income (loss) from operations The increase in Income from operations from Capital Formation primarily reflected higher revenue from additional listing fees in 2020 compared with 2019. This was somewhat offset by lower initial listing fee revenue and higher operating expenses in 2020 compared with 2019. The increase in Income from operations from Equities and Fixed Income Trading and Clearing was largely driven by significantly higher revenue from Equities trading due to substantially higher volumes across all of our exchanges. In addition, there was an increase in revenue from CDS and Fixed income trading. The increase in Income from operations from Derivatives Trading and Clearing primarily reflected lower operating expenses in 2020 compared with 2019, including reduced expenses relating to BOX. The increase was somewhat offset by lower revenue from Derivatives Trading and Clearing. The decrease in Derivatives Trading and Clearing revenue was primarily attributable to reduced revenue of approximately $3.8 million from BOX relating to our agreement to provide 2020 Annual Report 48 TMX Group Limited Page 40 transitional services, which ended on June 30, 2020. While volumes on MX were essentially unchanged from 2019 to 2020 , there was lower revenue per contract attributable to an unfavourable product mix. The increase in Income from operations from Global Solutions, Insights and Analytics reflects higher revenue from Trayport, including VisoTech (acquired May 15, 2019) and TMX Datalinx. The increase in Trayport revenue reflected higher total subscribers as well as a favourable impact from a weaker Canadian dollar relative to GBP in 2020 compared with 2019. Within TMX Datalinx, there were higher revenues related to usage based quotes, feeds, benchmarks and indices as well as co-location, partially offset by lower revenues related to under-reported usage of real-time quotes in prior periods. The higher revenue includes a favourable impact from a weaker Canadian dollar relative to the U.S. dollar in 2020 compared with 2019. The increase in Income from operations was somewhat offset by an increase in operating expenses. 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 increase in Other revenue reflected a decrease in net foreign exchange losses on net monetary assets from 2019 to 2020. The loss from operations for the Other segment was higher in 2020 compared to 2019, reflecting net litigation settlement costs of $12.4 million, $1.7 million in transaction related costs for the proposed AST Canada transaction, and certain COVID-19 related costs allocated to the Other segment. LIQUIDITY AND CAPITAL RESOURCES 2020 compared with 2019 (in millions of dollars) Cash flows from operating activities Cash flows (used in) financing activities Cash flows (used in) investing activities 2020 $410.9 (303.1) (34.8) 2019 $344.0 (234.8) (95.3) $ increase / (decrease) in cash $66.9 (68.3) 60.5 • • • In 2020, Cash flows from operating activities increased compared with 2019 reflecting higher income from operations (excluding depreciation and amortization), an increase in cash from trade and other payables and a decrease in income taxes paid. In 2020, Cash flows used in financing activities were higher than in 2019 largely due to $56.8 million of share repurchases under our normal course issuer bid program, which was launched in Q1/20, and an increase in dividends paid to TMX Group shareholders of $12.3 million. In 2020, Cash flows used in investing activities were lower than in 2019. This was largely due to an increase in cash of $24.6 million from the net sale of marketable securities in 2020 compared with net purchases of marketable securities in 2019 of $24.8 million In addition, during 2019, we had a cash outflow of $23.6 million related to the VisoTech acquisition, which was somewhat offset by receiving $3.8 million on the sale of our interest in the Bermuda Stock Exchange. Offsetting the increases, cash used for additions to premises and equipment increased by $9.5 million from 2019 to 2020. 2020 Annual Report 49 TMX Group Limited Page 41 Summary of Cash Position and Other Matters38 Cash, Cash Equivalents and Marketable Securities (in millions of dollars) As at December 31, 2020 As at December 31, 2019 $ increase $277.9 $229.4 $48.5 We had $277.9 million of cash, cash equivalents and marketable securities as at December 31, 2020. There was an increase in cash, cash equivalents and marketable securities primarily reflecting cash flows from operating activities of $410.9 million, and proceeds from exercised options of $31.7 million. Offsetting these increases in cash and cash equivalents were cash outflows for dividends to our shareholders of $153.6 million, additions to premises and equipment and intangible assets of $67.1 million, repurchases our shares under a normal course issuer bid of $56.8 million, interest paid, net of interest received, of $31.6 million, and a net decrease in Commercial Paper of $79.6 million. Based on our current business operations and model, we believe that we have sufficient cash resources and access to financing 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 Credit Agreement (as defined in this MD&A) 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. We will also have cash outlays related to the modernization of our clearing platforms (see - INITIATIVES AND ACCOMPLISHMENTS - Update on Modernization of Clearing Platforms) and to fund the AST Canada transaction, which will be financed with a combination of cash and debt capacity (see - INITIATIVES AND ACCOMPLISHMENTS - Capital Formation - AST Canada transaction) Our ability to obtain funding in the future will depend on the liquidity and condition of the financial markets, including the credit market, and our financial condition at the time, the covenants in the Credit Agreement and the trust indentures governing the Debentures, and by capital maintenance requirements imposed by regulators. At December 31, 2020, there was $160.0 million of Commercial Paper outstanding, and the authorized limit under the program was $500.0 million, which is fully backstopped by the TMX Group credit facility (see - LIQUIDITY AND CAPITAL RESOURCES - Credit Facility ). Total Assets (in millions of dollars) As at December 31, 2020 As at December 31, 2019 $ increase $36,098.6 $32,359.7 $3,738.9 • Our consolidated balance sheet as at December 31, 2020 includes Balances with Participants and Clearing Members related to our clearing operations. These balances have equal amounts included within Total Liabilities. The increase in Total Assets of $3,738.9 million from December 31, 2019 reflected higher collateral balances in both CDS and CDCC at December 31, 2020 driven by the Bank of Canada requiring participants to post substantially more collateral (to address Cover 1 liquidity risk under Principles of Financial Market Infrastructure (PFMI)). 38 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. 2020 Annual Report 50 TMX Group Limited Page 42 Defined Benefits Pension Plan Based on the most recent actuarial valuations (as at December 31, 2019 or January 1, 2020 depending on the plan), we estimate a net deficit of approximately $7.3 million of which $3.6 million was funded in 2020. The next required tri- annual valuation for the TMX registered pension plan (RPP) will be as at December 31, 2022. Commercial Paper, Debentures, Credit and Liquidity Facilities Commercial Paper (in millions of dollars) As at December 31, 2020 As at December 31, 2019 $ (decrease) $160.0 $239.6 $(79.6) There was $160.0 million of Commercial Paper outstanding, including accrued interest, under the program at December 31, 2020 reflecting a net reduction of $79.6 million from December 31, 2019. Commercial paper is short term in nature, and the average term to maturity from the date of issue was 29 days in Q4/20. The Commercial Paper Program is fully backstopped by the TMX Group credit facility (see - LIQUIDITY AND CAPITAL RESOURCES - Credit Facility). For additional information on our credit facilities, please see Credit Facilities under the heading LIQUIDITY AND CAPITAL RESOURCES. Debentures As of December 31, 2020, TMX Group had the following Debentures outstanding: Debenture Series B Series D Series E Principal Amount ($ millions) 250.0 300.0 200.0 Coupon Maturity Date DBRS Credit Rating 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 3.779% per annum, payable in arrears in equal semi-annual installments October 3, 2023 A (high) December 11, 2024 A (high) June 5, 2028 A (high) • On June 5, 2018, TMX Group completed a Canadian private placement offering of $200.0 million aggregate principal amount of 3.779% senior unsecured debentures due June 5, 2028 ("Series E Debentures") to accredited investors in Canada. The Series E Debentures received a credit rating of A (high) with a Stable trend from DBRS Limited. TMX Group incurred financing costs of $1.1 million for the initial issuance of the Series E Debentures, and these costs are offset against the initial carrying value of the Series E Debentures. • The Series B and Series E 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 2020 Annual Report 51 TMX Group Limited Page 43 price is equal to the greater of the applicable Canada Yield Price (as defined in the relevant Trust Indenture (as defined below)) and 100% of the principal amount of the Series B and Series E Debentures being redeemed to the date fixed for redemption. If the Series B and Series E Debentures are redeemed anytime on or after 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 and Series E Debentures together with accrued and unpaid interest to the date of the redemption. • The Series D Debentures may be redeemed, in 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 Trust Indenture) and 100% of the principal amount of the Series D Debentures being redeemed. If the Series D 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 Series D Debentures together with accrued and unpaid interest to the date of the redemption. • The trust indenture and the supplements thereto which govern the Debentures (collectively, the Trust Indentures and each a Trust Indenture) include the following covenants: ◦ ◦ ◦ ◦ A 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. A limitation on the ability of material subsidiaries of TMX Group to enter into certain types of indebtedness. In the event of a change of control (as such term is defined in the Trust Indentures) of either TSX Inc. or MX, if the rating of the Debentures is lowered to below investment grade (as defined in the Trust Indentures), TMX Group will be required, at the option of the Debenture holder to repurchase, in whole or in part, the holder’s Debentures at a cash price of 101% of the outstanding principal amount of the Debentures plus all accrued and unpaid interest up to the date of repurchase. A 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) Series B - Non-Current Debentures Series D - Non-Current Debentures Series E - Non-Current Debentures Credit Facilities As at December 31, 2020 As at December 31, 2019 $ increase $249.8 $298.7 $199.0 $747.5 $249.6 $298.6 $198.9 $747.1 $0.2 $0.1 $0.1 $0.4 In 2016, TMX Group entered into an amended and restated credit agreement (as amended on each of December 14, 2017 and September 12, 2018, the Credit Agreement) which replaced our existing 2014 credit agreement. The Credit Agreement provides 100% backstop to the Commercial Paper Program and is also available for general corporate purposes. $500 million (or the USD equivalent) is available under the Credit Agreement which amount is reduced by the outstanding amount of Commercial Paper and any outstanding inter-company notes payable to CDS and CDCC. The maturity date of the Credit Agreement is May 2, 2021. 2020 Annual Report 52 TMX Group Limited Page 44 Under the terms of the Credit Agreement there is: • • an Interest Coverage Ratio of more than 4.0:1. The Interest Coverage Ratio is 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. 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; a Total Leverage Ratio of not more than 3.5:1. 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. As at December 31, 2020, all covenants were met under the Credit Agreement. The following table summarizes the Applicable Rates and Fee Rates and corresponding Total Leverage Ratios under the Credit Agreement. The Standby Fee is charged on the unutilized portion of the revolving facility. The Applicable Rate represents the corporate spread that is included in the interest rate that is applied to the drawn portion of the facility. Applicable Margin Pricing Matrix 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 ≤ 2.0 > 2.0 and ≤ 2.5 > 2.5 and ≤ 3.0 > 3.0 and ≤ 3.5 21.5 bps 24.5 bps 27.5 bps 32.5 bps 7.5 bps 22.5 bps 37.5 bps 62.5 bps 107.5 bps 122.5 bps 137.5 bps 162.5 bps Effective Interest Rates The effective interest rates as at December 31, 2020 for the Debentures and Commercial Paper are shown below: Debentures and Commercial Paper Principal ($CAD millions) Maturity All-in Rate Series B Debentures Series D Debentures Series E Debentures Commercial Paper 250 300.0 200.0 160.0 Oct. 3, 2023 Dec. 11, 2024 Jun. 5, 2028 Jan 4 to Jan 29, 2021 4.461% 2.997% 3.779% 0.249% Other Credit and Liquidity Facilities CDCC maintains daylight liquidity facilities for a total of $975.0 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. CDCC maintains a $27,012 million REPO uncommitted facility ($18,102.0 million at December 31, 2019) 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. On April 30, 2020, the amount was further amended from $20,622.0 million at March 31, 2020 to $27,012.0 million. On 2020 Annual Report 53 TMX Group Limited Page 45 February 28, 2020, CDCC extended this facility to February 26, 2021. The facility would provide liquidity in exchange for securities that have been received by, or pledged to, CDCC. CDCC also maintains a $320.0 million syndicated revolving standby liquidity facility ($400.0 million at December 31, 2019) to provide end of day liquidity in the event that CDCC is unable to clear the daylight liquidity facilities to zero. Advances under the facility are secured by collateral in the form of securities that have been pledged to or received by CDCC. On February 28, 2020, this facility was extended to February 26, 2021. As at December 31, 2020, CDCC had drawn $4.3 million to facilitate a failed REPO settlement. The amount is fully collateralized by liquid securities included in cash and cash equivalents and was fully repaid subsequent to the reporting date. CDS Clearing maintains a secured standby liquidity facility of US$720.0 million, or Canadian dollar equivalent, that can be drawn in either United States (US) or Canadian currency. On March 24, 2020, CDS Clearing extended the maturity date to March 23, 2021. CDS Clearing also has a secured standby liquidity facility of $2.0 billion or US equivalent that can be drawn in either Canadian or US currency. On March 24, 2020, CDS Clearing extended the maturity date to March 23, 2021. Contractual Obligations (in millions of dollars) Total Less than 1 year December 31, 2020 Between 1 and 5 years Greater than 5 years Participants’ tax withholdings* 153.3 Accrued interest payable Other trade and other payables Provisions Lease liabilities Balances with Participants and Clearing Members* Total return swaps Commercial Paper Debentures 3.8 71.8 9.1 94.3 153.3 3.8 71.8 1.1 8.1 30,270.4 30,270.4 2.4 160.0 747.5 2.4 160.0 — — — — 8.0 32.1 — — — 548.5 — — — — 54.1 — — — 199.0 *The above financial liabilities are covered by assets that are restricted from use in the ordinary course of business. MANAGING CAPITAL The Company’s 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: • 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 $165 million in cash, cash equivalents and marketable securities, a decrease from $185 million in Q3/20. This amount is subject to change; 2020 Annual Report 54 TMX Group Limited Page 46 • 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 • • • Maintaining debt levels to be below the total leverage ratios as discussed in (a) below, which decrease over time. TMX Group aims to achieve the above objectives while managing its capital subject to capital maintenance requirements imposed on TMX Group and certain subsidiaries as follows: a. In respect of the TMX Group Limited credit facility that requires TMX Group to maintain: i. ii. an interest coverage ratio of more than 4.0:1; a total leverage ratio of not more than 3.50:1 b. In respect of TSX and Alpha Exchange Inc, to maintain the following requirements, on both a consolidated and non-consolidated basis, as set out in the amended and restated recognition order issued by the Ontario Securities Commission (OSC) effective September 2020: i. maintain sufficient financial resources for the proper performance of its functions and to meet its responsibilities; and ii. calculate on a monthly basis: 1. 2. 3. a current ratio; a debt to cash flow ratio; and a financial leverage ratio. c. d. In respect of TSX Venture Exchange, as required by certain provincial securities commissions, to maintain sufficient financial resources to perform its functions. In respect of MX, as required by the AMF, to maintain certain financial ratios as defined in the AMF recognition order, as follows: i. ii. iii. 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. e. In respect of CDCC, to maintain certain amounts, as follows: i. ii. iii. 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 iv. $30.0 million total shareholder's equity. 2020 Annual Report 55 TMX Group Limited Page 47 f. In respect of CDS and CDS Clearing, as required by the OSC and the AMF to maintain certain financial ratios as defined in the OSC recognition order, as follows: i. ii. 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 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. The Company maintains $1.0 million in cash and cash equivalents or marketable securities to cover potential losses incurred as a result of a Participant default. g. In respect of Shorcan: i. ii. iii. by IIROC which requires Shorcan to maintain a minimum level of shareholders’ equity of $0.5 million; by the National Futures Association ("NFA") which requires Shorcan to maintain a minimum level of net capital; and by applicable Canadian securities commissions which requires Shorcan to maintain a minimum level of excess working capital. h. In respect of TSX Trust: i. as required by the Office of the Superintendent of Financial Institutions, to maintain the following minimum capital ratios: 1. 2. 3. common equity tier 1 capital ratio of 7%; tier 1 capital ratio of 8.5%; and total capital ratio of 10.5% ii. as required by IIROC, to maintain in excess of $100.0 million of paid up capital and surplus on the last audited balance sheet for the acceptable institution designation. As at December 31, 2020 and 2019, we were in compliance with each of the externally imposed capital requirements in effect at the applicable period-end. 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. 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 Enterprise Risk Management - Financial Risks. 2020 Annual Report 56 TMX Group Limited Page 48 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, 2020, we had restricted cash and cash equivalents of $153.3 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 Enterprise Risk Management - Financial Risks. 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 loss allowances for trade receivables measured at an amount equal to lifetime expected credit losses, calculated using historical credit loss experience taking into account current observable data at the reporting date to reflect the effects of any relevant current market conditions and forecasts of future economic conditions. The primary risks related to trade receivables are credit risk and market risk. For a description of these risks, please refer to Enterprise Risk Management - Financial Risks. 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. 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 Enterprise Risk Management - Financial Risks. 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 Participants and Clearing Members. There is no impact on the consolidated statements of income. 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. 2020 Annual Report 57 TMX Group Limited Page 49 CDCC – Net amounts receivable/payable on open REPO agreements CDCC clears 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 Enterprise Risk Management - Financial Risks. 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. The Commercial Paper Program is supported by the Credit Agreement. 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 Enterprise Risk Management - Financial Risks. Debentures TMX Group has the following Debentures outstanding: a $250-million Series B Debentures with a 4.461% coupon and a 10-year term, a $300.0-million principal amount Series D Debentures with a 2.997% coupon and a 7-year term, and a $200.0-million Series E Debentures with a 3.779% coupon and a 10-year term. The Debentures received and maintain a credit rating of A (high) with a Stable trend from DBRS. The Debentures are subject to market risk and liquidity risk. For a description of these risks, please refer to Enterprise Risk Management - Financial Risks. Total Return Swaps (TRS) We have entered into a series of TRSs, which synthetically replicate the economics of purchasing our shares as a partial economic hedge to the share appreciation rights of the RSUs and DSUs. We have classified our series of TRSs as fair value through profit and loss and mark to market the fair value of the TRSs as an adjustment to income. We also simultaneously mark to market the liability to holders of the units as an adjustment to income. Fair value is based on the share price of our 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, 2020, unrealized losses and realized gains on the TRSs of $1.4 million and $8.7 million, respectively have been reflected in the consolidated income statement (2019 – unrealized and realized gains of $2.8 million and $10.8 million, respectively). 2020 Annual Report 58 TMX Group Limited Page 50 TRSs are subject to credit risk and market risk. For a description of this risk, please refer to Enterprise Risk Management - Financial Risks. CRITICAL ACCOUNTING ESTIMATES Goodwill and Intangible Assets – Valuation and Impairment Testing We recorded goodwill and intangible assets valued at $5,047.7 million as at December 31, 2020, up by $6.5 million from $5,041.2 million at December 31, 2019. 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 measured 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. 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. The cash flow projections cover a period of five years with the exception of Capital Formation - Listings, which covers seven years and Global Solutions, Insights and Analytics - Trayport, which covers eight years. 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 a non-cash impairment related to the goodwill associated with Shorcan of $18.0 million for 2019 (see RESULTS OF OPERATIONS - Impairment Charge). There was no impairment charge for 2020. Considerable judgement is required to predict future operating performance and to estimate cash flows. Economic weakness due to macroeconomic factors moderating activity and heightening risks may impact our business. Such 2020 Annual Report 59 TMX Group Limited Page 51 factors include political and civil uncertainty in Hong Kong as well as the tensions over trade deficits and technology companies between China and the United States, softened international trade and investment, the impact of COVID-19 on economic recovery and timing of recovery, and financial market pressures. These factors could result in future impairment charges related to goodwill and intangible assets. A significant impairment charge in the future could have a significant impact on our reported net income. In 2020, management updated its growth projections. Based on current assumptions, the recoverable amount for Capital Formation - Listings, Equities Trading, CDS, Derivatives Trading and Clearing - MX/CDCC, GSIA - TMX Datalinx, GSIA - Trayport, and Other - Shorcan remains above carrying value, and as such no impairment has been identified for these CGUs. 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. At December 31, 2019, we determined that the fair value of the Shorcan CGU was lower than its carrying amount. This fair value of Shorcan had declined below the carrying value primarily due to lower revenue projections for the business. This resulted in a non-cash impairment charge of $18.0 million. 2020 Annual Report 60 TMX Group Limited Page 52 SELECT ANNUAL INFORMATION (in millions of dollars expect per share amounts) 2020 2019 2018 Revenue Net income $ Total Assets (as at December 31) Non-current liabilities (as at December 31) Earnings per share: Basic Diluted Adjusted earnings per share:39 Basic Diluted Cash dividends declared per common share 2020 compared with 2019 865.1 279.7 36,098.6 1,706.0 4.96 4.91 5.93 5.88 2.72 806.9 247.6 32,359.7 1,707.6 4.42 4.38 5.36 5.31 2.52 820.7 286.0 31,657.9 1,615.7 5.14 5.10 5.20 5.16 2.24 (See RESULTS OF OPERATIONS and LIQUIDITY AND CAPITAL RESOURCES - Year ended December 31, 2020 (2020) compared with Year ended December 31, 2019 (2019)). 2019 compared with 2018 Revenue Revenue was $806.9 million in 2019, down $13.8 million or 2% compared with $820.7 million in 2018. There was a decrease in Capital Formation revenue driven by lower additional listings fees, a reduction in Other revenue as well as lower Equities and Fixed Income Trading revenue. These decreases were partially offset by an increase in Global Solutions, Insights and Analytics revenue, including higher revenue from Trayport and VisoTech (acquired May 15, 2019), as well as higher Derivatives Trading and Clearing and CDS revenue. Net income, Earnings per share and Adjusted earnings per share Net income in 2019 was $247.6 million, or $4.42 per common share on a basic and $4.38 per common share on a diluted basis, compared with a net income of $286.0 million, or $5.14 per common share on a basic and $5.10 on a diluted basis, for 2018. The decrease in net income and earnings per share was largely driven by lower gains on the sale of investments in 2019 compared with 2018 and higher income tax expense: • • In 2018, we recognized a gain on the sale of our interest in TMX FTSE of $26.8 million before and after income tax (48 cents per basic and diluted share). In 2019, we recognized a gain of $2.3 million before income tax ($2.0 million after income tax, or 4 cents per basic and diluted share) on the sale of our interest in the Bermuda Stock Exchange. In 2018, the income tax expense was lower because we carried back a capital loss to reduce prior year income tax paid by approximately $10.0 million. 39 See discussion under the heading "Non-IFRS Financial Measures". 2020 Annual Report 61 TMX Group Limited Page 53 • In 2019, the Alberta general corporate income tax rate decreased. This change resulted in a decrease in net deferred income tax liabilities and a corresponding decrease in income tax expense of $4.3 million (8 cents per basic and diluted common share). In addition, during 2019, we determined that the fair value of Shorcan was below its carrying value, resulting in a non-cash impairment charge of $18.0 million (32 cents per basic and diluted common share), which reduced net income. Offsetting the declines in net income, income from operations increased by $13.4 million. The increase in income from operations from 2018 to 2019 was largely driven by a decrease in operating expenses of $27.2 million from 2018 to 2019. In 2018, we recorded a commodity tax provision of $7.6 million (10 cents per basic and diluted share) and a lease termination payment of $4.5 million (6 cents per basic and diluted share). There was also a decrease in severance costs of approximately $7.8 million and a reduction in short term employee performance incentive plan costs of approximately $6.8 million from 2018 to 2019. The decreases in expenses were somewhat offset by higher long term employee performance incentive plan costs of approximately $0.5 million. Revenue declined by $13.8 million from 2018 to 2019. There was a decrease in Capital Formation revenue driven by lower additional listings fees, a reduction in Other revenue as well as lower Equities and Fixed Income Trading revenue. These decreases were partially offset by an increase in Global Solutions, Insights and Analytics revenue, including higher revenue from Trayport and VisoTech (acquired May 15, 2019), as well as higher Derivatives Trading and Clearing and CDS revenue. In addition, net finance costs declined by $4.8 million from 2018 to 2019. Adjusted diluted earnings per share increased by 3% from $5.16 in 2018 to $5.31 in 2019. The increase in adjusted diluted earnings per share from 2018 to 2019 was largely driven by lower operating expenses related to lease termination, a decrease in severance costs, a reduction in short term employee performance incentive plan costs as well as lower net finance costs. The decreases in expenses were slightly offset by higher long term employee performance incentive plan costs. There was also an increase in revenue from Global Solutions, Insights and Analytics revenue, including higher revenue from Trayport and VisoTech (acquired May 15, 2019), as well as higher Derivatives Trading and Clearing and CDS revenue. The increases in revenue were more than offset by decreases in Capital Formation revenue driven by lower additional listings fees, a reduction in Other revenue as well as lower Equities and Fixed Income Trading revenue. The increase in adjusted diluted earnings per share was also somewhat reduced by an increase in the number of weighted- average common shares outstanding in 2019 compared with 2018. Total assets Our consolidated balance sheet as at December 31, 2019 includes outstanding balances on open REPO agreements within Balances with Participants and Clearing Members. These balances have equal amounts included within Total Liabilities. The increase in Total Assets of $701.4 million from December 31, 2018 reflected higher balances in CDCC at December 31, 2019 related to both REPO agreements and increased collateral. There was also an increase in Total Assets relating to the implementation of IFRS 16 (see Accounting and Control Matters - ADOPTION OF IFRS 16 in 2019 MD&A). On transition to IFRS 16, we recognized $94.9 million of right-of-use assets. The amount included in Total Assets at December 31, 2019 was $93.0 million. Non-current liabilities Non-current liabilities as at December 31, 2019 were $91.9 million higher than as at December 31, 2018. The increase was largely driven by the recognition of current lease liabilities that arose with the transition to IFRS 16 in 2019. 2020 Annual Report 62 TMX Group Limited Page 54 QUARTERLY FINANCIAL INFORMATION (in millions of dollars except per share amounts - unaudited) Dec 31 2020 Sep 30 2020 Jun 30 2020 Mar 31 2020 Dec 31 2019 Sep 30 2019 Jun 30 2019 Mar 31 2019 Capital Formation $50.6 $50.2 $48.1 $40.1 $42.6 $43.7 $52.6 $41.8 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 30.6 28.5 34.7 33.2 22.7 23.5 25.6 26.2 25.7 23.7 24.8 25.0 28.4 21.8 23.0 22.3 30.8 24.9 30.0 40.5 33.3 33.5 33.8 32.6 82.6 (0.8) 80.3 81.0 79.8 — (0.9) 1.7 75.9 (0.1) 73.6 0.2 75.6 (0.3) 74.6 — 219.5 207.6 217.7 220.3 202.8 196.3 210.3 197.5 Operating expenses 113.4 107.2 119.3 109.3 106.3 104.7 106.2 107.3 Income from operations 106.1 100.4 Net income Earnings per share40 Basic Diluted 71.8 70.0 1.27 1.26 1.24 1.23 98.4 67.8 1.20 1.19 111.0 70.1 1.25 1.24 96.5 47.5 0.85 0.84 91.6 61.7 1.10 1.09 104.1 77.2 1.38 1.37 90.2 61.2 1.10 1.09 Q4/20 compared with Q4/19 • Revenue was $219.5 million in Q4/20, up $16.7 million or 8% from $202.8 million in Q4/19 attributable to increases in revenue from Capital Formation, Equities and Fixed Income Trading as well as Global Solutions, Insights and Analytics offset by a decrease in CDS, Derivatives Trading and Clearing and Other revenue. • Operating expenses in Q4/20 were $113.4 million, up $7.1 million or 7%, from $106.3 million in Q4/19. The increase in costs was primarily attributable to higher short term employee performance incentive costs of $7.1 million, increased severance costs of $3.1 million (excluding Strategic re-alignment expenses), higher long term performance incentive plan costs of $1.5 million, as well as higher headcount, higher software licensing and information technology professional services costs, the write-off of costs related to discontinued initiatives as well as increased costs related to managing our business during the COVID-19 pandemic. In addition, we incurred $0.3 million in transaction related costs related to the proposed AST Canada transaction. Offsetting these increases, in Q4/19, recoverable costs of $5.3 million related to CDS's clearing operation that were previously netted, were reclassified and included in both CDS revenue and Selling, general and administration expenses. There were $1.3 million of these recoverable costs in Q4/20. The increases were also somewhat offset by a decline in recruitment costs, pension expenses, travel and entertainment expenses, consulting fees and occupancy costs, and a $0.2 million reduction in commodity tax provision in Q4/20. Lastly, we recovered Strategic re-alignment expenses of approximately $0.9 million in Q4/19 with no similar recovery in Q4/20. 40 Earnings per share information is based on net income. 2020 Annual Report 63 TMX Group Limited Page 55 • • Income from operations increased from Q4/19 to Q4/20 largely due to higher revenue somewhat offset by higher operating expenses. Net income in Q4/20 was $71.8 million, or $1.27 per common share on a basic and $1.26 on a diluted basis, compared with a net income of $47.5 million, or $0.85 per common share on a basic and $0.84 on a diluted basis, for Q4/19. The increase in net income and earnings per share from Q4/19 to Q4/20 was largely driven by an increase in revenue and a $18.0 million (32 cents per basic and diluted common share) non-cash impairment charge related to Shorcan in 2019. These increases were somewhat offset by an increase in operating expenses. There was a decrease in our share of income from BOX driven by an increase of approximately $5.1 million (7 cents per basic and diluted share) in our share of long term employee performance incentive plan costs for the full year 2020. Q4/20 compared with Q3/20 • Revenue was $219.5 million in Q4/20, up $11.9 million or 6% from $207.6 million in Q3/20 largely attributable to increases in revenue from Capital Formation, Equities and Fixed Income Trading, CDS, Derivatives Trading & Clearing, and GSIA partially offset by lower Other revenue. • Operating expenses in Q4/20 were $113.4 million, up $6.2 million or 6%, from $107.2 million in Q3/20. The increase reflected higher severance costs of $3.4 million, increased short term employee performance incentive plan costs, higher software license and information technology professional services costs, the write-off of costs related to discontinued initiatives and increased marketing costs. In addition, the recovery in a commodity tax provision, which reduced operating expenses, was $0.2 million in Q4/20 compared with $1.3 million in Q3/20. These increases were somewhat offset by decreases in long term employee performance incentive plan costs and lower COVID-19 pandemic related costs. Transaction related costs pertaining to the proposed AST Canada acquisition declined by $1.1 million from Q3/20 to Q4/20. • • Income from operations increased from Q4/20 to Q3/20 largely due to the higher revenue somewhat offset by higher operating expenses. Net income in Q4/20 was $71.8 million, or $1.27 per common share on a basic and $1.26 on a diluted basis, compared with a net income of $70.0 million, or $1.24 per common share on a basic and $1.23 on a diluted basis, for Q3/20. The increase in net income and earnings per share was driven by the higher income from operations in Q4/20 compared with Q3/20. This increase was partially offset by a loss of $0.9 million in equity accounted investees in Q4/20 compared to a gain of $2.9 million in Q3/20. This was driven by an expense of approximately $5.1 million representing our share of BOX's long term employee performance incentive plan costs for 2020 which were recorded in Q4/20. Q3/20 compared with Q2/20 • Revenue was $207.6 million in Q3/20, down $10.1 million or 5% from $217.7 million in Q2/20 largely attributable to decreases in revenue from Equities and Fixed Income Trading and Clearing, Derivatives Trading and Clearing, and GSIA, excluding Trayport, largely offset by increases in revenue from both Capital Formation and Trayport. • Operating expenses in Q3/20 were $107.2 million, down $12.1 million or 10%, from $119.3 million in Q2/20. The decrease was largely attributable to a decline in Selling, general and administration expenses, which included $12.4 million of net litigation settlement costs in Q2/20. Increases in short term employee performance incentive plan costs, severance, consulting fees and transaction related costs of $1.4 million were largely offset by decreases in long term employee performance incentive plan costs, bad debt expense, the reversal of a commodity tax provision of $1.3 million and lower COVID-19 pandemic related costs. • • Income from operations increased from Q2/20 to Q3/20 largely due to the lower operating expenses largely offset by lower revenue. Net income in Q3/20 was $70.0 million, or $1.24 per common share on a basic and $1.23 on a diluted basis, compared with a net income of $67.8 million, or $1.20 per common share on a basic and $1.19 on a diluted basis, for Q2/20. The increase in net income and earnings per share was driven by the higher income from operations in Q3/20 compared with Q2/20. 2020 Annual Report 64 TMX Group Limited Page 56 Q2/20 compared with Q1/20 • Revenue was $217.7 million in Q2/20, down $2.6 million or 1% from $220.3 million in Q1/20 largely attributable to decreases in revenue from Derivatives Trading and Clearing, CDS, Trayport, as well as Other revenue, largely offset by increases in Capital Formation, Equities and Fixed Income Trading and GSIA, excluding Trayport. • Operating expenses in Q2/20 were $119.3 million, up $10.0 million or 9%, from $109.3 million in Q1/20. The increase was largely related to net litigation settlement costs. There were also higher short term employee performance incentive plan, recruitment and COVID-19 pandemic related costs, which were offset by lower salary and benefits costs and reduced travel and entertainment expenses from Q1/20 to Q2/20. • • Income from operations decreased from Q1/20 to Q2/20 largely due to the lower revenue and higher operating expenses. Net income in Q2/20 was $67.8 million, or $1.20 per common share on a basic and $1.19 on a diluted basis, compared with a net income of $70.1 million, or $1.25 per common share on a basic and $1.24 on a diluted basis, for Q1/20. The decrease in net income and earnings per share was driven by the lower income from operations in Q2/20 compared with Q1/20. During Q1/20, there was a change in the expected U.K. corporate income tax rate. This resulted in an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million, which reduced net income for Q1/20. The decrease in basic and diluted earnings per share was also due to an increase in the number of weighted-average common shares outstanding in Q2/20 compared with Q1/20. Q1/20 compared with Q4/19 • Revenue was $220.3 million in Q1/20, up $17.5 million or 9% from $202.8 million in Q4/19 largely attributable to increases in revenue from Equities and Fixed Income Trading, Derivatives Trading and Clearing, GSIA, including Trayport, as well as Other revenue, somewhat offset by decreases in Capital Formation and CDS revenue. Certain recoverable costs related to CDS's clearing operation, previously netted, are now included in both CDS revenue and Selling, general and administration expenses. The amount reclassified to CDS revenue in Q4/19 was $5.3 million compared with $1.1 million in Q1/20. • Operating expenses in Q1/20 were $109.3 million, up $3.0 million or 3%, from $106.3 million in Q4/19. The increase in costs was largely related to higher short term and long term employee performance incentive plan costs of $8.1 million. There was also an increase in payroll taxes of $3.0 million. Offsetting these increases, certain recoverable costs related to CDS's clearing operation, previously netted, are now included in both CDS revenue and Selling, general and administration expenses. The amounts reclassified to Selling, general and administration expenses were $5.3 million for Q4/19 compared with only $1.1 million in Q1/20. In addition, there was also a decrease in travel and entertainment expenses as well as in recruitment costs from Q4/19 to Q1/20. • • Income from operations increased from Q4/19 to Q1/20 largely due to the higher revenue somewhat offset by higher operating expenses. Net income in Q1/20 was $70.1 million, or $1.25 per common share on a basic and $1.24 on a diluted basis, compared with a net income of $47.5 million, or $0.85 per common share on a basic and $0.84 on a diluted basis, for Q4/19. The increase in net income and earnings per share was driven by the higher income from operations in Q1/20 compared with Q4/19. In addition, there was a non-cash impairment charge of $18.0 million related to Shorcan in Q4/19 and no similar charge in Q1/20. However, during Q1/20, there was a change in the expected U.K. corporate income tax rate. This resulted in an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 million, which reduced net income for Q1/20. The increase in basic and diluted earnings per share was also somewhat reduced by an increase in the number of weighted-average common shares outstanding in Q1/20 compared with Q4/19. Q4/19 compared with Q3/19 • Revenue was $202.8 million in Q4/19, up $6.5 million from Q3/19 reflecting increases increases in CDS and Global Solutions, Insights and Analytics revenue. Certain recoverable costs related to CDS's clearing operation, previously netted, are now included in both CDS revenue and Selling, general and administration expenses. The 2020 Annual Report 65 TMX Group Limited Page 57 amount reclassified to CDS revenue in Q4/19 was $5.3 million. The increases were partially offset by decreases in Capital Formation, and Equities and Fixed Income Trading revenue. • Operating expenses increased from Q3/19 to Q4/19. Certain recoverable costs related to CDS's clearing operation, previously netted, are now included in both CDS revenue and Selling, general and administration expenses. The amount reclassified to Selling, general and administration expenses in Q4/19 was $5.3 million. There was also an increase in operating costs related to Selling, general and administration expenses, including project spending and fees, as well as staffing costs. These increases were largely offset by a decrease in short term and long term employee performance incentive plan costs of approximately $2.3 million and approximately $8.0 million, respectively. The latter costs decreased by approximately $4.0 million due to the decrease in our share price between Q3/19 and Q4/19 as well as the reversal of an accrual of approximately $4.0 million relating to long term employee performance incentives that were forfeited upon the execution of an agreement on January 10, 2020 in respect of the CEO's retirement. • • Income from operations increased from Q3/19 to Q4/19 due to the higher revenue, which was partially offset by the higher operating expenses. Net income in Q4/19 was $47.5 million, or $0.85 per common share on a basic and $0.84 on a diluted basis, compared with net income of $61.7 million, or $1.10 per common share on a basic and $1.09 on a diluted basis in Q3/19. The decrease in net income was largely driven by impairment charges of $18.0 million in Q4/19 related to Shorcan. Q3/19 compared with Q2/19 • Revenue was $196.3 million in Q3/19, down $14.0 million from Q2/19 reflecting decreases in all segments including Capital Formation driven by lower additional listing fees, Equities and Fixed Income Trading & Clearing, and Global Solutions, Insights and Analytics. • Operating expenses decreased in Q3/19 compared with Q2/19 reflecting a reduction in Strategic re-alignment expenses, a decrease in project spending and fees as well as increased recoverable expenses. The decreases were somewhat offset by an increase of approximately $3.9 million in long term employee performance incentive plan costs driven by the increase in our share price. • • Income from operations decreased from Q2/19 to Q3/19 due to lower revenue partially offset by lower operating expenses. Net income in Q3/19 was $61.7 million, or $1.10 per common share on a basic and $1.09 on a diluted basis, compared with net income of $77.2 million, or $1.38 per common share on a basic and $1.37 on a diluted basis in Q2/19. There were lower revenues in Q3/19 compared with Q2/19 partially offset by lower operating expenses. Q2/19 compared with Q1/19 • Revenue was $210.3 million in Q2/19, up $12.8 million from Q1/19 reflecting increases in Capital Formation driven by higher additional listing fees, Derivatives Trading & Clearing, and Global Solutions, Insights and Analytics driven by Trayport. • Operating expenses were down in Q2/19 compared with Q1/19 reflecting lower strategic re-alignment costs, reduced payroll taxes and pension adjustments as well as lower Deprecation and Amortization costs. The decreases were largely offset by higher severance costs, project spending, long-term employee performance incentive plan costs as well as expenses and transaction costs related to VisoTech (acquired May 15, 2019). • • Income from operations increased from Q1/19 to Q2/19 largely reflecting the higher revenue and also the lower operating expenses. Net income in Q2/19 was $77.2 million, or $1.38 per common share on a basic and $1.37 on a diluted basis, compared with net income of $61.2 million, or $1.10 per common share on a basic and $1.09 on a diluted basis in Q1/19. There were significantly higher revenues and also lower operating expenses in Q2/19 compared with Q1/19. There was also a gain on sale of interest in Bermuda Stock Exchange of approximately $2.0 million after 2020 Annual Report 66 TMX Group Limited Page 58 tax (4 cents per basic and diluted share) and a deferred income tax recovery of $4.3 million related to a decrease in the Alberta corporate income tax rate (8 cents per basic and diluted share) in Q2/19. 2020 Annual Report 67 TMX Group Limited Page 59 ENTERPRISE RISK MANAGEMENT Executive Summary TMX Group provides essential services to the Canadian capital and global commodity markets and effectively managing risks and objective certainty41 is fundamental to our ability to execute on our enterprise and business strategies. The purpose of enterprise risk management (ERM) is to facilitate and support the businesses in their pursuit of their objectives to ensure the outcomes of these activities are transparent and understood, consistent with our risk appetite, appropriately balance risk and reward, and serve as inputs into the enterprise strategy formulation process. We have identified a number of principles which guide our management of risks, including 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 own the objectives, and therefore risks, assumed in their activities and are accountable for the effective management of those risks, supported by the risk management and internal audit functions. TMX uses Five Lines of Accountability (see below) which enhances the Three Lines of Defence model while recognizing the role of senior management and the Board in risk management. We define these roles and responsibilities and associated levels of authority for risk-taking across the enterprise. • We employ effective and consistent risk management processes across the enterprise to ensure that objectives and risks are transparent, well understood, and remain within an accepted and approved level of risk appetite. • We employ sufficient resources and effective tools, methods, models and technology to support our risk management processes. • Our ERM framework reflects industry standards and legal and regulatory requirements, and is regularly reassessed. The management of risk is essential to the successful execution of our Strategic Plan. Consequently, we have adopted an Objective Centric Risk Management (“OCRM”) approach to risk management. Rather than managing our risks in isolation, we use OCRM to address opportunities, uncertainties and threats to the successful achievement of our objectives. An OCRM approach to risk management does not change the risks faced by our organization. Instead, it anchors the risk management process to our objectives which supports the proper allocation of resources across the enterprise. As illustrated in the diagram below, using OCRM requires senior management, under the supervision of the Board, to (i) clearly define roles across the businesses; (ii) explicitly specify risk and assurance requirements; and (iii) determine the business objectives that warrant more formal and visible risk assessment processes. This ensures the integration of the enterprise's objectives, risks, risk treatments, and performance. The Board has established a set of enterprise objectives and the Strategy and Risk Committee (“SRC”), a management committee of TMX Group, determines the key risks to the successful achievement of our objectives, identifies new or emerging risks, evaluates our execution strategy and allocates resources as required. 41 TMX has adopted an Objective Centric Risk Management ("OCRM") approach where the emphasis is on Objective Certainty rather than risk registers. OCRM is an approach to managing risks that is anchored in objectives through an integrated approach that aligns risk activities to strategies, objectives and performance. It reaffirms responsibility for risk to individuals who are responsible for achieving the objectives. 2020 Annual Report 68 TMX Group Limited Page 60 Key risks identified are: Market and Macroeconomic Risk: A significant portion of our revenue comes from trading revenue. Similar to other exchanges, this is highly sensitive to macroeconomic conditions. Canada is our largest geographic concentration of revenue. Given the majority of business is conducted domestically, macroeconomic factors such as GDP growth, regulations, interest rates, volatility, and market activity, can impact our business. Cyber Risk: Our processes and networks and those of our third-party service providers may be vulnerable to information risks, including unauthorized access, computer viruses, denial of service attacks, and other security issues. Remote working necessitated by the COVID-19 pandemic has placed a greater emphasis on the integrity and capacity of our networks. Attempted cyber attacks were on the rise in 2020 and a successful cyber scam or attack could adversely impact our business. Pandemic Risk: The economic and market conditions in Canada, the United States, Europe, China and the rest of the world impact different aspects of our business and our revenue drivers. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may adversely affect our business, financial condition, liquidity, results of operations and long-term financial objectives. Listing, trading and clearing activities can be significantly affected by economic, political and market conditions as well as the overall level of investor confidence. These factors can impact the level of initial public offerings, secondary financings, market capitalization of our issuers, transfer agent and trustee services, trading volumes, energy data and network connectivity, client hosting revenue, and sales of market data across our markets. We have witnessed high levels of volatility which, when coupled with prolonged negative economic conditions, can cause dramatic fluctuations in trading volumes, equity financings and demand for market data. This can also lead to slower collections of accounts receivable as well as increased counterparty risk which, in turn, could adversely affect our business. Additionally, if we are required to suspend trading for a prolonged period of time or shorten trading hours, our business, operating results, long term financial objectives, cash flows, or financial condition could be materially adversely affected. 2020 Annual Report 69 TMX Group Limited Page 61 While key initiatives continue, some could be delayed or postponed indefinitely due to lack of client availability for effective engagement and business development. Although we continue to plan and engage with new and prospective clients, their level of readiness and commitment is outside of our control; therefore, revenues could be lower than anticipated. In response to COVID-19, the vast majority of our staff are working remotely, which may increase our exposure to cyber security and operational risks. The impacts of the pandemic could also materially interrupt our business operations and cause material financial loss, human resource constraints, result in adverse regulatory actions, lead to delays in obtaining regulatory or government approvals, interrupt services received from third parties or provided to clients, result in reputational harm or legal liability. This in turn could materially adversely affect our business, cash flows, financial condition, operating results and long-term financial objectives. While all our business units and corporate functions have business continuity plans to support critical operations and mitigate such risks, a prolonged interruption in our key services could materially adversely affect our reputation, business, operating results, long term financial objectives, cash flows, and financial condition. Competition Risk: We compete with other exchanges domestically and internationally on listings, cash equities and equity option trading. Muted capital markets activity may result in lower revenue related to capital raising activities. 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. Concentration Risk: A large portion of the Canadian economy is based in natural resources and energy related business and as such, we are exposed to downturns in these sectors as they can impact capital formation business and the trading and clearing activity. Key Person Risk: Should key senior management positions become vacant there could be a loss of knowledge and expertise resulting in risk to executing our strategy. These risks and uncertainties are further expanded upon below. The risks and uncertainties discussed in this section are not the only ones facing TMX Group. Additional risks and uncertainties not presently known to us or that we currently believe to be 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 adversely affected. 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 small and medium sized enterprises. We also face competition from North American and international exchanges for Canadian listings. Domestically, we currently compete for listings with two other exchanges. While some Canadian issuers seek a listing on another major North American or international exchange, historically, the vast majority of these issuers who qualify 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. Many of these alternative forms of financing may subject issuers to different regulatory rules and oversight and different obligations from those associated with being listed on our markets. 2020 Annual Report 70 TMX Group Limited Page 62 TSX, TSXV 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 investing becomes more global. In particular, these competitors could look to attract Canadian issuers that are listed on one of our exchanges. For example, two of our U.S.-based competitors operate a Canadian market. It is possible that these competitors could, in addition to competing for listing and trading of Canadian issuers, enter into other business areas in which we currently operate. 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 31% in 2020, unchanged from 2019. Our cash equities sales team is focused on attracting more foreign participants and order flow by raising the level of awareness of the benefits of trading on TSX, TSXV and Alpha. Domestic competition in our cash equities trading business has intensified since 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 15 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 67%42 in 2020, up from 65% 2019. We only trade securities that are listed on TSX or TSXV. Excluding intentional crosses, in all listed issues in Canada, our combined domestic equities trading market share was 59% in 2020, up from 57% 2019. 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 GSIA 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 attractively. While we have developed a pricing mix to attract greater liquidity to our markets, the competitive environment in which we operate places significant pricing pressures on our trading and market data offerings. Some competitors may seek to increase their share of trading by reducing their transaction fees, by offering larger liquidity payments, by offering inverted pricing and/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. 42 Source: IIROC 2020 Annual Report 71 TMX Group Limited Page 63 MX and CDCC face competition from other venues and OTC markets While MX is the only Canadian financial derivatives exchange offering standardized products and CDCC the only clearing house headquartered in Canada clearing such products, 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 from other exchanges 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 recognition or exemption orders from regulators to operate as clearing agencies. Provincial regulators have also exempted from recognition in their respective province a number of foreign clearing agencies, allowing those exempted clearing agencies to provide clearing services to participants in the province under the terms of the applicable exemption orders, including Eurex Clearing AG and Chicago Mercantile Exchange Inc. 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, attenuating 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 business and operating results. Global Solutions, Insights and Analytics faces competition in bringing products to market 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. There is a risk that products may not meet market needs that may impact revenue. 2020 Annual Report 72 TMX Group Limited Page 64 Trayport faces competition from other trade matching and execution vendors Trayport has competition from other vendors who offer matching and execution tools for brokers, exchanges and traders in its core European energy markets and in new global markets and asset classes Trayport looks to enter. Success of these competitor vendors could reduce the number of Trayport venue customers and total subscribers, and limit the ability for Trayport to enter new markets. Trayport’s venue customers face competition from other venues or trading platforms and a reduction in Trayport’s customers market share or liquidity could lead to a reduction in Trayport subscriber numbers. 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. Any prolonged economic downturn, could have a significant negative impact on our business. We have increased our focus on the innovation sector. However, capital raised in this sector is often lower than that raised in the resource sectors. 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 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, can, and has, negatively impacted our business. Changes in the economic and political climate in the United States and Asia Pacific, including changes relating to trade agreements, could impact our business. In addition, increased uncertainty in Europe, including the impact of Brexit and the possibility of sovereign defaults on debt, may also impact our business, including Trayport. Political and civil uncertainty in Hong Kong as well as tensions over trade deficits and technology companies between China and the United States may impact growth plans in Asia in the short term. Because listing, initial and additional 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 and clearing 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, when coupled with prolonged negative economic conditions higher volatility 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. A low-volatility environment can 2020 Annual Report 73 TMX Group Limited Page 65 result in lower levels of trading and clearing, particularly for derivative products, placing downward pressure on operating results. 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 and Trayport services. 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: • • • • • • • • • the overall economic conditions and monetary policies in Canada, the United States, Europe, China, 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 economic health 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 and derivatives, 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 derivatives, or listing in certain countries. We may be able to indirectly influence the volume of trading and clearing by providing efficient, reliable and cost effective trading and clearing; 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, trading and clearing facilities. However, those activities may not have a positive effect on or effectively counteract the factors that are outside of our control. We face a risk that regulators may impose higher burdens on our clients that could impinge on their ability to invest. Strategic Risk We are exposed to the risk of attaining sub-optimal enterprise business performance due to: 2020 Annual Report 74 TMX Group Limited Page 66 Opportunity Cost Risk: failure to develop, assess and select optimal pathways for portfolio-level success in context of enterprise capabilities, resources, and the external environment Implementation Risk: failure to commit to chosen pathways and translate them into clear actions and goals Execution and Change Management Risk: failure to execute committed plans, identify changes in the strategic context of the business with sufficient foresight, and to develop, select and execute effective responses 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 business context in which we operate as well as significant peer and competitive analysis. While we regularly test the key assumptions underlying our strategic plan, 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. It is possible that our capital allocation decisions may not be optimal. 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. While we have established process and tools for effective and rigourous oversight of our key initiatives, any of these factors could materially adversely affect the successful execution of our strategies. Inadequate succession planning could slow the successful execution of our strategy. The execution of our strategy could also be impacted if we failed to respond quickly to a changing landscape. 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, opening offices and acquiring distribution, technology and other systems in foreign jurisdictions, and 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, but are not limited to: • restrictions on the use of trading terminals direct connectivity to our marketplace or the contracts that may be traded; 2020 Annual Report 75 TMX Group Limited Page 67 • • • • • • geopolitical unrest; reduced protection for intellectual property rights; difficulties in staffing and managing foreign operations; potentially adverse tax consequences; enforcing agreements and collecting receivables through certain foreign legal systems; and foreign currency fluctuations for international business. We would be required to comply with the laws and regulations of foreign governmental and regulatory authorities of each country in which we need to 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. 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 Orders43, 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. We face risks associated with not being able to divest under-performing businesses As part of our normal course of operations and strategic review processes, we may from time to time identify under performing assets or businesses that we choose to divest. 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. 43 Recognition orders issued by the securities regulators with respect to the Maple Transaction. 2020 Annual Report 76 TMX Group Limited Page 68 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, data on energy markets, trading, clearing and data on our derivatives markets and clearing, settlement and depository activity for equities and fixed income securities are conducted exclusively on an electronic basis. 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, Trayport, 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 heavily invested in a Post Trade Modernization project; the significant delay or failure of which may impact participant confidence and expose us to system reliability issues. We are continually improving our information technology systems so that we can accommodate 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 analysis and expenditures, and may require us to expend significant amounts of resources in the future. System changes, including the introduction of new technologies, 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 and Privacy Risk We are exposed to the risk that information security breaches will adversely affect the operations, intellectual property and reputation of TMX Group. Our processes and networks and those of our third-party service providers may be vulnerable to data security risks, including cyber attack Our processes and networks and those of our third-party service providers, our POs, approved participants, clearing members and our customers may be vulnerable to information risks, including unauthorized access, computer viruses, theft of data, denial of service attacks, and other security issues. Persons who circumvent security measures could wrongfully use our information or cause interruptions or malfunctions in our operations which could damage the integrity of our markets and data provision, any of which could have a material adverse effect on our business, financial condition and results of operations. We may be required to expend significant resources to protect against the threat of security breaches or to alleviate problems, including reputational harm and litigation, caused by any breaches. Although we intend to continue to implement industry-standard security measures, these measures may prove to be 2020 Annual Report 77 TMX Group Limited Page 69 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, pandemics) 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 other types of external disruptions, including pandemics, 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. Our Business Resilience program consists of a series of integrated crisis management, disaster recovery, pandemic and business continuity plans for critical business functions to mitigate the risk of an interruption. Within these plans, leaders and managers have identified critical roles and critical processes that we are ready to maintain should a situation worsen. All critical operations maintain a split operation for both data centres and office space, to provide redundancy and back-up in terms of technology, facilities and staffing to reduce the risk and maintain recovery time objectives in the event of a disruption. Any interruption to 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 share options and other 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 and managerial personnel. We have a commitment to diversity, equity and inclusion to ensure we have recruiting practices that support diverse talent pools and that we are responsive to evolving social conditions in alignment with our organizational values. A changing work environment due to a pandemic presents additional risks including: (i) a potential decline in performance or productivity for some personnel who cannot adapt to remote work conditions, (ii) an inability to drive and support our desired corporate culture without co-located personnel, and (iii) a rapid shift in the need for new skills that we cannot acquire quickly. Each of these risks could negatively affect our business and operational results. To mitigate these risks, we are investing in new training programs to support personnel in adapting to remote / hybrid working conditions and are regularly surveying staff on their needs and preferences. Given that COVID-19 and the shift to a largely remote workforce has prompted a review our of future workforce model, we are exposed to the risk that existing high caliber or future personnel will not be aligned with the model or may not perform to the best of their abilities under new workforce conditions. We have established an enterprise committee to 2020 Annual Report 78 TMX Group Limited Page 70 gather employee feedback/preferences and evaluate the strategic costs and benefits of various workforce models to reduce the risk that the future model is misaligned with employee expectations Insider Threat Risk We may be exposed to a threat where an authorized employee may take bad faith actions towards our employee base, technology, information or operations. We conduct background checks prior to the offer of employment and throughout the individual's employment; the frequency of which is based on their level of access. Access levels are reviewed on a regular basis and all access changes/terminations are communicated in a timely manner. All access is monitored by Security on a continuous basis. 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; cause delays in settlement; cause us to lose data; corrupt our trading and clearing operations, data and records; or disrupt our business operations, or BOX’s operations for the period in which we provide transition services. This could undermine confidence in our exchanges and clearinghouses, materially adversely affect our reputation or operating results, and may 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, and Registered Plan Trustee 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 is not involved in deposit taking and lending activities, nor does it 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, its 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 used within our clearing houses are not designed or operating effectively, thereby exposing us to systemic failure. 2020 Annual Report 79 TMX Group Limited Page 71 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 collateralized. The model risks are mitigated through model testing prior to implementation and the existence of a risk management framework with necessary governance to regularly assess the adequacy of the models. In addition, our clearinghouse risk models are subject to independent 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, cloud services, 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. We have established a central procurement function focused on vendor selection and management. However, if a third party suffers an interruption in or stops providing services and we cannot make suitable alternative arrangements, or if we fail to renew certain of our agreements on favourable terms or at all, our business, financial condition or operating results could be materially adversely affected. 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 or derivatives operations, our financial condition and our operating results. Our trading and clearing operations depend primarily on a small number of clients During 2020, approximately 81% of our trading and related revenue, net of rebates, on TSX and approximately 68% of our trading and related revenue on TSXV were accounted for by the top ten POs on each exchange based on volumes traded. Approximately 59% of CDS’s revenue, net of rebates, in 2020 was accounted for by the top ten customers (excluding securities regulators). Approximately 71% of MX and CDCC’s trading and clearing revenue, net of rebates, in 2020 was accounted for by the top ten participants based on volume of contracts traded. 2020 Annual Report 80 TMX Group Limited Page 72 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 24, 2020. 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. 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. 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. 2020 Annual Report 81 TMX Group Limited Page 73 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 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 as central counterparties for cash and derivative markets, a securities settlement system and a central securities depository, that are subject to the CPMI- IOSCO Principles for Financial Market Infrastructure (PFMIs) for these types of services. The PFMIS are reflected in the requirements of such entities’ regulators and applicable securities law including National Instrument 24-102 Clearing Agency Requirements. Adherence to the PFMIs by these businesses will continue to impact the cost of regulatory compliance. 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- 2020 Annual Report 82 TMX Group Limited Page 74 approval. In such circumstances, if the OSC decides not to re-approve the fee, fee model or incentive, it must be revoked. We incur costs to comply with the 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 certain of 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 clearing agency or by Montreal Exchange. 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. Should a person or combination of persons, acting jointly or in concert, 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, in accordance with the contrasting documents of TMX Group, their respective voting rights may be limited to no more than 10% until such time as approval has been granted by the OSC and the AMF in accordance with the contrasting documents of TMX Group, their respective voting rights may be limited to no more than 10% until such time as approval has been granted by 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 or vendors, among others, may make claims with respect to, among other things, 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 have a statutory right to make claims against us. We could incur significant legal expenses defending claims, even those without merit. If a lawsuit or claim is resolved against us, it could materially adversely affect our reputation, business, financial condition and operating results. Intellectual Property Risk We 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. 2020 Annual Report 83 TMX Group Limited Page 75 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 rights. We may not be able to detect the unauthorized use of, or take adequate steps to enforce, our intellectual property rights. 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 claims 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 Operational Risk 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. We are exposed to the risk that we fail to develop, implement and maintain the appropriate corporate finance model and capital structure. 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). Notwithstanding our treasury and capital allocation programs which include leverage ratio and dividend payout ratio analysis, some, or all, of these restrictions could limit our flexibility to change our capital structure. 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. 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 2020 Annual Report 84 TMX Group Limited Page 76 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 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. 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. TMX Group has an issuer rating of A (high) from DBRS with a Stable trend. Our 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. 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 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, and total return swaps. Credit Risk – Clearing Houses Credit Risk - CDS 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' 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 2020 Annual Report 85 TMX Group Limited Page 77 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. 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 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. 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 regard 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. CDCC also has 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 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. Credit Risk – 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. 2020 Annual Report 86 TMX Group Limited Page 78 Credit Risk – All Other 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 Government of Canada and provincial treasury bills and US treasury bills. We manage exposure to credit risk arising from investments in marketable securities by holding high-grade individual fixed income securities with credit ratings of A/R1-low or better. 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. 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. 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. We are exposed to market risk relating to equity prices when we grant DSUs, RSUs and PSUs to our directors and employees, 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 RSUs and DSUs. We are exposed to market risk on interest earned on our cash, cash equivalents and marketable securities. This risk is partially mitigated by having variable interest rates on our short-term debt (Commercial Paper). We are exposed to market risk relating to interest paid on our Commercial Paper. Other Market Price Risk – CDS, CDCC, TSX, TSX Venture Exchange and Shorcan We are exposed to market risk factors from the activities of CDS Clearing, CDCC, and Shorcan if a Participant, Clearing Member, or Client, 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 CDS is exposed to market risk through its CCP function in the event a participant defaults 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. Adverse changes to market prices and rates would expose CDS to credit risk losses. The principal mitigation of this credit 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 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, thereby minimizing credit losses. CDCC 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. Adverse changes to market prices and rates would expose CDCC to credit risk losses. The principal mitigation of this credit 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 2020 Annual Report 87 TMX Group Limited Page 79 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, thereby minimizing the credit losses. TSX and TSX Venture Exchange We are exposed to market price risk on a portion of our 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 its status as an agent, in that it does not purchase or sell securities 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. Foreign Currency Risk We are exposed to foreign currency market risk on revenue and expenses where we invoice or procure in a foreign currency, principally in U.S. dollars and GBP. 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 and GBP can have an adverse effect on the value of our revenue or assets in Canadian dollars. 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. Based on 2020 revenue and operating expenses, 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 $7.7 million. Based on Trayport's 2020 revenue and operating expenses, the approximate impact of a 10% rise or a 10% decline in the Canadian dollar compared with Great British Pounds (GBP) on revenue, net of operating expenses, is approximately $5.5 million. We are also 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. At December 31, 2020, cash and cash equivalents and trade receivables, net of current liabilities, include US$10.0 million, which are exposed to changes in the US-Canadian dollar exchange rate (2019 – US$15.8 million), £0.8 million which are exposed to changes in the GBP- Canadian dollar exchange rate (2019 - £0.7 million), and less than €0.1 million to changes in the Euro-Canadian dollar exchange rate (2019 - €0.1 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, 2020 is a $1.4 million decrease or increase in income before income taxes, respectively. Liquidity Risk - Operations Liquidity risk is the risk of loss due to the inability of TMX Group or its borrowers, counterparties, Clearing Members, or Participants 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 clearing and depository services, liquidity risk results from the requirement to convert collateral to cash in the event of the default of a participant/customer. 2020 Annual Report 88 TMX Group Limited Page 80 Cash and cash equivalents and restricted cash and cash equivalents consist of cash and highly liquid investments. 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. Liquidity Risk - Clearing Houses 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 commercial banks with a minimum credit rating of A/R1-low or better and are highly liquid 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. 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 vast majority of potential Participant default scenarios. CDS maintains two secured standby liquidity facilities that can be drawn in either U.S. or Canadian currency. These arrangements are available to support processing and settlement activities in the event of a participant default in either the CNS or NYL service lines. Borrowings under the secured facilities are obtained by pledging securities that are settled through CNS or NYL services 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. As a designated FMI, CDS has access to the Emergency Lending Assistance (ELA) program offered by the Bank of Canada and is meant to provide emergency funding in the event of liquidity shortfalls at CDS that may occur under market stress events. The ELA is offered at the full discretion of the Bank of Canada and is meant to be fully collateralized by SLF-eligible assets. CDCC The syndicated revolving standby liquidity facility for a total of $320.0 million 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 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. As a designated FMI CDCC has access to the Emergency Lending Assistance (ELA) program offered by the Bank of Canada and is meant to provide emergency funding in the event of liquidity shortfalls at CDCC that may occur under market stress events. The ELA is offered at the full discretion of the Bank of Canada and is meant to be fully collateralized by SLF-eligible assets. Commercial Paper Program We rely on our Commercial Paper Program, Debentures and Credit Facility as a source 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. 2020 Annual Report 89 TMX Group Limited Page 81 Accounting and Control Matters Changes in accounting policies The following amendments were effective for TMX Group from January 1, 2020: • • • IFRS 3, Business Combinations; IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimate and Errors; and Amendments to conceptual framework. • We adopted the amendment to the leasing standard IFRS 16, COVID-19 Related Rent Concessions issued on March 28, 2020. The amendment introduces an optional practical expedient for lessees to account for rent concessions that are a direct consequence of the COVID-19 pandemic as variable lease payments as opposed to lease modifications. There was no significant impact on the financial statements as a result of their adoption. Future changes in accounting policies The following new standards and amendments to standards and interpretations are not yet effective for the year ending December 31, 2020, 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, 2021, unless otherwise noted: • • • IAS 1 Presentation of Financial Statements – Amendments clarify that liabilities are classified as either current or non- current, depending on the rights that exist at the end of the reporting period. The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. Classification is unaffected by the expectations of the entity or events after the reporting date. The amendments apply for annual reporting periods beginning on or after January 1, 2023. We do not expect the amendments to have a material impact on our financial statements. IAS 37, Provisions, Contingent Liabilities and Contingent Assets – Amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognizing a separate provision for an onerous contract, the entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract. The amendments apply for annual reporting periods beginning on or after January 1, 2022 to contracts existing at the date when the amendments are first applied. We do not expect the amendments to have a material impact on our financial statements. Reference to the Conceptual Framework – Amendments to IFRS 3, Business Combinations – Minor amendments were made to IFRS 3 to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments apply for annual reporting periods beginning on or after January 1, 2022. We do not expect the amendments to have a material impact on our financial statements. 2020 Annual Report 90 TMX Group Limited Page 82 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 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 interim CFO, conducted an evaluation of the effectiveness of our DCP as of December 31, 2020. Based on this evaluation, the CEO and interim CFO have concluded that our DCP were effective as of December 31, 2020. Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (ICFR), as defined in NI 52-109. ICFR 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 ICFR can only provide reasonable assurance and may not prevent or detect misstatements due to error or fraud. Our management, including the CEO and interim CFO, conducted an evaluation of the effectiveness of our ICFR as of December 31, 2020 using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework (2013). Based on this evaluation, the CEO and interim CFO have concluded that our ICFR were effective as of December 31, 2020. Changes in Internal Control over Financial Reporting There were no changes to internal control over financial reporting (ICFR) during the quarter and year ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our ICFR. 2020 Annual Report 91 TMX Group Limited Page 83 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. 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 (KMP) 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, and termination benefits Post-employment benefits Share-based payments 2020 $10.4 0.6 12.9 23.9 2019 $9.7 0.6 17.0 27.3 There was a decrease of $3.4 million related to key management personnel compensation driven by lower share-based payments. This decrease reflects lower share price appreciation in 2020 compared with 2019, and also reduced share- based payments due to certain KMP roles transitioning during 2020. 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, growth objectives; our target dividend payout ratio; the ability of TMX Group to de-leverage and the timing thereof; the modernization of clearing platforms, including the expected cash expenditures related to the modernization of our clearing platforms and the timing of the modernization; other statements related to cost reductions; the impact of the market capitalization of TSX and TSXV issuers overall (from 2019 to 2020) on TMX Group's revenue; future changes to TMX Group's anticipated statutory income tax rate for 2020; factors relating to stock, and derivatives exchanges and clearing houses and the business, strategic goals and priorities, market conditions, pricing, proposed technology and other business initiatives and the timing and implementation thereof, the proposed timing for the completion of the acquisition of AST Canada, including the ability to obtain the required regulatory approvals and financing required to complete this acquisition, the composition of AST Canada's client base and the products and services it will provide, the anticipated benefits and 2020 Annual Report 92 TMX Group Limited Page 84 synergies of the AST Canada acquisition, including the expected impact on TMX Group's earnings and adjusted earnings per share and the timing thereof, financial results or financial condition, operations and prospects of TMX Group which are subject to significant risks and uncertainties. These risks include, but are not limited to: 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 (including COVID-19) 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 (including COVID-19); 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 close and effectively integrate acquisitions to achieve planned economics, or divest underperforming 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. 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 GBP), 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, including the acquisition and integration of AST Canada; the amount of revenue and cost synergies resulting from the AST Canada acquisition; 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. In addition to the assumptions outlined above, forward looking information related to long term revenue cumulative average annual growth rate (CAGR) objectives, and long term adjusted earnings per share CAGR objectives are based on assumptions that include, but not limited to: • • • • • • TMX Group's success in achieving growth initiatives and business objectives; continued investment in growth businesses and in transformation initiatives including next generation post-trade systems; no significant changes to our effective tax rate, recurring revenue, and number of shares outstanding; moderate levels of market volatility; level of listings, trading, and clearing consistent with historical activity; economic growth consistent with historical activity; 2020 Annual Report 93 TMX Group Limited Page 85 • • • • • no significant changes in regulations; continued disciplined expense management across our business; continued re-prioritization of investment towards enterprise solutions and new capabilities; free cash flow generation consistent with historical run rate; and a limited impact from the COVID-19 pandemic on our plans to grow our business over the long term including on the ability of our listed issuers to raise capital. 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 in the section “Enterprise Risk Management” of this MD&A. 2020 Annual Report 94 TMX Group Limited Page 86 Financial Statements 2020 Annual Report 95 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. John McKenzie Chief Executive Officer TMX Group Limited February 8, 2021 Frank Di Liso Interim Chief Financial Officer TMX Group Limited 2020 Annual Report 96 TMX Group Limited 2020 Annual Report 97 TMX Group Limited KPMG LLPBay Adelaide Centre333 Bay Street, Suite 4600Toronto, ON M5H 2S5CanadaTel 416-777-8500Fax 416-777-8818 KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP. INDEPENDENT AUDITORS’REPORTTothe Shareholders of TMX Group LimitedOpinionWe have audited the consolidatedfinancial statements of TMX Group Limited (the Entity), which comprise:•the consolidatedbalance sheets as at December 31, 2020 and 2019;•the consolidatedincome statements for the years then ended;•the consolidated statements of comprehensive income for the years then ended;•the consolidatedstatements of changes in equity for the years then ended;•the consolidatedstatements of cash flows for the years then ended; and•and notes to the consolidatedfinancial statements, including a summary of significant accounting policies(Hereinafter referred to as the “financial statements”).In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidatedfinancial position of the Entity as at December 31, 2020 and 2019, and its consolidatedfinancial performance and its consolidatedcash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).Basis for OpinionWe conducted our audit in accordance with Canadian generally accepted auditing standards. Ourresponsibilitiesunderthose standards are further described in the 2020 Annual Report 98 TMX Group Limited Independent Auditors’ Report “Auditors’Responsibilities for the Audit of the Financial Statements” section of our auditors’report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2020.These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and wedo not provide a separate opinion on these matters.We have determined the matters described below to be the key audit matters to be communicated in our auditors’ report.Evaluation of the impairment analysis for goodwill and indefinite life intangible assetsDescription of the matter We draw attention to Note 2(c) and Note 17(c) to the financial statements. The Entity has recorded goodwill and indefinite life intangible assets of $1,653.7million and $2,323.1million respectively as of December 31, 2020. The Entity performs impairment testing for goodwill and indefinite life intangible assets on an annual basis or more frequently when there is an indication of impairment. An impairment is recognized if the carrying amount of an asset, or its cash generating unit (CGU), exceeds its estimated recoverable amount. The recoverable amount of an asset is the greater of its value-in-use and its fair value less costs of disposal. In determining the estimated recoverableamounts using a discounted cash flow model, the Entity’s assumptions include future cash flows, long-term growth rates and pre-tax discount rates.Why the matter is a key audit matterWe identified the evaluation of the impairment analysis for goodwill and indefinite life intangible assets as a key audit matter. This matter represented an area of significant risk of material misstatement requiring specialized skills and knowledge to evaluate the Entity’s estimated recoverable amounts for goodwill and indefinite life intangible assets. Significant auditor judgment was required in evaluating the results of our audit procedures due to the high degree of sensitivity of the estimated recoverable amounts to changes inassumptions. 2020 Annual Report 99 TMX Group Limited Independent Auditors’ Report How the matter was addressed in the audit The primary procedures we performed to address this key audit matter included the following: We evaluated the appropriateness of future cash flowsby:Comparing the Entity’s prior year expected future cash flows to the actual results to assess the Entity’s budgeting processAssessing future cash flows by comparing them to historical performance and against key new initiatives in the Board-approved plan.We assessedthe long-term growth rates by comparing them to available market information and historical performance.We involved valuation professionals with specialized skills and knowledge, who assisted inevaluating theappropriateness of thepre-tax discount rates by:Comparing the Entity’s Weighted Average Cost of Capital (WACC) against publicly available market dataAssessing the CGU-specific risk adjustments applied by the Entity to the WACC by considering the historic, current and future financial performance of each CGU.Other InformationManagement is responsible for the other information. Other information comprises:•the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions; and•the information, other than the financial statements and the auditors’report thereon, included in a document likely to be entitled “Annual Report”.Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. 2020 Annual Report 100 TMX Group Limited Independent Auditors’ Report We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as atthe date of this auditors’report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report.We have nothing to report in this regard.The information, other than the financial statements and the auditors’report thereon, included in a document likely to be entitled “Annual Report” is expected to be made available to us after the date of this auditors’report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.Responsibilities of Management and Those Charged with Governance for the Financial StatementsManagement is responsible for the preparation and fair presentation of thefinancial statementsin accordance with IFRS,and for such internal control as management determines is necessary to enable the preparation of financial statementsthat arefree from material misstatement, whether due to fraud or error.In preparing the financial statements, management is responsible for assessing the Entity’sability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate theEntityor to cease operations, or hasno realistic alternative but to do so.Those charged with governance are responsible for overseeing the Entity’s financial reporting process.Auditors’Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standardswill always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of thefinancial statements.2020 Annual Report 101 TMX Group Limited Independent Auditors’ Report As part of anaudit in accordance with Canadian generally accepted auditing standards,we exercise professional judgment and maintain professional skepticism throughout theaudit. We also:•Identify and assess the risks of material misstatement of the financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.•Obtain an understanding of internal control relevant to theaudit 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 Entity'sinternal control. •Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.•Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt onthe Entity'sability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’report. However, future events or conditions may cause the Entityto cease to continue as a going concern.•Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.•Communicate with those charged with governanceregarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during ouraudit.•Provide those charged with governancewith a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.•Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entityto express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.2020 Annual Report 102 TMX Group Limited Independent Auditors’ Report•Determine, from the matters communicated with those charged with governance,those matters that were of most significance in the audit of the financial statementsof the current period and are therefore the key audit matters. We describe thesematters in our auditors’report unless law or regulation precludes public disclosureabout the matter or when, in extremely rare circumstances, we determine that amatter should not be communicated in our auditors’report because the adverseconsequences of doing so would reasonably be expected to outweigh the publicinterest benefits of such communication.Chartered Professional Accountants, Licensed Public AccountantsThe engagement partner on the audit resulting in this auditors’report is Abhimanyu Verma. Toronto,CanadaFebruary 8, 2021 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 Balances of Participants and Clearing Members Other current assets Non-current assets: Goodwill and intangible assets Right-of-use assets Deferred income tax assets Other non-current assets Total Assets Liabilities and Equity Current liabilities: Trade and other payables Participants’ tax withholdings Balances of Participants and Clearing Members Debt Credit and liquidity facilities drawn Other current liabilities Non-current liabilities: Debt Lease liabilities Deferred income tax liabilities Other non-current liabilities Total Liabilities Equity: Share capital Contributed surplus Retained earnings Accumulated other comprehensive income Total Equity Commitments and contingent liabilities Total Liabilities and Equity Note December 31, 2020 December 31, 2019 15 $ 15 15 16 10 23 17 22 9 23 $ 19 $ 15 10 12 12 23 12 22 9 23 26 24 222.1 $ 153.3 55.8 108.0 30,270.4 29.9 30,839.5 5,047.7 82.1 22.5 106.8 36,098.6 $ 132.4 $ 153.3 30,270.4 160.0 4.3 60.7 30,781.1 747.5 86.2 805.1 67.2 32,487.1 2,943.6 11.1 636.2 20.6 3,611.5 149.0 151.5 80.4 105.3 26,588.9 30.1 27,105.2 5,041.2 93.0 23.6 96.7 32,359.7 102.7 151.5 26,588.9 239.6 8.2 62.1 27,153.0 747.1 95.4 801.0 64.1 28,860.6 2,965.1 12.1 512.9 9.0 3,499.1 21 & 22 $ 36,098.6 $ 32,359.7 See accompanying notes which form an integral part of these consolidated financial statements. Approved on behalf of the Board of Directors on February 8, 2021: /s/ Charles Winograd Chair /s/ William Linton Director TMX GROUP LIMITED 2020 Annual Report 103 TMX Group Limited 9 TMX GROUP LIMITED Consolidated Income Statements (In millions of Canadian dollars, except per share amounts) Consolidated Financial Statements For the year ended December 31 Revenue REPO and collateral interest: Interest income Interest expense Net REPO and collateral interest Total revenue Compensation and benefits Information and trading systems Selling, general and administration Depreciation and amortization Strategic re-alignment expenses Total operating 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 Income tax expense Net income Earnings per share: Basic Diluted Note 2020 5 $ 865.1 $ 160.6 (160.6) — 865.1 226.6 57.6 84.7 80.3 — 449.2 415.9 5.7 — — 2.1 (34.9) (32.8) 388.8 109.1 279.7 $ 4.96 $ 4.91 $ 17 & 22 4 18 17 7 7 9 $ 8 $ 8 $ 2019 806.9 353.2 (353.2) — 806.9 207.9 51.9 81.4 79.6 3.7 424.5 382.4 3.8 (18.0) 2.3 4.1 (39.7) (35.6) 334.9 87.3 247.6 4.42 4.38 See accompanying notes which form an integral part of these consolidated financial statements. TMX GROUP LIMITED 2020 Annual Report 104 TMX Group Limited 10 TMX GROUP LIMITED Consolidated Statements of Comprehensive Income (In millions of Canadian dollars) Consolidated Financial Statements For the year ended December 31 Net income $ 279.7 $ Note 2020 Other comprehensive income (loss): Items that will not be reclassified to the consolidated income statements: Actuarial loss on defined benefit pension and other post-retirement benefit plans (net of tax benefit of $0.9, 2019 - tax benefit of $0.9) 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 gain (loss) on translating financial statements of foreign operations Total items that may be reclassified subsequently to the consolidated income statements Total comprehensive income $ (2.8) (2.8) 11.6 11.6 288.5 $ See accompanying notes which form an integral part of these consolidated financial statements. 2019 247.6 (2.4) (2.4) (12.5) (12.5) 232.7 TMX GROUP LIMITED 2020 Annual Report 105 TMX Group Limited 11 Consolidated Financial Statements TMX GROUP LIMITED Consolidated Statements of Changes in Equity (In millions of Canadian dollars) Note Share capital Contributed surplus For the year ended December 31, 2020 Accumulated other comprehensive income Retained earnings Total equity Balance at January 1, 2020 $ 2,965.1 $ 12.1 $ 9.0 $ 512.9 $ 3,499.1 Net income — — — 279.7 279.7 Other comprehensive income (loss): Foreign currency translation differences Actuarial losses on defined benefit pension and other post-retirement benefit plans, net of taxes Total comprehensive income Dividends to equity holders Proceeds from exercised share options Cost of exercised share options Cost of share option plan Shares repurchased under normal course issuer bid — — 11.6 — 11.6 25 28 24 — — — 31.7 3.6 — — — — — (3.6) 2.6 26 (56.8) — — (2.8) (2.8) 11.6 276.9 288.5 — — — — — (153.6) (153.6) — — — 31.7 — 2.6 — (56.8) Balance at December 31, 2020 $ 2,943.6 $ 11.1 $ 20.6 $ 636.2 $ 3,611.5 See accompanying notes which form an integral part of these consolidated financial statements. TMX GROUP LIMITED 2020 Annual Report 106 TMX Group Limited 12 Consolidated Financial Statements TMX GROUP LIMITED Consolidated Statements of Changes in Equity (In millions of Canadian dollars) Note Share capital Contributed surplus For the year ended December 31, 2019 Accumulated other comprehensive income Retained earnings Total equity Balance at January 1, 2019 $ 2,938.0 $ 12.3 $ 21.5 $ 409.0 $ 3,380.8 Net income — — — 247.6 247.6 Other comprehensive income (loss): Foreign currency translation differences — — (12.5) — (12.5) Actuarial losses on defined benefit pension and other post-retirement benefit plans, net of taxes 25 Total comprehensive (loss) income Dividends to equity holders 28 Proceeds from exercised share options Cost of exercised share options Cost of share option plan 24 — — — 24.4 2.7 — — — — — (2.7) 2.5 — (2.4) (2.4) (12.5) 245.2 232.7 — — — — (141.3) (141.3) — — — 24.4 — 2.5 Balance at December 31, 2019 $ 2,965.1 $ 12.1 $ 9.0 $ 512.9 $ 3,499.1 See accompanying notes which form an integral part of these consolidated financial statements. TMX GROUP LIMITED 2020 Annual Report 107 TMX Group Limited 13 TMX GROUP LIMITED Consolidated Statements of Cash Flows (In millions of Canadian dollars) Cash flows from (used in) operating activities: Income before income taxes Adjustments to determine net cash flows: Depreciation and amortization Impairment charges Net finance costs Share of income from equity accounted investees Cost of share option plan Unrealized foreign exchange losses Other income Changes in: Trade and other receivables, and prepaid expenses Trade and other payables Provisions Deferred revenue Other assets and liabilities Income taxes paid Cash flows from (used in) financing activities: Interest paid Net settlement on derivative instruments Repayment of lease liabilities Proceeds from exercised options Shares repurchased under normal course issuer bid Dividends paid to equity holders Net movement of Commercial Paper Credit and liquidity facilities drawn, net Cash flows from (used in) investing activities: Interest received Dividends received Additions to premises and equipment and intangible assets Acquisition of subsidiary, net of cash Proceeds from sales Marketable securities, net Increase in cash and cash equivalents Cash and cash equivalents, beginning of the period Unrealized foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies Cash and cash equivalents, end of the period See accompanying notes which form an integral part of these consolidated financial statements. TMX GROUP LIMITED 2020 Annual Report 108 TMX Group Limited Consolidated Financial Statements For the year ended December 31 Note 2020 2019 $ 388.8 $ 334.9 17 & 22 17 18 24 7 22 26 28 12 12 3 15 15 $ 80.3 — 32.8 (5.7) 2.6 0.9 — (4.0) 17.4 (6.9) 1.4 1.8 (98.5) 410.9 (33.9) 1.3 (8.3) 31.7 (56.8) (153.6) (79.6) (3.9) (303.1) 2.3 5.4 (67.1) — — 24.6 (34.8) 73.0 149.0 0.1 222.1 $ 79.6 18.0 35.6 (3.8) 2.5 1.5 (2.3) (0.2) (14.1) (4.2) (2.4) 9.2 (110.3) 344.0 (38.4) 0.4 (8.2) 24.4 — (141.3) (79.9) 8.2 (234.8) 4.1 2.8 (57.6) (23.6) 3.8 (24.8) (95.3) 13.9 135.3 (0.2) 149.0 14 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 100 Adelaide Street West, Toronto, Ontario, Canada. The audited annual consolidated financial statements as at and for the year ended December 31, 2020 and 2019 (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. 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 Exchange Inc. ("Alpha"), which also operates an exchange for the trading of securities; • Montréal Exchange Inc. ("MX"), which operates the Montréal Exchange, 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 Options 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 Holdings Limited and its subsidiaries, and Trayport Inc. (collectively "Trayport"), a world-leading provider of technology solutions for energy traders, brokers and exchanges based in London, UK. On May 15, 2019, Trayport Limited completed the acquisition of Vienna-based VisoTech, a leading provider of European short-term energy trading solutions (note 3); Shorcan Brokers Limited ("Shorcan"), a fixed income inter-dealer broker and registered exempt market dealer; and TSX Trust Company ("TSX Trust"), a provider of corporate trust, registrar, transfer agency and foreign exchange services. 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 8, 2021. 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. (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); and Liabilities arising from share-based payment plans (note 24). TMX GROUP LIMITED 2020 Annual Report 109 TMX Group Limited 15 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 The Company uses a fair value hierarchy to determine disclosure and 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: • • • Revenue recognition - Identification of performance obligations and determination of the timing of when performance obligations are satisfied, either at a point in time or over time, requires judgement (note 5). Valuation of goodwill and indefinite life intangible assets - Purchased intangibles are valued as at the acquisition date 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). Classification of financial assets - the Company has exercised judgment in the assessment of the business model within which the assets are held and in the assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amounts outstanding to determine the classification of financial assets (note 14). Information about assumptions 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 VisoTech, the fair values under the acquisition method are based on management’s best estimates using established methodologies of the fair value of the assets and liabilities acquired and disposed (note 3); Impairment of goodwill and indefinite life intangible assets – impairment tests are completed using the higher of fair value less costs of disposal, where available, and value-in-use calculations, determined using management’s best estimates of future cash flows, long-term growth rates and appropriate discount rates (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); Leases – management uses judgment to determine whether the Company is reasonably certain to exercise extension options (note 22) 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 Income taxes – the accounting for income taxes requires estimates to be made, such as the recoverability of deferred tax assets and assessment of tax uncertainties. Where differences arise between estimated income tax provisions and final income tax liabilities, an adjustment is made when the difference is identified (note 9). TMX GROUP LIMITED 2020 Annual Report 110 TMX Group Limited 16 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (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. 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. 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 daily 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. NOTE 3 – ACQUISITION OF SUBSIDIARY (A) VisoTech On May 15, 2019, the Company completed the acquisition of all the shares of VisoTech for €17.2 ($25.9). The acquisition has been accounted for as a business combination with the Company consolidating 100% of the results of its operations from the date of acquisition. VisoTech is included in the Global Solutions, Insights & Analytics operating segment (note 6). The final 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 $ $ 21.8 5.8 (0.3) (1.4) 25.9 The total purchase price was allocated to VisoTech's tangible and identifiable intangible assets and liabilities based on their estimated fair values as of May 15, 2019. In determining the purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and the expected future performance of VisoTech's business. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill and assigned to the Global Solutions, Insights & Analytics reportable segment. The goodwill recorded reflects expected revenue synergies from combining VisoTech with the Company's existing businesses. (B) Proposed acquisition of AST Canada On September 25, 2020, the Company announced it has entered into an agreement to acquire AST Investor Services Inc. (Canada) and its subsidiary AST Trust Company (Canada) for $165.0 in cash consideration, which includes $30.0 of cash in their businesses, subject to customary closing conditions and working capital adjustments. The transaction is expected to close within 12 months of entering into the agreement, subject to regulatory approval. Through December 31, 2020, the Company incurred $1.7 in acquisition costs. TMX GROUP LIMITED 2020 Annual Report 111 TMX Group Limited 17 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 NOTE 4 – STRATEGIC RE-ALIGNMENT EXPENSES For the year ended December 31, 2019, the Company incurred costs of $3.7, related to onerous contracts, as well as severance as a result of certain organizational changes. No strategic re-alignment expenses were incurred in 2020. NOTE 5 – REVENUE Revenue is recognized when performance obligations have been satisfied. The identification of performance obligations and the determination of the timing of when performance obligations are satisfied, either at a point in time or over time, require judgement. Substantially all of the Company's revenues are considered to be revenues from contracts with customers. The related accounts receivable balances are recorded in the balance sheets as trade receivables and generally have terms of 30 days. The majority of deferred revenue represents contract liabilities related to initial listing fees and sustaining fees. The majority of the Company's contracts are short–term in nature and therefore the Company has elected to apply the practical expedient to not disclose the remaining performance obligations in contracts with an expected duration of 12 months or less. Contracts that have an expected duration of 12 months or longer are recognized on an 'as–invoiced' basis and the Company has chosen to apply the practical expedient to not disclose revenue related to the remaining performance obligations in these contracts. These contracts also include variable consideration related to usage that are constrained and not included in the transaction price and thus not included in the remaining performance obligation disclosure. The Company's primary contracts from customers are disaggregated by major products and service lines below, and categorized by operating segments as identified and disclosed in note 6. For the year ended December 31, Global Solutions, Insights & Analytics Trayport Subscribers and usage Other Capital Formation Initial listing fees Additional listing fees Sustaining fees Other issuer services Derivatives Trading & Clearing Equities and Fixed Income Trading & Clearing Equities and fixed income trading Equities and fixed income clearing, settlement, depository and other services (CDS) Other Total Revenue $ 2020 136.7 $ 98.9 88.1 323.7 10.1 81.8 69.3 27.8 189.0 126.2 127.0 99.2 226.2 — $ 865.1 $ 2019 119.6 94.0 86.1 299.7 11.0 72.7 68.9 28.1 180.7 133.2 98.0 95.5 193.5 (0.2) 806.9 (A) GLOBAL SOLUTIONS, INSIGHTS AND ANALYTICS Global solutions, insights and analytics revenue includes real time data, other market data products, data delivery solutions and technology solutions. Real time market data revenue is recognized at the point in time the performance obligation is satisfied, based on estimated usage as reported by customers and vendors. The Company conducts periodic audits of the information provided to TMX GROUP LIMITED 2020 Annual Report 112 TMX Group Limited 18 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 determine any adjustments to estimated revenue. However, the amounts owing from the audits cannot be estimated as they are dependent on factors outside of the Company's control, and the results of each audit have limited predictive value for future audits. Trayport revenue includes subscriber fees, which are paid on a monthly basis for access to the platform. Subscriber revenue is recognized over time as the performance obligation is satisfied. Performance obligations for other global solutions, insights and analytics contracts are satisfied, and revenue is recognized, when the services are provided. (B) CAPITAL FORMATION Capital formation revenue includes revenue from listings services and other issuer services. Listings services revenue includes revenue generated from initial listings, additional listings and sustaining services. Revenue from new issuers include the initial listing fee and the first-year sustaining fee. These fees, either billed upfront or when the listing occurs, contain a single performance obligation. When the initial fee creates a material right, it is deferred and recognized over 12 months. Sustaining services for new issuers are recognized on a straight-line basis over the remainder of the year as those services are provided. Performance obligations for additional listings are satisfied at a point in time, and revenue is recognized when the additional listing occurs, which is also when the fee is billed. Sustaining services for existing issuers are billed during the first quarter of the year and the related performance obligation is satisfied on a straight-line basis over the year. Other issuer services include revenue from registrar and transfer agency services and corporate trust services 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. Other issuer services have separate performance obligations that are satisfied at a point in time, which is when the services are provided to the customer. (C) DERIVATIVES TRADING AND CLEARING Derivatives trading and clearing revenue includes revenue from trading and clearing activities. Trading and related revenues for derivatives markets contain one performance obligation related to trade execution, which mostly occurs instantaneously. Revenue is recognized in the month in which the trades are executed or when the related services are provided. Performance obligations associated with derivatives clearing are satisfied within a short period of time. Trade execution and novation occur either instantaneously, or within a short period of time. Rebates are allocated and recorded as a reduction in revenue in the consolidated income statement in the period to which they relate. As part of its REPO clearing service, CDCC earns interest income and incurs interest expense on all REPO transactions that clear through CDCC. The interest income and interest expense are equal; however as CDCC does not have a legal right to offset these amounts, they are recognized separately on the consolidated income statement. The interest income is earned, and the interest expense incurred, over the term of the REPO agreements. (D) EQUITIES AND FIXED INCOME TRADING AND CLEARING Equities and fixed income trading and clearing revenue includes revenue from equities and fixed income trading, clearing, settlement, and depository services. Trading and related revenues for equities and fixed income contain one performance obligation related to trade execution, which occurs instantaneously. Revenue is 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 Company has identified two performance obligations related to clearing and settlement and allocates the transaction price on the basis of relative stand–alone selling prices. These are generally satisfied at a point in time and recognized in the month in which the services are TMX GROUP LIMITED 2020 Annual Report 113 TMX Group Limited 19 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 provided. Clearing services and the related settlement occur within a short period of time. Other clearing related fees are recognized when services are performed. 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 amounts are calculated and recorded on a monthly basis as a reduction of revenue, which results in the recognition of revenue at the amount to which the Company is entitled. On behalf of Participants, CDS Clearing incurs certain facility fees, which are reimbursed by the Participants. Since CDS acts as the principal, offsetting revenue and expense amounts related to these facility fees are recognized upon satisfaction of performance obligations. The Company records an equal amount of interest income and interest expense on Participant cash collateral balances. As the Company does not have a legal right to offset these amounts, they are recognized separately on the consolidated income statement. Rebates are allocated and recorded as a reduction in revenue in the consolidated income statement in the period to which they relate. • • • • • 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 The Company has four reportable segments: • • • • Global Solutions, Insights & Analytics: We deliver equities data, index data as well as integrated data sets to fuel high- value proprietary and third party analytics which help clients make better trading and investment decisions. We also provide solutions to European and global wholesale energy markets for price discovery, trade execution, post-trade transparency and straight through processing. The Company's operations included in the Global Solutions, Insights & Analytics segment are TMX Datalinx, TMX Insights, Trayport and VisoTech. Capital Formation: Our exchanges are integral to the efficient operation of the capital markets. We continually support the capital markets community by providing companies of all types and at all stages of development with access to equity capital, while also providing market oversight to ensure market integrity. The Company's operations included in the Capital Formation segment are: Toronto Stock Exchange, a national stock exchange serving the senior equities market; TSX Venture Exchange, a national stock exchange serving the public venture equity market, and TSX Trust, a provider of corporate trust, registrar, transfer agency and foreign exchange services. Derivatives Trading & Clearing: We are accelerating 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. Equities and Fixed Income Trading & Clearing: We operate fair and transparent markets, with innovative, efficient, and reliable platforms for equities and fixed income trading and clearing. The Company's operations included in the Equities and Fixed Income Trading & Clearing segment are the trading operations of Toronto Stock Exchange, TSX Venture Exchange, and TSX Alpha Exchange; CDS Clearing and 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. TMX GROUP LIMITED 2020 Annual Report 114 TMX Group Limited 20 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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 December 31, 2020 Revenue (external) Inter-segment revenue Total revenue Income from operations Selected items: Depreciation and amortization Impairment charges $ $ $ $ $ Global Solutions Insights & Analytics Capital Formation Derivatives Trading & Clearing Equities and Fixed Income Trading & Clearing Other 323.7 $ 189.0 $ 126.2 $ 226.2 $ — $ 0.3 0.2 — 1.9 (2.4) 324.0 $ 189.2 $ 126.2 $ 228.1 $ (2.4) $ 207.8 $ 100.0 $ 60.0 $ 119.0 $ (70.9) $ 7.7 $ — $ 0.1 $ — $ 1.1 $ — $ 0.5 $ 70.9 $ — $ — $ Total 865.1 — 865.1 415.9 80.3 — For the year ended December 31, 2019 Revenue (external) Inter-segment revenue Total revenue Income from operations Selected items: Depreciation and amortization Impairment charges $ $ $ $ $ Global Solutions Insights & Analytics Capital Formation Derivatives Trading & Clearing Equities and Fixed Income Trading & Clearing Other 299.7 $ 0.3 300.0 $ 180.7 $ — 180.7 $ 133.2 $ — 133.2 $ 193.5 $ 1.6 195.1 $ (0.2) $ (1.9) (2.1) $ Total 806.9 — 806.9 193.0 $ 96.8 $ 59.3 $ 85.8 $ (52.5) $ 382.4 8.2 $ — $ — $ — $ 0.8 $ — $ 0.5 $ 18.0 $ 70.1 $ — $ 79.6 18.0 The CODM assesses the performance of the operating segments based on income from operations, which is not a term defined within IFRS. This measure of profit excludes share of income from equity accounted investees, impairment charges, and other costs and expenses that relate to individual events of an infrequent nature. Income from operations is an important indicator 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 this performance measure is to provide additional useful information to investors and analysts; however, it should not be considered in isolation. TMX GROUP LIMITED 2020 Annual Report 115 TMX Group Limited 21 (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 years ended December 31, 2020 and 2019 December 31, 2020 582.6 $ 112.6 67.7 102.2 865.1 $ $ $ December 31, 2019 542.4 115.9 62.4 86.2 806.9 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, 2020 4,168.7 $ 1,021.3 39.4 0.8 5,230.2 $ $ $ December 31, 2019 4,166.5 1,014.1 45.0 0.9 5,226.5 Non-current assets above are primarily comprised of goodwill and intangible assets, investments in equity accounted investees, right-of-use assets 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 lease liabilities. Net finance costs for the year is as follows: For the year ended Finance income Interest income on funds invested Finance costs Interest expense on borrowings, including foreign exchange and amortization of financing fees (note 12) Interest expense on lease liabilities (note 22) Other expenses December 31, 2020 December 31, 2019 $ 2.1 $ 2.1 (31.4) (3.3) (0.2) (34.9) 4.1 4.1 (35.9) (3.5) (0.3) (39.7) (35.6) Net finance costs $ (32.8) $ NOTE 8 – EARNINGS PER SHARE Basic earnings per share is determined by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is determined by dividing the net income 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 for the period are as follows: TMX GROUP LIMITED 2020 Annual Report 116 TMX Group Limited 22 For the year ended Net income Weighted average number of common shares outstanding – basic Effect of dilutive share options Weighted average number of common shares outstanding – diluted Basic earnings per share Diluted earnings per share NOTE 9 – INCOME TAXES Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 December 31, 2020 December 31, 2019 $ $ $ 279.7 $ 247.6 56,425,302 524,988 56,950,290 4.96 $ 4.91 $ 56,045,211 525,458 56,570,669 4.42 4.38 (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 December 31, 2020 December 31, 2019 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 Total income tax expense $ $ $ 105.5 $ (0.4) (3.0) $ (0.4) 7.4 109.1 $ 97.9 0.3 (6.2) (0.4) (4.3) 87.3 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. The Company maintains provisions for uncertain tax positions that it believes appropriately reflect the risk of the tax positions and the probability of acceptance of the tax treatment by the relevant authorities. Uncertain income tax positions are recognized in the financial statements using management’s best estimate of the amount expected to be paid. 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. TMX GROUP LIMITED 2020 Annual Report 117 TMX Group Limited 23 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 Income tax expense attributable to income differs from the amounts computed by applying the combined federal and provincial income tax rate of 26.5% (2019 – 26.5%) to income before income taxes as a result of the following: For the year ended December 31, 2020 December 31, 2019 Income before income tax expense Computed expected income tax expense Non-deductible expenses Rate differential due to various jurisdictions Adjustments in respect of prior years Changes in substantively enacted income tax rates Impairment charges (note 17) AST Canada acquisition costs (note 3) Share of income from equity accounted investees Other Income tax expense $ $ $ 388.8 $ 334.9 103.0 $ 1.1 (4.4) (0.8) 7.4 — 0.4 1.5 0.9 109.1 $ 88.7 1.5 (4.8) (0.1) (4.3) 4.8 — 0.2 1.3 87.3 During the year ended December 31, 2020, there was an increase in deferred income tax liabilities and a corresponding increase in income tax expense of $7.4 relating to the UK corporate income tax rate. Changes to the UK corporate income tax rate from 20% to 19% (effective April 1, 2017) and then to 17% (effective April 1, 2020) were substantively enacted on September 6, 2016. However, the rate decrease to 17% was reverted in the 2020 Finance Bill (enacted on July 22, 2020) and as such the UK corporate income tax rate remains at 19% as of April 1, 2020 and onwards. During the year ended December 31, 2019, the Alberta general corporate income tax rate decreased to 11% from 12% (effective July 1, 2019). The Alberta general corporate tax rate was also previously expected to decrease to 10% effective January 1, 2020, 9% effective January 1, 2021, and 8% effective January 1, 2022. The Company recognized a decrease in net deferred income tax liabilities and a corresponding decrease in income tax expense of $4.3 as a result of the anticipated rate changes, which became substantively enacted on May 28, 2019. On October 20, 2020, it was substantively enacted that the rate decrease to 8% would be accelerated (effective on July 1, 2020). This rate change did not have a material impact on the Company's tax expense. (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) $ $ $ 2020 2.7 $ 14.1 16.6 5.3 16.6 6.5 61.8 $ (39.3) Assets 2019 4.1 $ 16.8 17.5 4.8 13.5 7.6 64.3 $ (40.7) 2020 (0.8) $ (841.5) — (1.6) — (0.5) (844.4) $ 39.3 Liabilities 2019 (0.6) $ (839.7) — (1.1) — (0.3) (841.7) $ 40.7 2020 1.9 $ (827.4) 16.6 3.7 16.6 6.0 (782.6) $ — Net 2019 3.5 (822.9) 17.5 3.7 13.5 7.3 (777.4) — 22.5 $ 23.6 $ (805.1) $ (801.0) $ (782.6) $ (777.4) 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. TMX GROUP LIMITED 2020 Annual Report 118 TMX Group Limited 24 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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, 2019 Recognized in net income $ Recognized in other comprehensive loss Effect of movements in exchange rates Balance at December 31, 2019 Recognized in net income Recognized through acquisition of VisoTech Recognized in other comprehensive loss Effect of movements in exchange rates 5.0 $ (1.6) — 0.1 3.5 (1.6) — — (833.7) $ 16.9 $ 2.8 $ 11.2 $ 8.4 $ (789.4) 10.5 — 0.3 (822.9) (2.3) (1.5) — (0.6) 0.7 — (0.1) 17.5 (0.8) — — (0.1) — 0.9 — 3.7 (1.0) — 0.9 — 2.3 — — 13.5 3.1 — — — (1.0) 10.9 — (0.1) 0.9 0.2 7.3 (777.4) (1.4) — — 0.1 (4.0) (1.5) 0.9 (0.6) Balance at December 31, 2020 $ 1.9 $ (827.3) $ 16.6 $ 3.6 $ 16.6 $ 6.0 $ (782.6) As at December 31, 2020, $12.5 and $4.1 of the above deferred income tax assets related to tax losses and credits incurred in Canada and the US, respectively (2019 – $10.9 and $6.6, 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. Deferred income tax assets have not been recognized in respect of the following temporary differences: As at Tax losses Other deductible temporary differences December 31, 2020 37.2 $ $ $ 172.4 209.6 $ December 31, 2019 36.0 178.4 214.4 At December 31, 2020 and December 31, 2019, $27.1 of the above income tax losses will expire by 2037 with the remainder not subject to expiry. Deferred income tax assets have not been recognized in respect of these items as it is not probable that future taxable profit will be available against which the Company can utilize the tax losses. The Company will however continue to pursue tax planning strategies to utilize the tax losses where possible. At December 31, 2020, deferred income tax liabilities for temporary differences of $0.7 (2019 - $0.4) relating to investments in certain 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. Temporary differences relating to the remaining domestic subsidiaries have not been recognized as the temporary difference can be settled without tax consequences. NOTE 10 – BALANCES OF PARTICIPANTS AND CLEARING MEMBERS Balances of Participants and Clearing Members on the consolidated balance sheets are comprised of: As at December 31, 2020 December 31, 2019 Balances of Participants Balances of Clearing Members Clearing Members cash collateral Balances of Participants and Clearing Members $ $ 5,218.1 $ 19,050.3 6,002.0 30,270.4 $ 658.6 24,333.6 1,596.7 26,588.9 There is no net impact on the consolidated net assets as an equivalent amount is recognized in both assets and liabilities. (A) CDS CLEARING, SETTLEMENT AND PARTICIPANT BALANCES Balances of 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, with commercial banks with a minimum credit rating of A/R1-low or better, 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. TMX GROUP LIMITED 2020 Annual Report 119 TMX Group Limited 25 Entitlements and other funds Participants cash collateral Balances of Participants Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 December 31, 2020 $ $ 10.1 $ 5,208.0 5,218.1 $ December 31, 2019 13.9 644.7 658.6 During 2020, the increase in above participants' cash collateral is driven by the Bank of Canada requiring participants to post substantially more collateral (to address Cover 1 liquidity risk under Principles of Financial Market Infrastructure (PFMI)). 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, 2020, as a result of calculations of Participants’ exposure, the total amount of collateral required by CDS Clearing was $8,835.2 (2019 – $5,568.6). The actual collateral pledged to CDS Clearing at December 31 is summarized below: Cash (included within Balances of Participants on the consolidated balance sheet) Treasury bills and fixed income securities Total collateral pledged $ $ 5,208.0 $ 5,814.8 11,022.8 $ 644.7 6,021.1 6,665.8 Treasury bills and fixed income securities collateral are not included in the Company’s consolidated balance sheets. December 31, 2020 December 31, 2019 (B) CDCC CLEARING, SETTLEMENT AND CLEARING MEMBER BALANCES Balances of Clearing Members includes balances of 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 net impact on the consolidated net assets as an equivalent amount is recognized in both assets and liabilities. At December 31, 2020, the gross amount of daily settlements due from, and to, Clearing Members was $235.5 and $235.5, respectively (2019 – $105.8 and $105.8). 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 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, 2020, the gross amount of open REPO contracts receivable and payable was $66,217.2 and $66,217.2 (2019 – $67,791.4 and $67,791.4). 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. TMX GROUP LIMITED 2020 Annual Report 120 TMX Group Limited 26 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 The following table sets out the carrying amounts of Balances of Clearing Members that are subject to offsetting, enforceable master netting arrangements and similar arrangements: As at December 31, 2020 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 $ $ 233.7 $ 42,080.6 42,314.3 (235.2) (42,953.6) (43,188.8) (874.5) $ (0.4) $ (23,263.6) (23,264.0) 1.9 24,136.6 24,138.5 874.5 $ 233.3 18,817.0 19,050.3 (233.3) (18,817.0) (19,050.3) — 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, 2019 $ $ 91.3 $ 43,511.5 43,602.8 (96.7) (48,531.2) (48,627.9) (5,025.1) $ (9.0) $ (19,260.2) (19,269.2) 14.4 24,279.9 24,294.3 5,025.1 $ 82.3 24,251.3 24,333.6 (82.3) (24,251.3) (24,333.6) — For the year ended December 31, 2020, the largest daily settlement amount due from a Clearing Member was $1,651.0 (2019 – $168.3), and the largest daily settlement amount due to a Clearing Member was $1,240.8 (2019 – $164.2). 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 net impact on the consolidated net assets as an equivalent amount is recognized in both assets and liabilities. 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, 2020 December 31, 2019 $ $ 3,624.3 $ 2,377.7 6,002.0 $ 1,359.0 237.7 1,596.7 During 2020, the increase in above clearing members' cash collateral is driven by the Bank of Canada requiring clearing members to post substantially more collateral (to address Cover 1 liquidity risk under PFMI). 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 TMX GROUP LIMITED 2020 Annual Report 121 TMX Group Limited 27 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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, 2020 December 31, 2019 $ $ 12,680.8 $ — 12,680.8 $ 9,495.0 1,431.9 10,926.9 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 by TSX Trust at December 31 are summarized below: Cash Treasury bills and fixed income securities Total assets under administration December 31, 2020 December 31, 2019 $ $ 676.8 $ 804.8 1,481.6 $ 150.9 587.7 738.6 Since these amounts are not controlled by TSX Trust or by the Company, assets under administration are not included in the consolidated balance sheet. NOTE 11 – FINANCIAL RISK MANAGEMENT The Company is exposed to a number of financial risks as a result of its operations, which are discussed below. It seeks to monitor and minimize adverse effects from these risks through its risk management policies and processes. (A) GENERAL BUSINESS RISK General business risk refers to the risks and potential losses arising from the Company’s administration and operation as a business enterprise that are unrelated to participant default. General business risk includes any potential impairment of the Company’s financial position (as a business concern) as a consequence of a decline in its revenues or an increase in its expenses. Such impairment can be caused by a variety of business factors, including poor execution of business strategy, negative cash flows, or unexpected and excessively large operating expenses. (B) 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, and total return swaps ("TRSs"). (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. CDS Clearing 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. TMX GROUP LIMITED 2020 Annual Report 122 TMX Group Limited 28 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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 a 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, with commercial banks with a minimum credit rating of A/R1-low or better, and NSCC/DTC and non- cash collateral pledged by Participants under Participant Rules is held by CDS Clearing (note 10). 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. 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. TMX GROUP LIMITED 2020 Annual Report 123 TMX Group Limited 29 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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. CDCC also has 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. 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 and provincial treasury bills and US treasury bills. (iii) Marketable securities The Company manages its exposure to credit risk arising from investments in marketable securities by holding high-grade individual fixed income securities or term deposits with credit ratings of A/R1-low or better. In addition, when holding individual fixed income securities, the Company will limit its exposure to any non-government security. The investment policy of the Company will only allow excess cash to be invested in money market securities or fixed income securities; however the majority of the portfolio is held within bank deposits, notes, Government of Canada and provincial treasury bills, and US 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, or data access privileges and other services. TMX GROUP LIMITED 2020 Annual Report 124 TMX Group Limited 30 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (v) Total return swaps The Company limits its exposure to counterparty credit risk on its total return swaps by contracting with major Canadian chartered banks. (C) INVESTMENT RISK In the clearing operations of its business, the Company manages both securities and cash collateral and uses custody banks for the latter. The investment management process governing the investable cash follows industry practice and is in line with the Company’s regulatory obligations. However, as with all investment strategies, the risk of loss on participant assets remains a possibility. The potential for these adverse outcomes is accounted for in the contractual framework embedded in the CDS Rules, which ensure that if investment losses are realized, they are transferred to participants, thereby eliminating any possible impacts to the Company’s financial position. (D) 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, 2020, cash and cash equivalents and trade receivables, net of current liabilities, include US$10.0, which are exposed to changes in the US-Canadian dollar exchange rate, £0.8, which are exposed to changes in the British Pound Sterling-Canadian dollar exchange rate, and less than €0.1, which are exposed to changes in the Euro-Canadian dollar exchange rate (2019 – US$15.8, £0.7 and €0.1). 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 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, credit and liquidity facilities, debentures and Commercial Paper. At December 31, 2020, the Company held $55.8 in marketable securities, all of which were held in treasury bills (2019 – $80.4, all of which were held in treasury bills). The Company also has $160.0 of Commercial Paper (note 12) outstanding at December 31, 2020. (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. (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. TMX GROUP LIMITED 2020 Annual Report 125 TMX Group Limited 31 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 CDCC CDCC is exposed to market risk through its CCP function in the event of a Clearing Member 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 neutralize 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) collateral 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 2020 Annual Report 126 TMX Group Limited 32 (v) Market risk sensitivity summary Foreign currency USD, EUR and GBP currency USD, EUR and GBP currency Interest rates Marketable securities Marketable securities Commercial Paper Commercial Paper Debentures Debentures Equity price PSUs, RSUs and DSUs PSUs, RSUs and DSUs TRS TRS (E) LIQUIDITY RISK Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 Change in underlying factor Impact on income before income taxes Impact on equity +10% $ -10% +1% $ -1% +1% -1% +1% -1% +25% $ -25% +25% -25% 1.4 $ (1.4) 91.5 (91.5) (0.1) 0.1 (0.1) 0.1 n/a n/a (15.4) 17.5 12.2 (12.2) 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 Participants’ tax withholdings* Accrued interest payable Other trade and other payables Provisions Lease liabilities Balances of Participants and Clearing Members* Total return swaps Commercial Paper Debentures Less than 1 year Between 1 and 5 years 153.3 $ 3.8 71.8 1.1 8.1 30,270.4 2.4 160.0 — — $ — — 8.0 32.1 — — — 548.5 December 31, 2020 Greater than 5 years — — — — 54.1 — — — 199.0 *The above financial liabilities are covered by assets that are restricted from use in the ordinary course of business. TMX GROUP LIMITED 2020 Annual Report 127 TMX Group Limited 33 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (F) COVID-19 RISK The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may adversely affect our business, financial condition, liquidity, results of operations and long-term financial objectives. Economic, political and market conditions can impact the level of initial public offerings, secondary financings, market capitalization of our issuers, transfer agent and trustee services, trading volumes, energy data and network connectivity, client hosting revenue, and sales of market data across our markets. The Company has witnessed high levels of volatility which, when coupled with prolonged negative economic conditions, can cause dramatic fluctuations in trading volumes, equity financings and demand for market data. This can lead to slower collections of accounts receivable as well as increased counterparty risk which, in turn, could adversely affect our business. Additionally, if the Company is required to suspend trading for a prolonged period of time or shorten trading hours, our business, operating results, long term financial objectives, cash flows, or financial condition could be materially adversely affected. While key initiatives continue, some could be delayed or postponed indefinitely due to lack of client availability for effective engagement and business development. Although the Company continues to plan and engage with new and prospective clients, their level of readiness and commitment is outside of our control; therefore, revenues could be lower than anticipated. 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 the Company is unable to meet 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 Carrying amount Carrying amount 2020 2019 4.461 % 2.997 % 3.779 % Oct 3, 2023 Dec 11, 2024 June 5, 2028 250.0 $ 300.0 200.0 0.24% - 0.25% Jan 4 - Jan 29, 2021 500.0 1 month B.A./LIBOR + 107.5 bps May 2, 2021 500.0 $ 249.8 $ 298.7 199.0 747.5 160.0 160.0 — — 907.5 (160.0) 747.5 $ 249.6 298.6 198.9 747.1 239.6 239.6 — — 986.7 (239.6) 747.1 Series B Debentures Series D Debentures Series E 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 The Company maintains debentures, which are direct, senior, unsecured and unsubordinated 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"). The Company has the right, at its option, to redeem, in whole or in part, each of the Series B, Series D and Series E 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 TMX GROUP LIMITED 2020 Annual Report 128 TMX Group Limited 34 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 that is three months prior to the maturity date for the Series B and Series E, 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, 2020, the Company recognized interest expense on its Series B, Series D and Series E debentures of $11.3, $9.1 and $7.6, respectively (2019 – $11.3, $9.2 and $7.6, 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 to be issued in various maturities of no more than one year. The Commercial Paper bears interest rates based on the prevailing market conditions at the time of issuance. The Commercial Paper issued are unsecured obligations of 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, 2020, the Company issued and repaid Commercial Paper with a cumulative amount of $2,008.2 and $2,087.8, respectively (2019 – $1,858.6 and $1,938.5, 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. 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 (December 31, 2020 – $160.0); and (ii) inter-company notes payable to CDS Clearing, CDCC and Shorcan Brokers Limited (December 31, 2020 – $45.0). MX has an outstanding letter of guarantee for $0.5 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). (B) OTHER CREDIT AND LIQUIDITY FACILITIES The Company has the following other credit and liquidity facilities drawn and outstanding at December 31: 2020 Carrying amount — — CDS Limited operating demand loan CDS Clearing unsecured overdraft Interest rate† Maturity date(s) n/a n/a 5.0 5.0 Authorized – – CDS Clearing operating demand loan – n/a 15.0 CDS Clearing secured standby liquidity facility CDS Clearing overnight loan facility CDS Clearing secured standby liquidity facility CDCC syndicated revolving standby liquidity facility CDCC daylight liquidity facilities CDCC syndicated REPO facility Shorcan overdraft facility Total credit and liquidity facilities – March 23, 2021 – n/a 2,000.0 US$5.5 – March 23, 2021 US$720.0 February 26, 2021 – n/a – February 26, 2021 n/a – 320.0 975.0 27,012.0 50.0 $ — — — — 4.3 — — — 4.3 $ 2019 Carrying amount — — — — — — 8.2 — — — 8.2 †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. TMX GROUP LIMITED 2020 Annual Report 129 TMX Group Limited 35 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (i) CDS facilities CDS maintains unsecured operating demand loans totaling $5.0 to support short-term operating requirements. To support processing and settlement activities of Participants, an unsecured overdraft facility of $5.0, 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 maintains a secured standby liquidity facility of US$720.0, or Canadian dollar equivalent, that can be drawn in either United States or Canadian currency. On March 24, 2020, CDS Clearing extended the maturity date to March 23, 2021. The facility is available to support processing and settlement activities in the event of a Participant default with the New York Link Service and The Depository Trust Company Direct Link Service. The facility will allow the Company to increase the amount available by an additional US$600, or Canadian equivalent, with approval of the lenders. 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 and equity instruments. Depending upon the currency drawn, the borrowing rate for the secured standby liquidity facility is the US base rate plus 150 bps or the Canadian prime rate plus 150 bps. CDS Clearing also has a secured standby liquidity facility of $2,000, or US equivalent, that can be drawn in either Canadian or US currency. On March 24, 2020, CDS Clearing extended the maturity date to March 23, 2021. This arrangement is available to support settlement activities in the event of a Participant default with CDS Clearing’s Continuous Net Settlement service. The facility will allow the Company to increase the amount available by an additional $500, or US equivalent, with approval of the lenders. Borrowings under the secured facility are obtained by pledging or providing collateral pledged by Participants primarily in the form of debt and equity instruments. Depending upon the currency drawn, the borrowing rate for the secured standby liquidity facility is the Canadian prime rate plus 150 bps or the US base rate plus 150 bps. 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. (ii) CDCC facilities CDCC maintains daylight liquidity facilities for a total of $975.0 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 $27,012.0 REPO uncommitted facility (December 31, 2019 - $18,102.0) 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. On February 28, 2020, CDCC extended this facility to February 26, 2021. The facility would provide liquidity in exchange for securities that have been received by, or pledged to, CDCC. CDCC also maintains a $320.0 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. The borrowing rate on this facility is prime rate less 1.75%. On February 28, 2020, CDCC extended this facility to February 26, 2021. As at December 31, 2020, CDCC had drawn $4.3 to facilitate a failed REPO settlement. The amount is fully collateralized by liquid securities included in cash and cash equivalents and was fully repaid subsequent to the reporting date. 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. (iii) Shorcan facility Shorcan maintains an overdraft facility with a major chartered bank to provide end of day liquidity to cover any shortfalls due to timing of payments and receipts associated with the brokerage of trades. Use of this facility is secured by collateral in the form of securities. TMX GROUP LIMITED 2020 Annual Report 130 TMX Group Limited 36 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (iv) TMX Group Limited Support Agreement In compliance with the Principles for Financial Market Infrastructures and additional Canadian regulatory and oversight guidance, CDS Clearing and CDCC each have 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 Limited is 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. Debentures 746.8 $ Commercial Paper 319.5 $ CDCC syndicated revolving standby liquid facility Balance at January 1, 2019 $ Recognition of leases under IFRS 16 (non-cash) Financing cash flows Other (non-cash) Balance at December 31, 2019 Financing cash flows Other (non-cash) Balance at December 31, 2020 $ $ — — 0.3 747.1 $ — 0.4 747.5 $ — (79.9) — 239.6 $ (79.6) — 160.0 $ Total return swaps Lease liabilities — $ 3.9 $ — $ — 8.2 — 8.2 $ (3.9) — 4.3 $ — (2.8) — 1.1 $ 1.3 — 2.4 $ 111.4 (8.2) 0.5 103.7 $ (8.3) (1.1) 94.3 $ Total 1,070.2 111.4 (82.7) 0.8 1,099.7 (90.5) (0.7) 1,008.5 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 $165 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 certain subsidiaries as follows: TMX GROUP LIMITED 2020 Annual Report 131 TMX Group Limited 37 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 a. In respect of the TMX Group Limited credit facility (note 12) that require the Company to maintain: i. ii. an interest coverage ratio of more than 4.0:1; a total leverage ratio of not more than: 1. 2. 3.75:1 until December 31, 2018; and 3.50:1 on January 1, 2019 and thereafter. b. In respect of each of TSX and Alpha Exchange Inc., to maintain the following requirements, on both a consolidated and non-consolidated basis, as set out in the amended and restated recognition order issued by the Ontario Securities Commission ("OSC") effective September 2020: i. ii. maintain sufficient financial resources for the proper performance of its functions and to meet its responsibilities; and calculate on a monthly basis: a current ratio; a debt to cash flow ratio; and a financial leverage ratio. • • • c. In respect of TSX Venture Exchange Inc., as required by certain provincial securities commissions, to maintain sufficient financial resources to perform its functions. d. In respect of MX, to maintain the following financial ratios as set out in the recognition order issued by the AMF: i. ii. iii. 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. e. In respect of CDCC, to maintain certain amounts, as follows: i. ii. iii. iv. maintain sufficient financial resources as required by the OSC and AMF; $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; sufficient cash, cash equivalents and marketable securities to cover 12 months of operating expenses, excluding amortization and depreciation; and $30.0 total shareholder's equity. f. In respect of CDS and CDS Clearing, as required by the OSC and the AMF to maintain certain financial ratios as defined in the OSC recognition order, as follows: i. ii. 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 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. 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. g. In respect of Shorcan: i. ii. iii. by IIROC which requires Shorcan to maintain a minimum level of shareholders’ equity of $0.5; by the National Futures Association which requires Shorcan to maintain a minimum level of net capital; and by applicable Canadian securities commissions, which require Shorcan to maintain a minimum level of excess working capital. h. In respect of TSX Trust: i. as required by the Office of the Superintendent of Financial Institutions, to maintain the following minimum capital ratios: 1. 2. 3. common equity tier 1 capital ratio of 7%; tier 1 capital ratio of 8.5%; and total capital ratio of 10.5%. ii. as required by IIROC, to maintain in excess of $100.0 of paid up capital and surplus on the last audited balance sheet for the acceptable institution designation. TMX GROUP LIMITED 2020 Annual Report 132 TMX Group Limited 38 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 As at December 31, 2020 and 2019, the Company complied with each of the externally imposed capital requirements in effect at the applicable period-end. 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. 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 24), 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) CLASSIFICATION AND MEASUREMENT Financial assets and liabilities are classified as fair value through profit and loss ("FVTPL"), amortized cost, or fair value through other comprehensive income ("FVTOCI"). The Company has exercised judgement in its assessment of the business model within which the assets are held and in its assessment of whether the contractual terms of the financial assets are solely payments of principal and interest on the principal amounts outstanding to determine the classification of financial assets. The Company classifies its non-derivative financial assets in the following categories, depending on the purpose for which they were acquired: • • Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss. The net gain or loss recognized in profit or loss includes any dividend or interest earned on the financial asset and is presented as finance income or cost in the consolidated income statement. Financial assets carried at amortized cost. Amortized cost is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. On the other hand, the gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance. The classification of the Company’s financial instruments, along with their carrying amounts and fair values are as follows: TMX GROUP LIMITED 2020 Annual Report 133 TMX Group Limited 39 Assets at fair value through profit or loss Marketable securities Assets at amortized cost Cash and cash equivalents Restricted cash and cash equivalents Trade and other receivables Promissory note Clearing Members cash collateral Balances of Clearing Members Balances of Participants Liabilities at fair value through profit or loss Total return swaps Liabilities at amortized cost Other trade and other payables Accrued interest payable Participants’ tax withholdings Clearing Members cash collateral Balances of Clearing Members Balances of Participants Credit and liquidity facilities drawn Commercial Paper Debentures Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 December 31, 2020 December 31, 2019 Carrying amount Fair value Carrying amount $ 55.8 $ 55.8 55.8 $ 55.8 80.4 $ 80.4 222.1 153.3 108.0 4.7 6,002.0 19,050.3 5,218.1 30,758.5 222.1 153.3 108.0 4.7 6,002.0 19,050.3 5,218.1 30,758.5 149.0 151.5 105.3 5.0 1,596.7 24,333.6 658.6 26,999.7 Fair value 80.4 80.4 149.0 151.5 105.3 5.0 1,596.7 24,333.6 658.6 26,999.7 (2.4) (2.4) (2.4) (2.4) (1.1) (1.1) (1.1) (1.1) (71.8) (3.8) (153.3) (6,002.0) (19,050.3) (5,218.1) (4.3) (160.0) (747.5) (31,411.1) $ (71.8) (3.8) (153.3) (6,002.0) (19,050.3) (5,218.1) (4.3) (160.0) (830.7) (31,494.3) $ (61.0) (3.8) (151.5) (1,596.7) (24,333.6) (658.6) (8.2) (239.6) (747.1) (27,800.1) $ (61.0) (3.8) (151.5) (1,596.7) (24,333.6) (658.6) (8.2) (239.6) (784.9) (27,837.9) $ 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. (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 As at Asset/(Liability) Marketable securities Total return swaps $ $ Level 1 55.8 $ — — Level 1 80.4 $ — Level 2 Level 3 December 31, 2020 Total — $ (2.4) — — $ — — 55.8 (2.4) — December 31, 2019 Level 2 — $ (1.1) Level 3 — $ — Total 80.4 (1.1) There were no transfers during the periods between any of the levels. TMX GROUP LIMITED 2020 Annual Report 134 TMX Group Limited 40 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 NOTE 15 – CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES (A) CASH AND CASH EQUIVALENTS AND RESTRICTED 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, 2020 December 31, 2019 $ $ $ 117.7 $ 28.6 72.7 — 3.1 222.1 $ 153.3 153.3 $ 35.8 51.4 56.3 1.0 4.5 149.0 151.5 151.5 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. The surplus of this regulatory division has 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. (B) MARKETABLE SECURITIES Marketable securities are comprised of: As at Treasury bills Marketable securities December 31, 2020 $ $ 55.8 $ 55.8 $ December 31, 2019 80.4 80.4 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 impairment Trade receivables, net Other receivables Trade and other receivables December 31, 2020 100.2 $ (2.7) 97.5 10.5 108.0 $ December 31, 2019 96.9 (2.8) 94.1 11.2 105.3 $ $ Loss allowances for trade and other receivables are measured at an amount equal to lifetime expected credit losses. The expected credit losses on trade and other receivables are calculated using historical credit loss experience taking into account current observable data at the reporting date to reflect the effects of any relevant current and forecasts of future conditions. Trade receivables generally have terms of 30 days. Loss allowances for trade receivables are measured at an amount equal to lifetime expected credit losses ("ECL"). Trade receivables that are more than three months past due are considered to be impaired and the impairment is the lifetime ECL. Allowances for ECL are recorded within selling, general and administration TMX GROUP LIMITED 2020 Annual Report 135 TMX Group Limited 41 costs in the consolidated income statement. Other specific trade receivables are also provided against as considered necessary. Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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, 2020 Allowance — $ — 2.7 2.7 $ Gross 69.4 $ 26.0 4.8 100.2 $ December 31, 2019 Allowance — — 2.8 2.8 Gross 64.3 $ 27.5 5.1 96.9 $ The movement in the Company’s allowance for impairment 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, 2020 $ $ 2.8 $ 1.4 (1.5) 2.7 $ December 31, 2019 2.8 1.1 (1.1) 2.8 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 Balance at January 1, 2019 Acquisition of VisoTech (note 3) Impairment Effect of movements in exchange rates Balance at December 31, 2019 Adjustment for VisoTech Effect of movements in exchange rates $ 1,648.6 $ 26.2 (18.0) (7.1) 1,649.7 (4.5) 8.5 283.8 $ — — (0.4) 283.4 — 0.4 Balance at December 31, 2020 $ 1,653.7 $ 283.8 $ 632.0 $ — — — 632.0 — — 632.0 $ 1,407.3 $ — — — 1,407.3 — — 1,407.3 $ Total 3,971.7 26.2 (18.0) (7.5) 3,972.4 (4.5) 8.9 3,976.8 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: TMX GROUP LIMITED 2020 Annual Report 136 TMX Group Limited 42 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 • • • • • • 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 Basis Straight-line Straight-line A summary of the Company’s definite life intangible assets is as follows: Rate 17 – 34 years 1 – 10 years Technology Customer relationships Open interest Total Cost: Balance at January 1, 2019 Additions through general operations Acquisition of VisoTech (note 3) Adjustments Effect of movements in exchange rates Balance at December 31, 2019 Additions through general operations Adjustment for VisoTech Other adjustments Effect of movements in exchange rates Balance at December 31, 2020 Accumulated amortization: Balance at January 1, 2019 Charge for the year Acquisition of VisoTech (note 3) Adjustments Effect of movements in exchange rates Balance at December 31, 2019 Charge for the year Adjustments Effect of movements in exchange rates Balance at December 31, 2020 Net book values: At December 31, 2019 At December 31, 2020 (C) IMPAIRMENT OF ASSETS $ $ $ $ $ $ 150.3 $ 48.9 0.3 (3.2) (0.4) 195.9 53.1 1.9 (1.1) 0.7 250.5 $ 63.5 $ 15.8 0.2 (3.0) 0.1 76.6 16.6 (1.3) 0.3 92.2 $ 119.3 $ 158.3 $ 1,208.2 $ — — — (3.3) 1,204.9 — 3.9 — 3.8 1,212.6 $ 211.8 $ 43.7 — — (0.1) 255.4 44.2 — 0.4 300.0 $ 949.5 $ 912.6 $ 2.0 $ — — — — 2.0 — — — — 2.0 $ 2.0 $ — — — — 2.0 — — — 2.0 $ — $ — $ 1,360.5 48.9 0.3 (3.2) (3.7) 1,402.8 53.1 5.8 (1.1) 4.5 1,465.1 277.3 59.5 0.2 (3.0) — 334.0 60.8 (1.3) 0.7 394.2 1,068.8 1,070.9 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. TMX GROUP LIMITED 2020 Annual Report 137 TMX Group Limited 43 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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 a CGU 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, 2019, the Company determined that the Shorcan CGU, included in Other, had a recoverable amount that was lower than its carrying amount. As a result, the Company recognized an impairment charge of $18.0 related to goodwill in the consolidated income statement. The Company recognized no impairment in 2020. 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 TMX Datalinx Trayport Equities Trading MX/CDCC CDS Other $ $ Goodwill 13.3 $ 707.7 631.9 5.1 159.4 89.5 46.8 1,653.7 $ December 31, 2020 Indefinite life intangibles 1,227.9 $ 82.9 39.7 283.3 663.7 22.0 3.6 2,323.1 $ December 31, 2019 Indefinite life intangibles 1,273.9 81.4 39.3 238.7 663.9 22.0 3.5 2,322.7 Goodwill 13.3 $ 707.7 628.0 5.1 159.4 89.5 46.7 1,649.7 $ The recoverable amounts of the above CGUs were determined based on value-in-use calculations, using management’s discounted cash flow projections over periods of 5 to 8 years, depending on the CGU, along with a terminal value. The terminal value is the value attributed to the CGUs’ operations beyond the projected time period. The terminal value for the CGUs is determined using estimated long-term growth rates of 2.0% for all significant CGUs, except for MX/CDCC and Trayport, which used 4.5%. The estimated long-term growth rate 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 9.4% to 13.5%, 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. TMX GROUP LIMITED 2020 Annual Report 138 TMX Group Limited 44 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 NOTE 18 – INVESTMENTS IN EQUITY ACCOUNTED INVESTEES Investments in equity accounted investees are comprised of: As at Investment in BOX Holdings Other Investments in equity accounted investees December 31, 2020 21.9 $ 5.4 27.3 $ December 31, 2019 22.1 5.3 27.4 $ $ For the year ended December 31, 2020, the Company recognized $5.7 from its share of income from equity accounted investees (2019 – $3.8). Also for the year ended December 31, 2020, the Company earned $1.4 from services rendered to equity accounted investees (2019 – $4.9). BOX HOLDINGS GROUP LLC The Company holds an interest of 42.62% in BOX Holdings (2019 - 41.33%). The investment in BOX Holdings is accounted for in its functional currency of USD using the equity method. Summary financial information for BOX Holdings in USD is as follows: As at Current assets Non-current assets Current liabilities Non-current liabilities Net assets (100%) Revenue Net income and comprehensive income (100%) Share of income and comprehensive income (2020 - 42.62%, 2019 - 41.33%) December 31, 2020 30.5 US$ 4.6 (3.2) (9.6) 22.3 US$ For the year ended December 31, 2020 37.9 US$ 9.3 4.0 US$ December 31, 2019 24.8 4.5 (2.5) (0.1) 26.7 For the year ended December 31, 2019 22.8 6.5 2.7 US$ US$ US$ US$ For the year ended December 31, 2020, the Company recognized $5.6 from its share of income in the consolidated income statements and a loss of $0.4 from translation of the foreign operation in the consolidated statements of comprehensive income (for the year ended December 31, 2019 – income of $3.6 and loss of $1.0, respectively). 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, 2020 51.6 $ 4.6 68.0 3.8 3.1 1.3 132.4 $ December 31, 2019 44.9 3.2 45.7 3.8 4.5 0.6 102.7 $ $ 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. TMX GROUP LIMITED 2020 Annual Report 139 TMX Group Limited 45 NOTE 20 – DEFERRED REVENUE Deferred revenue is comprised of: As at Listings Technology solutions Other Current deferred revenue Other Non-current deferred revenue Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 December 31, 2020 December 31, 2019 $ $ $ 10.8 $ 4.7 2.5 18.0 $ 0.4 0.4 $ 8.3 6.2 2.0 16.5 0.4 0.4 Listings deferred revenue is mainly comprised of initial and additional listings fees for TSX Venture Exchange, which are paid in advance for the services being provided, and initial listings fees for TSX. Initial listings are deferred over a 12-month period from the date of listing, while additional listings are recognized when the additional listing occurs. 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. 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: Balance at January 1, 2019 Provisions recognized during the period Provisions used or reversed during the period Balance at December 31, 2019 Current Non-current Balance at December 31, 2019 Provisions recognized during the period Provisions used or reversed during the period Balance at December 31, 2020 Current Non-current Balance at December 31, 2020 (B) CONTINGENT LIABILITIES Decommissioning liabilities Commodity tax Other Total $ $ $ $ $ $ $ 7.2 $ 1.0 — 8.2 $ — $ 8.2 8.2 $ 0.2 (0.4) 8.0 $ — $ 8.0 8.0 $ 10.0 $ — (5.3) 4.7 $ 4.7 $ — 4.7 $ (0.1) (4.0) 0.6 $ 0.6 $ — 0.6 $ 1.8 $ 4.6 (3.2) 3.2 $ 3.2 $ — 3.2 $ 13.4 (16.1) 0.5 $ 0.5 $ — 0.5 $ 19.0 5.6 (8.5) 16.1 7.9 8.2 16.1 13.5 (20.5) 9.1 1.1 8.0 9.1 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 material payment or other obligation in respect of any such action or proceeding is remote. TMX GROUP LIMITED 2020 Annual Report 140 TMX Group Limited 46 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 NOTE 22 – COMMITMENTS AND LEASE OBLIGATIONS (A) LEASES At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. As a lessee, the Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of- use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and any estimated costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term and is reduced for any impairment losses and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. The Company applies judgement in determining the lease term for some lease contracts in which there is a renewal option. Lease payments included in the measurement of the lease liability comprise the following: • • Fixed payments, including in-substance fixed payments which may contain variability but are unavoidable; and Variable payments that depend on an index or a rate, are initially measured using the index or rate as at the commencement date. Variable payments based on usage or performance are not included in the measurement of the lease liability. The lease liability is measured at amortized cost using the effective interest method. The lease liability is subsequently increased by the interest cost and decreased by lease payments made, over the term of the lease. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. When a lease liability is remeasured, a corresponding adjustment is also made to the carrying amount of the right-of-use asset. Short-term leases and leases of low-value assets The Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less, and leases of low-value assets. The Company continues to recognize the lease payments associated with these leases as an expense over the term of the lease on a straight-line basis. For the year ended December 31, 2020, the Company recognized $9.4 and $3.3 of depreciation expense on right-of-use assets and interest expense on lease liabilities, respectively (2019 - $9.8 and $3.5). As at December 31, 2020, $8.1 of lease liabilities were classified as current lease liabilities and recorded in "Other current liabilities"(2019 - $8.3). TMX GROUP LIMITED 2020 Annual Report 141 TMX Group Limited 47 Cost: Balance at January 1, 2019 Additions Impairment Balance at December 31, 2019 Lease modifications Balance at December 31, 2020 Accumulated amortization: Balance at January 1, 2019 Charge for the year Balance at December 31, 2019 Charge for the year Balance at December 31, 2020 Net book value: At December 31, 2019 At December 31, 2020 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 Right-of use assets $ $ $ $ $ 94.9 8.1 (0.2) 102.8 (1.5) 101.3 — 9.8 9.8 9.4 19.2 93.0 82.1 The Company leases several premises. The average lease term is 6 years. The Company is also responsible for additional taxes, maintenance and other direct charges with respect to its leases. The additional amount was $11.7 for 2020 (2019 – $12.1). The figures above do not include the Company’s obligations to restore certain leased premises to their original condition (note 21). AMENDMENT TO IFRS 16 The Company has adopted the amendment to the leasing standard IFRS 16 (COVID-19-Related Rent Concessions) issued on March 28, 2020. The amendment introduces an optional practical expedient for lessees to account for rent concessions that are a direct consequence of the COVID-19 pandemic as variable lease payments as opposed to lease modifications. This amendment does not have a significant impact on the Company's financial statements. (B) 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 net annual increases in revenue applicable to the NYL/DDL Liquidity Premium compared to the revenues for this service earned in the twelve-month period ended December 31, 2015. For the year ended December 31, 2020, the rebate payable amounted to $10.3 (2019 – $6.1). 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. TMX GROUP LIMITED 2020 Annual Report 142 TMX Group Limited 48 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 (C) OTHER COMMITMENTS The Company has other commitments in the form of long term contracts related to technology in the amount of $33.5 of which $25.2 is payable in one year. NOTE 23 – OTHER ASSETS AND OTHER LIABILITIES (A) OTHER ASSETS Other current and non-current assets are comprised of: As at Prepaid expenses Current income tax assets Other current assets Investments in equity accounted investees (note 18) Accrued employee benefit assets (note 25) Premises and equipment Promissory note Other Other non-current assets (B) OTHER LIABILITIES Other current and non-current liabilities are comprised of: As at Deferred revenue (note 20) Provisions (note 21) Current lease liabilities (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 non-current liabilities NOTE 24 – SHARE–BASED PAYMENTS December 31, 2020 25.1 $ 4.8 29.9 $ 27.3 $ 6.2 67.9 4.7 0.7 106.8 $ December 31, 2020 18.0 $ 1.1 8.1 2.4 31.1 60.7 $ 0.4 $ 8.0 38.6 20.2 67.2 $ $ $ $ $ $ $ $ $ December 31, 2019 21.3 8.8 30.1 27.4 4.1 59.2 5.0 1.0 96.7 December 31, 2019 16.5 7.9 8.3 1.1 28.3 62.1 0.4 8.2 37.3 18.2 64.1 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, 2020, 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 $117.51 dollars (2019 – $83.74 dollars) and dividend yield of 2.25% (2019 – 2.95%); expected life of between 2 and 5 years (2019 – 2 and 5 years); an expected volatility of between 13.9% and 14.5% (2019 – 16.5% and 17.0%); risk-free interest rate of between 1.6% and 1.7% (2019 – 2.1% and 2.2%); and expected TMX GROUP LIMITED 2020 Annual Report 143 TMX Group Limited 49 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 forfeiture rates of between 9.4% and 22.0% (2019 – 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 2020 was $10.37 dollars (2019 – $8.49 dollars). Options outstanding at December 31, 2020 will expire in 2021, 2024, 2025, 2026, 2027, 2028, 2029 and 2030. Movements in the number of share options outstanding are as follows: For the year ended December 31, 2020 December 31, 2019 Outstanding, beginning of the period Granted Forfeited Exercised Outstanding as at December 31 Number of share options 1,538,160 $ 240,183 Weighted average exercise price (in dollars) 66.18 117.51 Number of share options 1,743,134 $ 392,405 Weighted average exercise price (in dollars) 59.97 83.74 (31,879) (540,590) 1,205,874 $ 75.28 58.65 79.27 59.60 (153,998) (443,381) 1,538,160 $ 635,433 $ 72.74 55.04 66.18 54.25 Vested and exercisable as at December 31 458,615 $ The range of exercise prices and weighted average remaining contractual life of options outstanding are as follows: As at Exercise price range (in dollars) $40.00 - $49.99 $50.00 - $59.99 $60.00 - $60.73 $70.00 - $72.23 $80.00 - $83.93 $100.00 - $117.51 Number of share options 185,389 73,027 — 413,439 300,902 233,117 1,205,874 December 31, 2020 Weighted average remaining contractual life 4.4 3.6 — 6.7 8.2 9.1 7.0 Number of share options 383,356 182,827 3,806 597,280 370,891 — 1,538,160 December 31, 2019 Weighted average remaining contractual life 5.6 4.0 6.6 7.6 9.2 — 7.1 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, 2020, the Company recognized compensation and benefits expense of $2.6 in relation to its share option plan (2019 – $2.5). 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, 2020, 3,628,448 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 executives 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 TMX GROUP LIMITED 2020 Annual Report 144 TMX Group Limited 50 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 out when the DSU holder 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, 2020, the total accrual for the Company’s RSUs, PSUs and DSUs was $57.5, which includes $18.9 in trade and other payables and $38.6 in other non-current liabilities (2019 – $50.8, $13.5 and $37.3, 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, 2020, the Company recognized compensation and benefits expense and selling, general and administration expense of $14.0 and $6.7, respectively, in relation to its RSUs, PSUs and DSUs (2019 – $15.9 and $11.9, respectively). The Company has entered into a series of TRSs which synthetically replicate the economics of the Company purchasing its shares as a partial economic hedge to the share appreciation rights of RSUs and 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, 2020, unrealized losses of $1.4 and realized gains of $8.7 related to TRSs, respectively have been reflected in the consolidated income statement (2019 – unrealized and realized gains of $2.8 and $10.8, 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. Effective May 31, 2020, each eligible employee may contribute up to 15% (previously 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 $3,500 dollars per year (previously $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, 2020, compensation and benefits expense related to this plan was $2.7 (2019 – $2.1). 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 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, 2020, was $7.5, which represents the employer contributions for the period (2019 – $7.5). (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 TMX GROUP LIMITED 2020 Annual Report 145 TMX Group Limited 51 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 for funding purposes was as at December 31, 2019, and the next required valuation is as at December 31, 2022. For the TMX supplementary income plan, the most recent actuarial valuation for funding purposes was as at December 31, 2019, and the next scheduled valuation is as at December 31, 2020. For the CDS and MX SIP plans, the funding valuations are performed annually with the most recent actuarial funding valuations completed as of January 1, 2020 and the next scheduled valuations are at January 1, 2021. Lastly, for the non-pension post-retirement plan, the valuation date was May 1, 2018 and the next scheduled valuation is at May 1, 2021. 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 2019 2020 6.2 $ (0.5) 5.7 $ 4.1 $ (0.5) 3.6 $ $ $ 2020 Other post-retirement benefit plans 2019 — (16.4) (16.4) (18.5) (18.5) $ — $ Accrued employee benefits payable on the consolidated balance sheet also includes the obligation under the post- employment benefit plan of $1.2 (2019 – $1.3). 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 Service (recovery) cost Interest cost Benefits paid Employee contributions Actuarial losses 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 TMX GROUP LIMITED Pension and SIP plans 2019 2020 Other post-retirement benefit plans 2019 2020 116.0 $ (0.9) 3.5 (5.3) 0.1 12.9 126.3 $ 119.6 $ 3.6 3.7 0.1 (5.3) (0.3) 10.6 132.0 $ 107.6 $ 1.2 4.0 (7.5) 0.1 10.6 116.0 $ 112.9 $ 4.2 1.5 0.1 (7.5) (0.3) 8.7 119.6 $ 16.4 $ 0.7 0.5 (0.5) — 1.4 18.5 $ — $ — 0.5 — (0.5) — — — $ 14.4 0.6 0.5 (0.5) — 1.4 16.4 — — 0.5 — (0.5) — — — 5.7 $ 3.6 $ (18.5) $ (16.4) $ $ $ $ $ 2020 Annual Report 146 TMX Group Limited 52 Plan assets consist of: Asset category Equity securities Debt securities Other Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 December 31, 2020 48.7 % 37.8 % 13.5 % 100.0 % Percentage of plan assets December 31, 2019 47.5 % 38.3 % 14.2 % 100.0 % MX has provided a letter of guarantee in the amount of $0.5 to the benefit of the trustee of the MX SIP (2019 – $0.5), using a part of the TMX Group Limited credit facility (note 12). 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 Service (recovery) cost Net interest (income) cost Plan administration cost $ (0.9) $ (0.1) 0.3 Net benefit plan expense (income) recognized in the income statement $ (0.7) $ 1.2 $ (0.2) 0.3 1.3 $ 2020 2019 2020 0.7 $ 0.5 — 1.2 $ 2019 0.6 0.5 — 1.1 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: Effect due to demographics Effect due to financial assumptions Effect due to experience adjustments Return on plan assets (excluding interest income) Actuarial losses (gains) recognized in other comprehensive income Pension and SIP plans Other post-retirement benefit plans 2020 2019 2020 2019 $ $ — $ — $ — $ 10.0 2.9 (10.6) 2.3 $ 10.6 0.1 (8.8) 1.4 — — 1.9 $ 1.4 $ — 1.4 — — 1.4 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 2020 2.50 % 1.50 % 2.30 % 3.00 % 2019 3.10 % 1.25 % 2.50 % 2.75 % 2020 2.50 % n/a n/a n/a 2019 3.10 % n/a n/a n/a Assumptions regarding mortality rates are based on published statistics and mortality tables. The mortality tables used in 2019 and 2020 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, 2020 was 5.60% decreasing to 4.00% over 20 years (2019 – 5.7% decreasing to 4.00% over 21 years). At December 31, 2020, the weighted-average duration of the defined benefit obligation was approximately 13 years (2019 - 13 years). TMX GROUP LIMITED 2020 Annual Report 147 TMX Group Limited 53 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 years ended December 31, 2020 and 2019 (Increase)/Decrease 50 bps decrease in the discount rate 50 bps increase in the discount rate 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 Other post-retirement benefit plans 2020 2019 2020 2019 $ (8.5) $ (7.6) $ (1.4) $ 7.5 (2.7) n/a n/a 6.7 (2.4) n/a n/a 1.2 (0.8) 0.7 (0.8) (1.2) 1.0 (0.6) 0.6 (0.7) In 2021, the Company expects to contribute approximately $1.6 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. On February 28, 2020, the Company announced that the Toronto Stock Exchange ("TSX") accepted its normal course issuer bid ("NCIB") under which it can purchase for cancellation up to a maximum number of 560,000 of its common shares through the facilities of the TSX. The purchases will be made at prevailing market prices at the time of acquisition and in accordance with the rules and policies of the TSX. Purchases under the NCIB commenced on March 4, 2020 and ended on January 8, 2021, once the Company reached the maximum number of shares available for repurchase under the plan. As at December 31, 2020, 473,400 common shares were purchased for cancellation by the Company, at an average price of $120.09 , and for a total amount of $56.8. The following transactions occurred with respect to the Company’s common shares during the period: Balance, beginning of the period Options exercised Shares repurchased under normal course issuer bid Balance as at December 31 Number of common shares issued and fully paid 2019 2020 56,233,929 540,590 (473,400) 56,301,119 55,790,548 $ 443,381 — 56,233,929 $ 2020 2,965.1 $ 35.3 (56.8) 2,943.6 $ Share capital 2019 2,938.0 27.1 — 2,965.1 The Company’s shares trade on Toronto Stock Exchange under the symbol “X”. TMX GROUP LIMITED 2020 Annual Report 148 TMX Group Limited 54 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 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. 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 December 31, 2020 December 31, 2019 Salaries and other short-term employee benefits, and termination benefits Post-employment benefits Share-based payments $ $ 10.4 $ 0.6 12.9 23.9 $ 9.7 0.6 17.0 27.3 NOTE 28 – DIVIDENDS Dividends recognized and paid in the period are as follows: For the year ended December 31, 2020 December 31, 2019 Dividend paid in March Dividend paid in June Dividend paid in September Dividend paid in December Total dividends paid $ $ $ $ Dividend per share Total paid Dividend per share 0.66 $ 0.66 $ 0.70 $ 0.70 $ $ 37.2 $ 37.2 $ 39.6 $ 39.6 $ 153.6 0.62 $ 0.62 $ 0.62 $ 0.66 $ $ Total paid 34.6 34.8 34.8 37.1 141.3 On February 8, 2021, the Company’s Board of Directors declared a dividend of 70 cents per share. This dividend will be paid on March 12, 2021 to shareholders of record on February 26, 2021 and is estimated to amount to $39.4. NOTE 29 – FUTURE CHANGES IN ACCOUNTING POLICIES The following new standards and amendments to standards and interpretations are not yet effective for the year ending December 31, 2020, 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, 2021, unless otherwise noted: • • IAS 1, Presentation of Financial Statements – Amendments clarify that liabilities are classified as either current or non- current, depending on the rights that exist at the end of the reporting period. The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. Classification is unaffected by the expectations of the entity or events after the reporting date. The amendments apply for annual reporting periods beginning on or after January 1, 2023. The Company does not expect the amendments to have a material impact on its financial statements. IAS 37, Provisions, Contingent Liabilities and Contingent Assets – Amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognizing a separate provision for an onerous contract, the entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract. The amendments apply for annual reporting periods beginning on or after January 1, 2022 to contracts existing at the date when the amendments are first applied. The Company does not expect the amendments to have a material impact on its financial statements. TMX GROUP LIMITED 2020 Annual Report 149 TMX Group Limited 55 Notes to the Consolidated Financial Statements For the years ended December 31, 2020 and 2019 • Reference to the Conceptual Framework – Amendments to IFRS 3, Business Combinations – Minor amendments were made to IFRS 3 to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21, Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments apply for annual reporting periods beginning on or after January 1, 2022. The Company does not expect the amendments to have a material impact on its financial statements. TMX GROUP LIMITED 2020 Annual Report 150 TMX Group Limited 56 Board of Directors AS OF MARCH 1, 2021 Charles Winograd (Chair) Senior Managing Partner Elm Park Capital Management Committees: Governance and Regulatory Oversight, Human Resources Director since: 2012 Martine Irman Corporate Director Committees: Derivatives, Finance and Audit, Public Venture Market Director since: 2014 Luc Bertrand Vice Chair National Bank Financial Group Committees: Derivatives (Chair), Public Venture Market Director since: 2011 Harry Jaako Executive Officer, Director and a Principal Discovery Capital Management Corp. Committees: Finance and Audit, Public Venture Market (Chair) Director since: 2012 Nicolas Darveau-Garneau Chief Strategist, Google Search Committees: Human Resources Director since: 2018 Moe Kermani Managing Partner, Vanedge Capital Committees: Public Venture Market Director since: 2020 Christian Exshaw Managing Director and Head Global Markets CIBC World Markets Inc. Committees: Derivatives Director since: 2015 Jean Martel Corporate Director Committees: Governance and Regulatory Oversight Director since: 2012 Marie Giguère Corporate Director Committees: Governance and Regulatory Oversight (Chair), Human Resources Director since: 2011 John McKenzie Chief Executive Officer TMX Group Limited Director since: 2020 2020 Annual Report 151 TMX Group Limited William Linton Corporate Director Committees: Finance and Audit (Chair), Governance and Regulatory Oversight Director since: 2012 Gerri Sinclair Corporate Director, Digital Technologies Consultant and B.C.’s Innovation Commissioner Committees: Governance and Regulatory Oversight, Human Resources, Public Venture Market Director since: 2012 Kevin Sullivan Corporate Director Committees: Derivatives, Finance and Audit, Public Venture Market Director since: 2012 Claude Tessier Chief Financial Officer Alimentation Couche-Tard Inc. Committees: Finance and Audit Director since: 2020 Eric Wetlaufer Corporate Director Committees: Finance and Audit, Human Resources (Chair) Director since: 2012 2020 Annual Report 152 TMX Group Limited TMX Group Officers AS OF MARCH 1, 2021 John McKenzie Chief Executive Officer TMX Group Cindy Bush Chief Human Resources Officer TMX Group Luc Fortin President and Chief Executive Officer, Montréal Exchange and Global Head of Trading TMX Group Cheryl Graden Chief Legal and Enterprise Corporate Affairs Officer and Corporate Secretary TMX Group Frank Di Liso Interim Chief Financial Officer TMX Group Jay Rajarathinam Chief Operating Officer TMX Group 2020 Annual Report 153 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 T +1 416 947-4277 (Toronto Area) +1 888 873-8392 (North America) F +1 416 947-4444 tmxshareholder@tmx.com Registered Office and Head Office of TMX Group 300 - 100 Adelaide Street West Toronto, ON Canada M5H 1S3 Le rapport est également disponible en français. Dividend Information The Board of Directors of TMX Group Limited declared a dividend of $0.70 on each common share outstanding, payable on March 12, 2021 to shareholders of record at the close of business on February 26, 2021. TMX Group hereby advises that this dividend is an “eligible dividend” for Canadian income tax purposes. Shareholders with questions regarding the tax treatment of dividends should consult with their own tax advisors or contact their local office of the Canada Revenue Agency and where applicable, the provincial taxation authorities. Normal Course Issuer Bid On February 26, 2021, TMX Group announced that its normal course issuer bid ("NCIB") had been accepted by Toronto Stock Exchange ("TSX"). TMX Group intends to repurchase up to 560,000 of its common shares through the facilities of the TSX, representing approximately 1% of its common shares outstanding on February 22, 2021. TMX Group will make purchases in accordance with TSX requirements and the price TMX Group will pay for any such common shares will be the market price of such shares at the time of acquisition. The purchases were eligible to commence on March 4, 2021 and will terminate on March 3, 2022, or on such earlier date as TMX Group completes its purchases. All repurchased shares will be cancelled. The Company also entered into a pre-defined plan with its designated broker to allow for the repurchase of common shares at times when the TMX Group ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. A copy of our Notice of Intention to Make an NCIB may be obtained, without charge, by contacting Investor Relations as outlined above. 2020 Annual Report 154 TMX Group Limited Trademarks Canadian Best Bid and Offer, Capital Pool Company, CBBO, CDB, CDF, Centre de marche TMX, CLF, CPC, Groupe TMX, NEX, TMX, the TMX design, TMX Datalinx, TMX Datalinx Xpress, TMX Group, TMX Market Centre, TMX Matrix, TMX Money, Toronto Stock Exchange, TSX, TSX DRK, TSX Market on Close, TSX Venture Exchange, TSXV, The Future is Yours to See., and Voir le futur. Réaliser l'avenir. are the trademarks of TSX Inc. BAX, Bourse de Montréal, CGB, CGF, CGZ, Montréal Exchange, MX, SOLA, SXF and SXM are the trademarks of Bourse de Montréal Inc. and are used under license. Alpha and Alpha Exchange are the trademarks of Alpha Exchange Inc. 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 and Shorcan Brokers are the trademarks of Shorcan Brokers Limited and are used under license. Trayport and Joule are the trademarks of Trayport Limited and are used under license. VisoTech is the trademark of Trayport VisoTech G.m.b.H and is used under license. All S&P/TSX Indices referred to herein are products of S&P Dow Jones Indices LLC or its affiliates ("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, their respective affiliates and TSX do not sponsor, endorse, sell or promote any products based on the S&P/ TSX Indices 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 Indices or any data related thereto. 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 2020 Management’s Discussion and Analysis for some of the risk factors that could cause actual events or results to differ materially from current expectations. 2020 Annual Report 155 TMX Group Limited 2020 Annual Report 156 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 +1 416 947-4277 info@tmx.com tmx.com 2020 Annual Report 157 TMX Group Limited 

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