TMX Group Limited (OTCPK:TMXXF) Q3 2022 Earnings Conference Call October 27, 2022 8:00 AM ET
Company Participants
Paul Malcolmson – Investor Relations
John McKenzie – Chief Executive Officer
David Arnold – Chief Financial Officer
Conference Call Participants
Nik Priebe – CIBC Capital Markets
Etienne Ricard – BMO Capital Markets
Geoff Kwan – RBC Capital Markets
Jaeme Gloyn – National Bank
Graham Ryding – TD Securities
Operator
Good morning, ladies and gentlemen and welcome to the TMX Group Limited Q3 2022 Financial Results Conference Call. [Operator Instructions] A reminder that this call is being recorded today Thursday, October 27, 2022. I would now like to turn the conference over to Paul Malcolmson. Please go ahead, sir.
Paul Malcolmson
Thank you, Michelle and good morning everyone. I hope that you and all of your families are staying well. Thank you for joining us this morning for the third quarter 2022 conference call for TMX Group. As you know, we announced our results late yesterday and a copy of our press release is available on tmx.com under Investor Relations.
This morning, we have with us John McKenzie, our Chief Executive Officer and David Arnold, our Chief Financial Officer. Following opening remarks, we will have a question-and-answer session.
Before we start, I want to remind you that certain statements made on today’s call maybe considered forward-looking. I refer you to the risk factors contained in our press release and reports filed with regulatory authorities.
With that, I’d like to turn the call over to John.
John McKenzie
Well, thank you, Paul and good morning and thanks to everyone for dialing into the call today to discuss our TMX Group’s financial results for the third quarter and the first 9 months of 2022. Now this morning, we are actually coming to you from our offices here in Montreal. And to kick off, I’d like to thank the whole team here in Montreal for hosting us this week and for their continued and phenomenal contributions to the overall success of TMX.
And now, while David will join us in a few minutes to take you through the third quarter results in more detail, my comments this morning will really focus on TMX Group’s performance during the first 9 months of 2022, providing an update on our key growth initiatives and the progress we are making in TMX efforts here in Canada and around the world to address the priority needs of stakeholders across our diverse and dynamic ecosystem.
Now it almost goes without saying that it’s been a turbulent and profoundly challenging year for financial markets and for a wide range of industries and businesses around the world. Macroeconomic conditions, geopolitical events, shocks to the global supply chain, rising interest rates and elevated inflation concerns have had a negative effect on capital markets activity and stifled economic growth. And we recognize that the challenges to businesses actually take a backseat to the challenges for people in the communities in which we operate. The war in Ukraine, the lasting pandemic effects, the dramatic rise in the cost of living all continue to impact people’s lives around the world, and our thoughts are with those that are most affected. But we all continue to look forward to the future with optimism and hope.
So turning now to the performance for the company for the first 9 months of the year, overall, TMX continues to deliver positive results despite the decreased capital markets activity when compared to 2021 and including lower capital raising among our listed issuer client base and lower equities trade volumes. TMX reported revenue of $842.5 million for the first 9 months of the year, a 16% increase from the same period in 2021 due to higher revenue from Capital Formation, Global Solutions and insights and analytics and derivatives trading and clearing.
Our increased revenue included $90.8 million in revenue from BOX consolidated in January 2022 and $27.4 million in revenue from AST Canada acquired in August 2021. The increase was partially offset by lower equities and fixed income trading and clearing revenues due to lower trading volumes on Toronto Stock Exchange, TSX Venture Exchange and Alpha. Excluding revenue from the consolidation of BOX and last year’s acquisitions, revenue was down slightly 1% from the first 9 months of 2021. On an adjusted basis diluted earnings per share was $5.38 in the first 9 months, a 1% increase from 2021. Our total operating expenses increased 24% compared to last year or 4% when excluding expenses related to BOX, AST Canada and Trade Signal.
Now looking back on 2021, this was a banner year for Canada’s public markets and a record setter in terms of some of TMX’s key performance measures, including deal-making activity and new listings on our equity markets. And it helps to frame the context for our results for the first 9 months of this very different year. TMX’s diverse business model has again generated positive results in the face of persistent and multifaceted challenges, and we remain committed to executing our adaptive long-term strategy no matter what the markets throw our way.
So moving now to our business areas, revenue from capital formation in the first 9 months of 2022 was $199.7 million, a 5% increase from last year, reflecting the inclusion of revenue from AST Canada and higher revenue from sustained listing fees. Partially offsetting this year-over-year increase was lower revenue from additional listing fees due to a decrease in the number of financing transactions and dollars raised on both TSX and TSX Venture. Capital raising conditions in 2022 for our issuer clients here in Canada and markets around the world have been weakened by inflation concerns, rising interest rates and increased volatility. And again, the context is important. Because from a global and a competitive perspective, the truth is that even in difficult conditions, we continue to stack up very well next to our peers thus far into 2022. Despite being the tenth largest market in the world, TMX Exchanges ranked number two in new listings and number one in new international listings amongst global exchanges through June 30, according to data from the World Federation of Exchanges. And that pipeline for new issuers remains strong.
Our TSX and TSX Venture business development teams are directly engaged with the deal-making community and go public prospects in all sectors, and we are confident that companies currently on the sidelines will come to market as conditions normalize. And as always, at all times, we’re focused on the global expansion of our listings franchise. We are active in target areas around the world, including the U.S., Europe and South America and specifically in regions with financing gaps that Canada’s Capital Markets can address and growth companies that fit the profile of our markets – last month, we added a full-time presence in Dallas and we are currently on a 6 city roadshow focused on establishing new U.S. based founders in TSX Venture Exchange Signature Capital Pool Company program.
We are teaming up with a number of our capital markets partners on this initiative aimed at connecting Canadian deal makers with U.S. private companies and introducing U.S. deal makers to establish CPC founders. The CPC program is the number one vehicle for new venture listings to enter our market. And effective at the beginning of last year, we made a number of changes designed to enhance this program by increasing flexibility, reducing regulatory burden and improving the overall value proposition. These changes have been well received and the results from it are impressive.
Since these changes came to effect on January 1, 2021, we have added 145 new capital pool companies, including 57 new CPCs through the first 9 months of this year despite the capital raising headwinds. Along with our efforts to promote our two-tiered growth platform beyond our borders, we are also taking important steps to ensure Canada’s public markets remain the most viable, efficient path for success for emerging companies in the future. And as such, this summer, we launched TSX Ventures Venture Forward initiative, an initiative designed to find collaborative ways to strengthen Canada’s public venture market.
As with all of our stakeholder engagements, it starts with active listening, and the program kicked off with a survey of our broader venture community to help us zero in on the current challenges, friction points and barriers to success. And the response to this first phase of venture forward has been tremendous, with feedback from over 500 constituents, including entrepreneurs, investors, financiers, lawyers and advisers. This type of feedback is invaluable to TMX as we work to push the evolution of our marketplace, helping to fuel positive changes that we can implement at the exchange level, but also to inform our advocacy efforts with regulators and policymakers. And as we analyze the findings now, we would intend to publish the highlights, including priority areas for improvement and plans by the planned next steps by the end of next year.
Now turning to derivatives. Excluding BOX, revenue from Derivatives trading and clearing was $106.8 million in the first 9 months of 2022, a 2% increase from last year, driven by a 13% increase in revenue from CDCC due to higher repo dealer activity and fee changes. The increase was partially offset by a 2% decrease in revenue from the Montreal Exchange, reflecting termination fees related to a market-making program and a retroactive client billing credit as well as impacts from product and client mix.
Total volume increased 3% over the first 9 months of 2022 and we are encouraged by the continued strong growth in the open interest this year, up 21% as of September 30 compared to that same point of last year. And now while volatility was a prevailing factor in the day-to-day equities and fixed income markets in the first 9 months of this year, investors increasingly turn to derivative instruments to actively manage risk in their portfolios. Through 9 months, volumes traded and equity options on MX grew 20% over 2021, led by increased trading in the energy and financial sectors by both institutional and retail investors.
Volumes in ETF trading led by the broader index as well as energy and financials were 32% higher overall compared to the first 9 months of last year. In July, MX actually reached a new record in open interest in ETF contracts of 4.3 million contracts. Trading index futures has also been an area of strong growth in 2022, up 17% in total volume versus the first 9 months of 2021. And activity in MX’s recently added Government of Canada bond futures contracts continues to grow as these new products gain traction with global investors.
Volume traded was up 34% in the CGF or 5-year contract and 169% in the CGZ or 2-year contract compared with the first 9 months of 2021. And last month marked a 1-year anniversary of a significant milestone in our global expansion efforts, the launch of trading on Asia-Pacific hours and the availability of MX products during these business hours across global investment hubs to help attract liquidity into our market over the long term. Trading in the overall extended hour session during the first 9 months of 2022 made up approximately 5% of MX daily total daily trading volumes. But it’s important to note that the volume trends in core products have often mirrored what we’ve seen domestically. Strong growth in activity in bond and index futures, somewhat offset by lower trading in the back, our signature short-term interest rate contract due to volatility uncertainty in the short-term rate environment.
Now the anniversary of extended hours coincided with the TMX business development campaign in both Sydney and Melbourne, Australia. – promoting Canada as a premier investment for pension funds and investment managers in the APAC region, including the Australian super fund industry. Our first in-person visit in a number of years, Canada story was extremely well received in our meetings, our engagements and our events. And it should come as no surprise.
Our capital markets are like in many important ways. Canada and Australia are both globally recognized leaders in natural resources and mining. In fact, we currently list 22 Australian companies on TSX and TSX Venture, mostly in the mining sector. And while each of our economies has pronounced strength in traditional sectors, our countries are also home to some of the best and brightest technology talent in the world and a new wave of tech entrepreneurs. So we look forward to continuing to build our relationships there and exploring future opportunities for Canada’s markets and TMX in the region and around the world.
Now moving now to Trayport, revenue in the first 9 months of the year was $116.6 million, a 4% increase from 2021 or 13% in common currency, pound sterling. Higher revenue was driven by a 17% increase in trader subscribers, annual price adjustments and consultancy revenue. And Trayport’s core network featuring a depth of trading tools, insights and solutions continues to provide valuable client support through the sustained period of volatility thus far in 2022. And demand has continued to grow as new market participants seek access to execution venues and clearing houses across key power and natural gas markets, Trayport has added more than 50 new clients in the last 12 months in core and new growth areas of the business.
Trayport has also made progress on its global diversification strategy, pursuing opportunities to move into new asset classes and geographies. And we have seen some traders aggregating North American markets for the first time and increased engagement from U.S. market participants as they actively seek to access European power and gas markets. And we continue to work closely with on developing the voluntary climate marketplace and building liquidity in the physical voluntary carbon market. We added several new build clients for the TV CN platform during the third quarter.
Now in closing my remarks today, I want to acknowledge a very proud milestone for us. Earlier this week, we celebrated the 150th anniversary of Toronto Stock Exchange. And the history of TSX is closely linked with the formative steps of our country. Many of the companies that built Canada’s infrastructure, railways, manufacturing, resource exploration, communications, raise the capital to run their business via Toronto Stock Exchange. And Canadian companies continue to make history.
Our interconnected ecosystem helps pave the way for homegrown and increasingly global corporate success stories across a range of sectors from oil and gas and mining to financial services and technology. This is a powerful and proven diverse and ever-evolving growth engine. And while we are proud of our history, we are continuously driven to make markets better. We never lose sight of the importance TMX rule has at the center of the market and what public markets mean to the country’s ecosystem, the economy and the people in our communities from coast to coast. TMX is committed to working with our vast group of stakeholders and help push the evolution of our capital markets ecosystem and to ensure we maintain our competitive edge in the future. It’s a responsibility that we all embrace. And with that, I want to sincerely thank our people for bringing TMX’s corporate purpose to life and the work they do every day striving to make markets better and empower bold ideas.
With that, let me turn the call over to David.
David Arnold
Thank you, John, and good morning, everyone. Our third quarter results continue to demonstrate our resiliency in these challenging conditions. Overall, revenue grew by 16%, including increases across all of our business segments. Revenue excluding the Boston Options Exchange or BOX for short, which we consolidated on January 3 of this year, and AST Canada, which we acquired on August 12, 2021, remained unchanged compared with last year.
Our cost increases this quarter came in well below the current rate of inflation in Canada with operating expenses, excluding BOX and AST Canada, up 5% compared with Q3 of 2021. Year-to-date, when compared to the same 9-month period a year ago, our costs, excluding BOX, AST Canada and Trade Signal were up 4%, reflecting our continued cost discipline. We reported an increase of 7% in our diluted earnings per share and our adjusted diluted earnings per share this quarter, driven by increased income from operations of $15.7 million from Q3 of last year. This reflects an increase in revenue of $38 million, partially offset by an increase in operating expenses of $22.3 million.
Turning now to our businesses, all of our segments continue to deliver year-over-year increases in revenue, and I will start with the business segments that saw the largest year-over-year increases. Revenue in derivatives trading and clearing grew by 88% this quarter compared to Q3 of 2021, driven by the consolidation of BOX’s revenue of $30.5 million included in the segment this year. Volumes on BOX increased by 44% compared to Q3 of last year, and BOX’s market share in equity options grew to 7%, up 2% from Q3 of last year.
Derivatives trading and clearing revenue, excluding BOX was down 4% in the quarter, primarily driven by a one-time reduction in revenue of approximately $4.7 million related to the 5-year Government of Canada bond futures market making termination fees and retroactive client billing credit. These were partially offset by a 6% volume increase this quarter in the Montreal Exchange and positive impact on trading fees on the heels of the pricing changes for our S&P TSX 60 Index Standard Futures or SXF for short, which came into effect in January 2022 and an 11% increase in revenue from CDCC due to higher volumes, increased repo dealer activity and interest rate derivatives clearing fee changes, which also came into effect in January of this year.
Turning now to capital formation, revenue grew by 4% this quarter, primarily due to the inclusion of revenue from AST Canada, which increased by approximately $6.3 million. Excluding AST Canada, revenue in the quarter decreased 7% in capital formation primarily driven by lower additional listing fees, reflecting a decrease in both the total number of financings and total financing dollars raised on TSX and TSX Venture as well as a decrease in initial listing fees. The decrease in initial – the decrease in additional listing fees resulted from a decrease of 18% in the number of transactions billed below the maximum fee, partially offset by an increase of 4% in the number of transactions billed at the maximum listing fee of $250,000 this quarter versus Q3 of last year. Sustaining fees increased by 4%, reflecting an increase in the market capitalization of issuers at the end of last year over the prior year.
Other issuer services, excluding AST Canada increased by 13% in the third quarter compared to last year, driven by higher net interest income and partially offset by lower transfer agent fees and corporate trust revenue. Revenue from our Equities and Fixed Income Trading and Clearing segment was up 4% in the quarter. Within this segment, Equities and Fixed Income Trading revenue increased 9% compared with Q3 of last year. Despite an 8% decline in the overall volume of securities traded on our equity marketplaces, our results reflected both the favorable mix among our trading venues and a favorable product mix within TSX in addition to the impact of price changes on continuous trading for securities if the share price below $1, which came into effect in April earlier this year.
While trading volumes on TSX securities increased by 9% in the quarter, volume on TSX Venture Exchange and TSX Alpha exchange decreased by 36% and 22%, respectively, when we compare it with Q3 of last year, which is why our overall volume of securities traded on our equities marketplaces was down 8%. However, we saw gains in our combined market share this quarter, which was up 1% for TSX and TSX Venture-listed issues and up 6% in all listed issues in Canada compared to last year.
On the fixed income trading side, revenue increased versus the third quarter of last year, reflecting higher activity in Government of Canada bonds and swaps. Revenue from our CDS business was down by 1%, reflecting lower issuer services and corporate action revenue, partially offset by higher revenue from custodial fees and standby liquidity facilities compared with the third quarter of last year. Revenue in our Global Solutions, Insights and Analytics segment was up 2% over Q3 of last year, with an increase from TMX data links, slightly offset by a decrease from Trayport. Revenue from Trayport was down 1% in Canadian dollars, though up 11% in pound sterling due to unfavorable FX impact of $4.5 million. Our 11% increase in pound sterling was driven by a 16% increase in trader subscribers and annual price adjustments. Revenue in our TMX Data Links business, including co-location, grew 5%, driven by an increase in data fees, co-location, benchmark and indices and the impact of a 2022 price adjustment, partially offset by decreases in revenue from lower usage-based quotes. There was a favorable FX impact of approximately $0.9 million from a stronger U.S. dollar this quarter, compared to Q3 of last year. The average number of professional market data subscriptions for TSX and TSX Venture products decreased by 3% in the quarter compared with last year, where subscriptions on the Montreal Exchange were up 4%.
Turning to our expenses. Operating expenses in the third quarter increased by 18% compared to Q3 of last year. Included in this increase are the costs associated with Box, which we now consolidate as well as AST Canada. These costs include AST candidate integration costs, amortization of acquired intangibles for AST Canada and Box and costs associated with the transition services agreement with AST, all of which, in aggregate, was higher by approximately $16.6 million in Q3 of this year. Excluding the aggregate amounts of the expenses associated with BOX and AST Canada, this translates into a year-over-year increase of 5% in operating expenses compared with Q3 of last year. The higher expenses reflected higher headcount and payroll costs as well as increased expenses for travel and entertainment and IT costs related to software licensing, server, cloud and professional services. These increases in costs were partially offset by lower short-term employee incentive plan costs and lower legal and consulting fees.
Our integration of AST Canada continues to progress smoothly. We continue to expect total revenue and expense synergies of approximately $10 million, which will be substantially achieved by the end of 2024. By the end of this year, we expect total revenue and expense synergies to reach at least $3.5 million. For the 9 months ended September 30 of this year, we have realized approximately $2.7 million of those synergies. As we approach the end of our 16-month integration efforts related to AST Canada by December 31 of this year, we have lowered our estimation of the total costs by $2 million to approximately $18 million. The transitional services agreement with AST for the 12-month period from August 13 last year to August 12 of this year concluded on schedule and ahead of budget. Looking at our results sequentially, revenue decreased by $16.8 million from the second to third quarter of this year. This was due, first, to a decrease in Capital Formation revenue, primarily driven by lower additional listing fees and other issuer services revenue. Second, a decrease in equities and fixed income trading revenue; and third, a decrease in derivatives trading and clearing revenue, excluding BOX, which was primarily driven by a one-time reduction in revenue related to the 5-year government of Canada Bond Futures market making termination fees and a retroactive client billing credit I referred to earlier.
And finally, lower GSIA revenue due to the decline of the sterling compared to the Canadian dollar. Operating expenses in Q3 this year were down $3.6 million or 2% from Q2 of ‘22 – sorry, from Q3 of 2022 – Q2 of 2022, reflecting a decrease of $1.4 million relating to AST Canada integration costs and $0.6 million in TSA costs in Q3 compared with Q2 of this year. There were also decreases in revenue-related expenses, director fees and consulting fees. These were partially offset by increases in headcount and payroll costs, technology spending and legal fees.
Turning to our balance sheet. In the 9 months leading up to September of this year, we spent $73.7 million repurchasing $555,000 of our common shares under our normal course issuer bid program. Our debt to adjusted EBITDA ratio was 1.7x at the end of the quarter, and we also held over $480 million in cash and marketable securities at the end of the quarter, which was about $275 million in excess of the $205 million we target to retain for regulatory and credit facility purposes. Last night, our Board approved a quarterly dividend of $0.83 per common share payable on November 24 to shareholders of record as of November 10. In the third quarter, we paid out 49% of our adjusted earnings per share, which is within our target payout ratio of 40% to 50%.
That now concludes my formal remarks, and I’d like to now turn the call back to Paul for Q&A.
Paul Malcolmson
Thank you, David. Michelle, could you please outline the process for the question-and-answer session?
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] Your first question will come from Nik Priebe of CIBC Capital Markets. Please go ahead.
Nik Priebe
Okay. Hi, good morning. Earlier this month, President Biden had instructed the Attorney General and the Secretary area of Health and Human Services to review the classification of cannabis under the Controlled Substances Act. So I just wanted to revisit that in a scenario where cannabis were eventually descheduled and legalized at the federal level, can you remind us of the stance that you took towards listing cannabis companies with U.S. assets? And maybe just help confirm that that event could make those companies eligible for TMX listing? And then secondly, if that were to happen, do you feel that you’d be able to appeal many of those issuers away from some of the smaller listings venues that they have migrated to?
John McKenzie
Thanks, Nik. That’s a great question to kick off with because I like the global context you put it in. So I will, as a part of the reminder, remind folks that we’ve been active in this sector the entire time, and we actually do list some of the largest cannabis companies in the world like Canopy and others that are licensed health Canada cannabis providers. Certainly, the analysis would be that if the U.S. was to deregister this as a scheduled narcotic that, that would pave the way for listing on global exchanges. There would be some technicalities we would need to work through because it really is the challenge of the laws that affect things like anti-money laundering, cross-border financial transactions that we would need to get confirmation on for both ourselves and for the participants of our ecosystem that rely on us to vet the companies. So those are both important pieces. But the general expectation is we would see that as positive towards being able to list more of these companies within TSX and TSX Venture.
In regards to the business development efforts, that’s actually something we do actively in general across all sectors. So we do look at companies that are listed on other marketplaces and as they grow and expand and they actually meet the conditions for listings on TSX or TSX Venture, be it a regulatory condition like this or even if it’s a condition in terms of size or scope of their business, we do active business development with them so when they are ready to raise capital again, we can transition them over to a TSX or TSX Venture listing for their future growth. So that would be absolutely consistent with our existing practices.
Nik Priebe
Okay. That’s good color, thank you. And then a second question, just with respect to Trayport, are you able to give us your real-time read on the general health of Trayport clients? And maybe your outlook for subscriber growth in the context of ongoing dislocation in European energy markets, like do you see attrition in that subscriber base as a risk over the next 12 months?
John McKenzie
We certainly see it as a risk, but not a material risk. And if you see the impact of the volatility in the market, it’s been a net positive for the Trayport business because Trayport is really the one place where a trader can get the full access to the debt of liquidity on multiple venues. And that’s been the strength in terms of adding, as I said earlier, kind of 50 new clients over the year this year. Now that being said, we have had a broker termination in terms of their own health. And so there were some broker – you’ll see that in the stats in terms of kind of the broker subscribers numbers that are down slightly in the quarter. That was an offset, and that definitely is a health piece. But we don’t look through to the health of the actual individual participants because remember, we’re not a clearing house. So we’re not looking to their balance sheet or to their overall cash flow thesis like that. So I’d say that the business has held up fairly well and that the organizations that have weathered this continue to do so with success – and then with a Trayport subscription because it’s so critical to the nature of their business, I’d like to think of it as kind of the last thing that goes in terms of the things that they need to run their businesses. So it is certainly a risk. It’s something that keeps us up at night. But in terms of material impact for the business going forward, we don’t see a concern there.
Nik Priebe
Yes. Okay, that’s very helpful. That’s it for me. Thank you.
John McKenzie
Thanks, Nik.
Operator
Your next question comes from Etienne Ricard of BMO Capital Markets. Please go ahead.
Etienne Ricard
Thank you and good morning.
John McKenzie
Good morning, Etienne.
Etienne Ricard
BOX has experienced meaningful market share gains in recent quarters, could you share a few details on what’s been driving this trend? And more broadly, how does BOX differentiate itself from exchanges owned by larger U.S. operators such as the NYSE and NASDAQ?
John McKenzie
It’s going to be simplistic for me to say that it is really around client experience and client engagement, but it essentially is the BOX model, the BOX design has been worked closely with key order providing clients to meet their needs. So we’ve got clients that are strong supporters of BOX that are adding more business to it as we demonstrate through BOX that it actually can meet their trading needs. And so you’re seeing market share expansion both in the continued trading activity and also, quite candidly, even in the trade floor facility that BOX launched a couple of years ago, which provides the opportunity for more complex trading. So that’s a couple of pieces there. It really is focused on those unique client needs. And I think it’s actually a testament to the Box team that because the smaller, more nimble, they can focus on unique client needs to provide that superior service, and that’s why we’re seeing the response in terms of more trade flow going to it.
Etienne Ricard
Now as it relates to pricing, the capture rate at BOX declined in Q3 in a period where the market share improved materially, is there a correlation between pricing and market share at BOX?
David Arnold
Hi, Etienne, it’s David Arnold here. It’s primarily client mix. It just depends on the volume and different client pricing. So, as we have said before, we don’t actively manage on the day-to-day affairs of the Boston Options Exchange. It’s a technical accounting consolidation. So, there is independent management, independent Board. But as we talk to them, when we analyze the results this quarter, it’s really driven by client mix.
Etienne Ricard
Right. So, I assume there would be a performance – a volume performance incentive.
David Arnold
I wouldn’t say it’s a volume performance incentive. It’s primarily client mix and just depending on which clients trade, which parts of the volume drives the revenue number and capture rates, much like we see on the Montréal Exchange as well.
Etienne Ricard
Understood. And on AST, it’s been a year since closing. Could you share how the integration process is going, where the business has delivered on synergies and where you see potential for improvement?
David Arnold
Yes. I think if you are referring to our acquisition of the AST Canada business and when we merged it with our TSX Trust business or our TMX Trust business. So, this is one of those proud moments for us. We have demonstrated yet again an ability to acquire an asset at good value, but then also integrated expeditiously, right. And we are down to the final stretch here. We have got two more remaining cost kind of synergy pieces to handle this year, which is the migration of all of our AST Canada employees to our TMX employee offices in Toronto and in Montréal. And we hope to have that done by December 31st. The benefit for us by getting this done obviously is higher expense and/or revenue synergies, as we mentioned. We have declared that we are going to beat our original estimate of $8 million, by about $2 million. In addition, we have been able to through the acceleration of our program and record more synergies this year than we had originally anticipated in that $8 million analysis. So, a proud moment for us. It’s really one of those things that gives us confidence as we look at other opportunities to tuck-in businesses and acquire.
Etienne Ricard
Great. Thank you for your comments.
Operator
Your next question comes from Geoff Kwan of RBC Capital Markets. Please go ahead.
Geoff Kwan
Hi. Good morning. Just had a question on BOX, the net profit margin, I mean I think it’s stayed pretty consistent so far this year on a quarterly basis, kind of mid-50s to low-60s. Is that the case of how Q4 performs – or is there some sort of seasonality, because I think you have talked about the loan, it’s largely a fixed cost business.
John McKenzie
Yes, very much like the rest of – like similar to the Montréal Exchange or other parts of TMX, BOX, off rates from a largely fixed cost platform. And we don’t actually – I know you are able to construct it, but we don’t actually disclose specific margins with BOX. It is a privately held company and some of that would be proprietary. But your assumptions in terms of how to think about the leverage in the business are exactly right.
Geoff Kwan
Next question was just on kind of how you are thinking about expenses in the current market environment in terms of the puts and takes, stuff like inflation and impacts on compensation, hiring appetite? Are you managing expenses maybe a little bit more closely just in light of, again, the current market environment?
David Arnold
Hi Geoff, it’s David. It’s pretty much – it’s same old. It’s – we have done a really good job this year as we have done throughout the history of our business of managing our expenses to below the rate of inflation, right. And so this year running at around 4% for the first nine months is, in our view, a really good testament to our discipline. As we look forward to next year, it’s going to be a bit challenging. We are starting to see some vendors due to either supply chain or their own cost of human capital or raw materials talk to us about percentage increases that are a little higher than we would like. But that’s part of our opportunity to manage with them, either extending term, finding other ways to negotiate better terms or maybe even suspend some services. So, we are busy forecasting and budgeting for next year. It’s one of the things that we are paying a lot of attention to. Because as you would appreciate, right, our ability to pass it all on in terms of price increases to our clients is more limited. So, that’s the perspective I will give you. John, do you want to add something?
John McKenzie
Yes. I want to make sure I add a couple of points there because we are – as David said, we are continuing to manage cost very disciplined. But what we are not looking to do is to restructure, pull back. The business is performing well, and we are still in a position where we are positioning the organization for future growth. And so that’s a really important piece. It’s different. It is a market where hiring takes more time. It can be more challenging given the tightness of the labor market. But we are actively still looking for investment opportunities to grow the franchise. So, we will be very disciplined in terms of containing those kind of core operating costs, but do not be surprised if we look to invest if we can accelerate growth and we can explain to you where it’s going to come from.
Geoff Kwan
Okay. That’s helpful. And just one last question. Just any update kind of like the M&A environment, asking prices becoming more reasonable, that sort of thing.
John McKenzie
Yes. Actually, we are starting to see that and we are actually seeing assets that we engaged on in the past that are coming back, and then we are getting new opportunities to engage with. So, similar to as we have talked in the past, we are looking at investment opportunities primarily in the spaces of data, data analytics, things that we can both expand or tuck in to data links or Trayport and also services that we can support our issuer base with. So, the strategic lens that we are looking at things in, haven’t changed. And certainly, we are getting better dialogue with potential sellers on valuation that makes sense. And this is the – we will call it the silver lining in terms of the interest rate environment is at that kind of easy free money that’s been in private equity for so long has gotten more expensive. So, that is leading for more constructive discussions on things we can do. So, we do have active dialogue, but anything we execute on has got to be fit with the strategy, accelerate the business and add a valuation that makes sense or providing value for our shareholders at the same time. So, none of those metrics will change.
Geoff Kwan
Alright. Thank you.
Operator
Your next question comes from Jaeme Gloyn of National Bank. Please go ahead.
Jaeme Gloyn
Yes. Hi. Good morning.
John McKenzie
Good morning Jaeme.
Jaeme Gloyn
First question is just in terms of some of the pricing initiatives that could be coming down the pipe at some of the recent conferences you have been talking about things around. Listings fee schedules, I m just wondering if you had any color around timing or magnitude or anything you can share on that front at this point?
John McKenzie
Yes. So, I am not going to be able to share timing or magnitude because those are – they are commercially sensitive in terms until we actually move through the process and have the ability to inform clients. But will confirm for you that it is active and ongoing and be able to expect to share more with you probably later this year.
Jaeme Gloyn
Okay. Great. And then second question is just around Trayport’s expansion into North America. I had some conversations a few months ago. I just wanted to get a refresh as to how that progress is unfolding, both in Canada and in the U.S.
John McKenzie
Yes. It’s actually continuing to unfold quite well. I mean we are still in the early stages of that development. But in terms of the revenue that we are generating out of the U.S. operations, I don’t sure if we have shared this with you before, Jaeme, but when we started doing this, we were doing kind of £1 million a year in terms of run rate revenue, that’s more like 4 to 5 now. It’s both a combination of kind of what I will call on-the-ground operations in North America, but also providing access for North American clients to get engaged and involved in the European trade. We are getting rolled out in terms of the screen and trader penetration with our partnership with Nodal. That’s been a key piece of the building block. But we have also got at least two new liquidity provider participants now engaged in the platform. One of them is a broker who is going to bring more oil trading and we are working on that actually build out with them now. And we have also got another broker that will bring other types of energy across the sector, power and gas. And we have got one of our first hedge funds signed up to trade with us in North America. So, that building block piece is gathering steam. Our business development efforts, which is led by Brenda Cunningham [ph] is bearing fruit. And this is a piece that we do believe is going to be part of our long-term growth success for the franchise. But I always want to caution people that it’s hard to give a lot of update quarter-to-quarter because these are our long-term builds, but we are pretty positive about what we are seeing so far.
Jaeme Gloyn
Great. Thank you very much.
Operator
[Operator Instructions] Your next question will come from Graham Ryding of TD Securities. Please go ahead.
Graham Ryding
Hi. Good morning.
John McKenzie
Good morning Graham.
Graham Ryding
Just staying with Trayport, we are seeing total subscriber growth down slightly year-to-date, but then trader subscriber growth is quite strong. Why the divergence there?
John McKenzie
Yes. That was what I was alluding to that a bit a little earlier on. So, the divergence there has to do with really two distinct activities with respect to some of the broker clients. So, as I said in my earlier remarks, we have actually added 50 new clients this year to the platform in terms of trader clients. So, we are continuing to see that trader adoption, trader expansion. And I think as we have talked about in the past, when we get new clients often when we renew those clients, they expand their seat counts and usage through their shops. So, that’s all been very positive. The offsetting piece in terms of the kind of the venue subscribers is two pieces. We did have a broker consolidate one of their desks. So, we have operated multiple desks in the same sector and chose to consolidate one. That was basically a technical reduction in terms of the number of subscriber counts in that space. And we did have, as I indicated earlier, we won one client with an insolvency challenge. So, we did have a broker client that left the platform, and there was some count there that went away. So, in both cases, none of those were actually material revenue impacts for us. And really reflects some of the challenges in the European energy marketplace that we have talked to and some of that dislocation. But the real strength and why we have always indicated the biggest indicator of revenue growth is the trader subscriber, as you can see that, that adoption continues to be really, really strong.
Graham Ryding
Okay, understood. Jumping to Trust, total TSX Trust revenue, I think was down $3 million quarter-over-quarter. Despite the fact that we see low interest rates continue to push off, which I thought would have sort of supported higher margin income. So, maybe you can just talk through what is – what the puts and takes are there?
David Arnold
Yes. It’s – Graham, it’s David. It’s a normal story for us when you look at Q3 versus Q2. Effectively, what’s happening is it’s the seasonality, a lot of activity in Q2 for AGMs and the like, and then obviously, a slight slowdown in Q3.
Graham Ryding
And how sensitive is trust revenue to sort of more transactional-based activity as opposed to how much of it would be fairly consistent and recurring?
David Arnold
Yes. So, on the transfer agency side of it, it’s recurring, right, as you would typically expect. But when it comes to some of the corporate actions, those obviously are sensitive to what you see happening in the capital markets arena, right. So, there is a knock-on effect. And obviously, if there is less initial listings or IPOs, that obviously translates into a little less transactional activity for trust. John, do you want to add anything?
John McKenzie
Yes. Just – I am going to give you some kind of guideposts here and use these as more of general indicators because it will depend on the year and the activity levels. And certainly, this is a year where corporate action activity is down versus the previous year just like it is with financing. But in general, prior to when we acquired AST Canada, about 40%-ish of our TSX Trust revenue would be that recurring revenue subscription-based revenue, the remainder would be more transactional. And one of the additional benefits of moving into AST Canada with the larger client bases with larger actual recurring revenue contracts is that we have actually moved that metric from about 40% to more like 60%. And so that was part of the deliberate kind of up-scaling of the clients we can serve that they actually get into stickier revenues. So, that’s been the trend as we get this integrated that we are moving from about kind of 40% recurring to 60% in that business.
Graham Ryding
Okay. That’s helpful. David, on the synergies that you are – you have increased your target from AST, I guess what’s driving the higher synergy forecast? And are you seeing any revenue synergies yet?
David Arnold
So, we typically don’t split out the two, but what is driving the higher forecast for this year is more expense synergies, primarily driven by some of the real estate consolidation activities that we have been able to accelerate. And yes, more of the revenue synergies are in the tail end of the window moving towards 2024. Hopefully, that gives you enough, Graham?
Graham Ryding
Yes. And one last if I could, just any visibility on what sustaining fees could look like next year, assuming that this level of market cap would maybe be where we finished the year at?
John McKenzie
Yes. You have got a number of competing factors in there, and we are looking at the same thing at the same time. So, market capitalizations in the senior market, on average, I think are in total are down about 8% year-over-year, which would have an impact on it. It’s going to be a question of the mix in terms of how many of those are actually already at the cap versus how many are not, and that’s something that we will look to closer to the end of the year. But as Jaeme indicated earlier, this is something that we are looking at for potential price changes for next year that could potentially work to offset some of that impact should market capitalizations remain where they are. So, this is a thing we will certainly be able to give you much better guidance on in the next quarter.
Graham Ryding
Okay. That’s it for me. Thank you.
Operator
At this time, there are no more questions from the phone lines. I would like to turn the conference back to your hosts for closing remarks.
End of Q&A
Paul Malcolmson
Thanks Michelle and thank you everyone for tuning in today. If you have any further questions, the contact information for media as well as for Investor Relations is in our press release, and we would be happy to get back to you. Stay well and safe, everyone.
Operator
Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everyone for participating and you may now disconnect your lines.
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