All right. Good afternoon, everyone. My name is Scott Fletcher, and I cover the diversified financials for CIBC. Our next presentation is TMX Group, and joining us today is David Arnold. David, thanks for joining us today.
Thanks, Scott. Pleased to see you in person.
Yeah. At CIBC, we just relaunched coverage of TMX relatively recently, within the last month, and looking forward to getting a chance to discuss the business with you today. I want to start big picture. Over the last decade, TMX has really evolved into a broad market infrastructure business that crosses equities, derivatives, trading and clearing, market data, indexing, capital formation, and corporate solutions. A lot under the hood now. As you look across the organization today, where do you think that the evolution of the business is most visible? What do you see as the next steps on the TMX journey, given you've got a lot now in place?
Yeah, there's a lot to unpack there, Scott. Let's start off on the first wide. You're right, we have evolved. The journey's not complete.
We set out some long-term aspirational, transformational measures. The first was really to have recurring revenue be about 2/3 of the revenue pie. We are not there yet, so there is a way to go there. We obviously were very much Canadian-centric, less of a global market infrastructure player. We really wanted to evolve to more of a global information business. We set an aspirational goal to get about 50% of our revenue from outside of Canada. The third objective was really for our Global Solutions, Insights and Analytics business as a global information provider to really be 50% of our revenue. A couple of years ago, we hosted our Investor Day, and we set out a very ambitious TM2X goal. What we basically said to everyone was, it took us 14 years to go from CAD 500 million in revenue to CAD 1 billion.
We would like to go from CAD 1 billion to CAD 2 billion in half the time. The 2X really speaks to not just the CAD 1 billion times two to two, but also the speed. We want to do everything in two times the speed. Those that picked up on it realized that, well, it took you 14 years to go from a half to one, so I presume you are going to try and do it in seven years or less. We are well on track to achieve that objective.
Right. By my standing, it looks like you are more than on track to meet that target if everything closes as expected with the recent deals. Before I get to the M&A from this year, I do want to sort of come back to recurring revenue, which is something you mentioned in your answer there. Because one of the themes we highlighted in our initiation note was just how much the recurring revenue has increased as a percentage of the business. Can you just walk us through how that is impacting the quality and the resilience of the earnings profile of the business right now?
Yeah, it is a great question, Scott. These are long-term transformational measures, so quarter to quarter, they will fluctuate. We have had a very strong transactional three or four quarters in a row. The Montreal Exchange is predominantly transactional revenue. The trading venue on the Toronto Stock Exchange and the Venture Exchange. We were very clear where we said we want to grow our recurring revenue to 2/3, but not at the expense of the transactional parts of our business. We have actually seen a little bit of a period here where our recurring revenue in absolute dollars has grown leaps and bounds. But at the percentage of the whole firm, it has kind of stayed around 53-ish% . We still have a long way to go to get it to 2/3.
But as I said at the beginning of the answer, I really want to do it with accelerated growth in all parts of the business, which sometimes I have to tongue in cheek say to some of our transactional businesses, keep growing because it is going to force the recurring revenue businesses to work even harder.
Right. That makes sense. I do not think it is lost on anyone that the transactional revenue has really been strong in the last few quarters, and the markets have supported that.
Absolutely.
Your business is going to benefit from strong markets. But I think that is a good segue into M&A, and TMX has been extremely active, I would say, in the first portion of 2026 so far. Three significant deals. Can you just walk through how M&A more broadly supports the strategic plan, and what criteria you are using to evaluate potential transactions?
So everyone from the board, the senior management team, our CEO, John McKenzie, we do not have an M&A strategy, Scott, to really kind of put a fine point on it. We have an enterprise growth strategy for the firm, and one of the ways we like to accelerate that strategy is either fueling organic growth or partnering with key market participants to actually fuel the growth or fuel it via inorganic growth. And we happened to announce three meaningful transactions. Some have closed, some are still to close, in the first half of the year. So it looks kind of busy. And mainly the reason they are getting a little bit of a profile is because some of them are going to result in our leverage growing between 1.5x and 2.5x , and just a little north.
Whereas we have actually been very diligent in acquiring businesses to help accelerate the growth over the last three or four years. They just have not obviously moved the needle other than three-ish years ago, we acquired the VettaFi business in the U.S. to really help accelerate our index and benchmark work. So, the disciplined approach to it is all of them are going to be accretive within the first year without factoring in synergies. It is an advantage to us that our CEO is the ex-CFO. So for myself sitting down with him as we evaluate the financial metrics, he gets it all right off the bat. And so we have a very disciplined board as well that are keeping our feet to the fire to make sure that these are strategy accelerants, and not just acquisitions for the sake of an acquisition.
Right. And on that vein, when I am thinking about M&A, sometimes you need to think about how a certain deal balances financial returns, but also strategic fit and then integration capacity, which I think is particularly relevant for you right now. So how do you balance those three sort of pieces when you are looking at potential deals?
You have actually nailed it, Scott. That is a lot of what we spend a lot of time talking about is, which parts of the business is this helping accelerate growth? Can we actually manage that? I wish we could put out press releases for the things we walk away from. People would understand the disciplined approach that we have. So if I unpack the three, Cboe Australia and Cboe Canada. Cboe Australia, it is more of a we are taking on all of the staff, including the technology team, and that is more of a technology build on the TMX stack. And that obviously has closed already, so we are now well into the transition services agreement. The technology build won't take us as long as industry testing will, and that is why we have a good transition services agreement with Cboe.
Cboe Canada is still undergoing Competition Bureau review and the Ontario Securities Commission, so we are participating in that process, and we will follow that process. But at least then the technology piece of that will be slightly easier than the Australia piece, so it will not be as taxing. The VettaFi acquisition of Refi indices is very much contained to the VettaFi team. Last but not least, the BOX and MEMX coming together, which we announced. That is really going to be first a merger of those two businesses, less so a drain on TMX. So when you unpack it all, you realize, wow, this is actually not a drain on all parts of the organization in equal kind of measures.
I think that is one thing that stood out to me is if you take the time just to look through both the impact on leverage and the impact on the business, the way that the deals will close will sort of give you that flexibility, whether it is from capacity or from both operational and financial capacity.
Absolutely right.
I want to dig into some of those deals and talk a little more in-depth. I will start on the indexing side. VettaFi, you acquired in 2024 in sort of the largest stake. VettaFi has since become an increasingly important part of the TMX Group strategy. It has been standout performer, I would say. What has impressed you most about the business after you bought it, and where do you see the biggest opportunities ahead for it?
I think the most important thing for us with our VettaFi team is the talent. We obviously have a longstanding relationship with S&P as our kind of benchmark index and benchmark provider, but we have a lot of client demands for more thematic and bespoke indices. This was an opportunity for us to fulfill that demand without taking too much time. Scott, you know the story, right. We originally were going to build it. We then had an opportunity to partner with VettaFi, by taking a minority stake. Then we had an an opportune moment in the market cycle to put a bid to own the entire business. When we did that, we had a couple of board seats during that 20% ownership stake, and John, our CEO, would come back from board meetings.
He would say, "I'm most impressed with the quality of the talent over there." That, I think, was a very, very attractive part of that, and that they are really, really skilled at what we would call the tuck-in of indices, right. So a small index and benchmark provider in a different theme, whether it be nuclear or robotics, is taking on those assets under index, retiring the legacy index calculation engine, and moving on to our own proprietary software, which is our Index Factory. That, I think, is why the opportunity now with Refi is a great opportunity to, once again, leverage that. We will continue, Scott, to do index and benchmark tuck-ins. It is a very, very important part of our diversification of asset classes in the VettaFi business.
Within the indexing business, there is a breadth of tools, whether that's indexing, ETF intelligence, workflow tools for the product. How important is that breadth of ecosystem and what is, from the outside at least, a pretty competitive marketplace. There's a lot of people providing these services.
That actually was a big part of when we initially started off. We looked at a number of index and benchmark businesses, either to partner with or to acquire while we were evaluating building it ourselves. We left many, many of those meetings with the kind of conclusion that it is just a calculation engine, right? There is nothing special there, until we met VettaFi, right? When we did, we realized with etftrends.com, etfdb.com, which are two of the preeminent sites that any ETF investor goes to do research in the U.S., that they have actually got something different. Then they had their podcasts and what they do to help an ETF manufacturer bring eyeballs from the Registered Investment Adviser community, the RIAs in the U.S.
So that really got our attention. I think that coupled now with bringing in the Refi fundamental research-based indices, we have got an opportunity there to not only cross-sell to existing clients, but actually accelerate the growth of that business more so than we were thinking.
You mentioned Refi. Can you just maybe give us a sense of what Refi does differently and what attracted you to the business, and why you think that the two of them together makes a bigger whole than the sum of the parts?
A lot of our underlying cash equities through the existing VettaFi portfolio prior to acquiring Refi were very much based on custom, thematic, and bespoke type indices, so robotics or the AMLP Alerian product, very much concentrated on a part of the kind of energy spectrum. Early on, we said, "You know what? We need to diversify into other asset classes and get more into the kind of basket of cash equities that are listed on the U.S. exchanges." What we really liked about Refi is they don't take the traditional market cap approach. They take a fundamental research-driven approach, so it could be based on cash flow, it could be based on top-line revenue growth to come up with different weightings. It isn't to replace, Scott, the actual portfolio within a client's portfolio, it's to augment it.
The asset manager might say, "I want to put 5% or 10% into U.S. cash equities, but let's put half of it into Refi's fundamental research-based ones, then maybe the other half into the more traditional market cap-based ones, where the weightings would be different." That attracted us to it. I go back to it's when the team got to actually spend time with the people, right? There's a lot of technology in these businesses, but the human capital is the differentiator.
Are there opportunities to combine the intellectual property and the capabilities between Refi and VettaFi?
Absolutely. We're going to run it as one integrated business. We do now have an office on the West Coast. We've actually had staff on the West Coast of the U.S., but they've predominantly worked from home. We now actually have an office in Newport Beach that will be our home on the West Coast, kind of running in parallel with our Vancouver office up in Canada. Yeah, there's opportunities both in terms of simplifying the technology stack, like we're going to migrate the Refi calculation engine onto Index Factory. The second thing is the ability to bring clients to the Refi product that maybe weren't necessarily aware of that product prior to. Because really, the primary would be like Schwab, Invesco, are really big proponents of that.
We have a ton of other asset managers that maybe weren't as aware of the Refi product that we're going to bring to that now.
Well, it's a very interesting piece of the business, so it's good to dig into. Before I move on, just want to ask the audience if there are any questions that you have for David. All right, moving on.
Scott's got lots for me.
I got lots, don't worry. Sticking with the M&A from 2026, I wanted to move on to the Cboe and the MEMX transactions. They're different than Refi in that they're more in keeping with the TMX traditional exchange businesses. Now, there is some nuance to the makeup of the type of revenue that those businesses have. Can you walk us through the rationale for those two assets and how they fit within the broader portfolio?
Yeah. With Cboe Australia, which we have now branded, we have closed on it, so it is TMX Australia Exchange. A lot of recurring revenue over there from the data part of the business. It was something that we had looked at back in early 2020 and 2022, specifically more 2022. We had looked at the Australian market as one where we have a right to play and a right to win. At the time, we identified as well that we really got to get into the index and benchmark space, hence the VettaFi journey. We wanted to build our U.S. ATS. We kind of put it on the back burner, and then when it became evident that Cboe were looking to sell it, we took a long, hard look at that business because there are so many similarities to the Canadian ecosystem.
There are 27-ish already Australian businesses that are listed in Canada. We actually had a business development resource on the ground in Sydney. He now has an office to go to as opposed to working out of his home office. We see lots of opportunity there. Day one, though, Scott, is really about like for like, connecting to the broker-dealer community, helping them get their front-office systems and back-office systems integrated. Thereafter, I think that there is opportunity for us to bring index and benchmark capabilities to ETF manufacturers. There is more work we can do on the data front. Dare I say, the TSX Venture Exchange concept, the junior versus senior, is something that we would love to bring to the Australian marketplace. So we are excited about that. Then the Canadian part of it is we just want to make Canada stronger.
With less participants in the Canadian marketplace makes for a stronger ecosystem. The Canadian banking infrastructure have to connect to a lot of different venues in Canada, so an opportunity to simplify that is actually advantageous to our clients.
On the Cboe acquisitions, it sounds like there is a lot you can import or export, I guess, from the TMX business into them. Is there anything you can import and bring in from those assets into the TMX business?
I think there are a few things, but primarily it's the ingenuity and creativity from the talent, specifically in some of the Canadian business and the Australian business. They were run as small kind of startups, if you will, then were merged into other businesses, MatchNow, NEO, et cetera. We're looking to bring a little bit of that DNA, and infuse it into our market and technology team.
Okay, that's helpful. Then on the MEMX, and I hope I'm pronouncing that correctly.
It's correct.
Okay, good.
Stands for Members Exchange.
There you go. The MEMX investment, it increases your participation in the U.S.-listed options market alongside BOX, where you already had a presence. Is the primary opportunity there to capture additional market share or participate in the continued growth of the overall market? Maybe put more simply, are you trying to get more of the pie or just hope that the pie grows along?
I think it is both. The strategic rationale for this is really about the innovative technology that the MEMX Group have at the core. The Members Exchange is early on in its journey. They have a dynamic management team led by Jonathan Kellner. They have a really good modernized technology stack. It is actually a part of their business, which is being able to sell and license their technology to others. We see this as an opportunity to modernize both the merged entity of both BOX's technology and MEMX's. We obviously would hope and have aspirations that there will be some market share gains, but it is also about being a meaningful player in the U.S.
We have stated very clearly we want to be in the U.S., in North America, specifically the U.S., and with our BOX investment many years ago, that is an investment that we had 50-ish% voting interest, but 48% economic interest. We built our own ATS in the U.S. This is an opportunity for us to actually accelerate the growth aspirations we had in those businesses. Really, it is a case, quite frankly, Scott, of a 1 + 1 might equal 2.5.
A couple points I want to dig into there. On the structural growth drivers of the options market, with BOX, you've been exposed to it. I'm curious what you see as sort of the evolution of that market. Do you think that there's room for that for volumes there to accelerate as the market evolves?
Yeah, if we think about what's going on in the U.S., and you would've seen, we put out a press release from MEMX not too long ago about putting in a prediction market option. Basically a binary option, much akin to what you see on some other prediction markets. But ours is going to be very contained, as Jonathan Kellner put in his press release, to earnings release announcements, and that's very prevalent in the U.S., right? Many of the U.S. companies provide guidance, so you can actually, once they launch it, be able to actually take a prediction market position on whether their earnings will beat consensus or not. And you can actually do that on a listed venue, right? With all of the protections that come with doing that in a regulated environment.
I think the innovation is what we're looking to see come out of the merger of these two businesses.
Just last one on the MEMX. As a majority shareholder in the combined entity, is there any opportunity to leverage their exchange technology? You mentioned that they're a leader, they're licensing that, to leverage that technology or the development capabilities that begat that across the rest of the business? Because it seems like an opportunity.
It is, and you've nailed it. Job one, though, is first Jonathan and his team need to put the two businesses together.
Right.
Their next-gen technology is really attractive to us, and I think there are opportunities for that to be leveraged both into the Canadian operation, but also some of our other U.S. operations, and then maybe even into abroad.
Right. It sounds a bit longer dated, but if you've got high quality talent in tech, you might as well.
Absolutely.
Make the best of it. One question I think I've had come up is when you look at the deals you did in 2026, there's a natural concern or worry that integrating them or integrating three deals at the same time is going to take up bandwidth and maybe draw focus away from the core business. How are you internally managing that integration process?
It's a great question, Scott. Once again, one has to unpack it and really look underneath the hood, right? There, A, some of these transactions have closed, some have not. Refi has closed, and Cboe Australia have closed. The Refi acquisition for VettaFi is pretty much a standalone business unit in our VettaFi business unit. There are parts of that business, whether it be HR, finance, and tech, that support other parts of the business, but they're not actually being drawn upon on that integration. Limited there. Cboe Australia is very much a technology build right now, and that is progressing. Cboe Canada is still under review, both the Competition Bureau Canada and with the Ontario Securities Commission, so we're participating in that process. Then the BOX MEMX one is also under review for SEC approval.
While they were all announced in the same kind of three-month window, the work for integration is going to be spread out over time. They're also in different parts of the business so that they're not as taxing for the enterprise, if you will, at the macro kind of level.
All right. That makes sense. Then each of the announced acquisitions from this year is expected to be accretive before considering any potential synergies. Where do you see the most meaningful opportunities for either revenue or cost savings, revenue uplift or cost savings? Do any of the transactions offer a greater opportunity than maybe some of the others?
Yeah. If one double clicks on it, I think Cboe Australia has more upside than Cboe Canada. Cboe Canada, there will be revenue dyssynergies, right? We have ETF issuers that are given a mandate from their parent that says you should be listed on two venues. Many of which listed on Cboe Canada and on the Toronto Stock Exchange. Obviously they would have to go to another venue. We can't capture that. So that would be a revenue dyssynergy. So yeah, if you were to put those two up against each other, I think there's more opportunity by far for Australia. BOX and MEMX coming together, there is incredible opportunity there for Jonathan and the team. They have great growth aspirations. You've seen what the historical growth of the combined entities have been, in the high teens to low 20s.
Their mission is what can they do to fuel that kind of growth going forward. With Refi, this 3x are assets under index for that business. We continue to look for tuck-ins, but the organic growth engine has continued to do double digits, which has outpaced our long-term guidance, which was high single to double digits.
Okay. Thanks. I want to shift gears and talk about the capital formation business. Despite the diversification of the business that we've talked about, I would say TMX still remains pretty closely linked to the health of the Canadian capital markets. How would you characterize the outlook for capital formation today? What would need to happen for issuance to remain healthy over the near to medium term?
Yeah. Standing back, look, capital formation is roughly, it's not even 20% of our overall franchise, but still very important at roughly 18%. We have seen more IPO activity this year in the first six months than we saw all of last year. It bodes really well for the balance of the year. It is a business that we target high single digit returns. We call it our strong grower business. Obviously, leading up to the first eight months of 2026, we've seen capital raising in Canada really up about 15% relative to the prior year. So, financing's up almost 89% or maybe just shy of 90%, Scott. If the first eight months bodes as a signal for the second part of this year, I think we're going to close out the year very strong.
Okay. Similar to other areas of the business, there's been an introduction of new products and services, whether organically or through acquisition, that have been intended to expand the capital formation opportunity. Which of those initiatives are you most excited about?
We spoke about this at Investor Day. Within capital formation, you've effectively got the traditional Toronto Stock Exchange, the Venture Exchange. We have the normal listings and secondary financing. But we've also got our corporate solutions part of that business, and that historically was really just our trust and transfer agency business. We added in press release capability by adding in Newsfile. That's the part that we aspire to grow to be 50% of the capital formation business, and that's the part of the business that I'm most excited about to see growth. The market sentiment for IPOs and for additional and secondary financings will come, and that's just a cyclical kind of wave. But the thing that we can most directly influence is growing our corporate solutions part of the business.
Okay, thanks. We're getting close to the end of our time here, so I do want to ask a question on the outlook for the industry. As market structure evolves with new developments, whether it's tokenization, extended trading hours, artificial intelligence, a lot of different things happening that TMX could be at the center at, where do you need to invest today to ensure that you remain central to the capital markets ecosystem?
Look, we continue to invest in our infrastructure. As John likes to say, investing in our infrastructure is a run rate exercise. No longer going to be involved in a business where we spend large amounts of CapEx and then have a drought, and then large amounts of tech debt build-up. We're really aspiring to continually refresh the technology stack at TMX, which will also mean, A, less tech debt, B, less spikes in our CapEx, and really kind of keeping it consistent. So that's number one. Number two is really being attuned to what's happening south of the border, Scott.
There's a lot of innovation happening on the U.S. marketplaces, some of which we need to stay in lockstep within Canada, right? Some of the 23/5 trading, perpetuals. We touched on the zero day options, which technically, those that we're going to be doing on the MEMX environment technically aren't allowed in Canada. We would have to go through a regulatory process to see. We want to ensure that we stay lockstep with the U.S. so that liquidity stays where it needs to be, but also making sure that we're listening to our clients in terms of demand. And I'm not quite sure on some of the things that I'm hearing about in the U.S. that are very, very topical. Our Canadian institutional and retail investors are not telling us they have a demand for some of those same features and functionality sets.
We have to balance off staying on par with the largest, most liquid market in the world, being the U.S., but also investing only in things that really have a return for the Canadian investor community.
Right. It is a topic that certainly comes up in I am sure every meeting you have, but one that we will be watching closely.
Okay.
With that, we are at the end of our time, so thank you again.
Thank you, Scott.
Thanks for coming today, and thanks, everyone.