TMX Group Second-Quarter Net Income Increases 1.5% on Derivatives Trading

TMX Group Inc., owner of the Toronto Stock Exchange, said profit rose for a second straight quarter on a surge in derivatives trading on its Montreal bourse. The stock had its biggest decline in almost six months after earnings missed estimates.

Net income increased 1.5 percent to C$47.6 million ($46.1 million), or 64 cents a share, from C$46.9 million, or 63 cents, a year earlier, Toronto-based TMX Group said today in a statement. Profit missed the 65 cent-a-share average estimate of six analysts polled by Bloomberg. Revenue rose 3.3 percent to C$142.7 million.

“Derivatives offset the weakness in equities trading,” National Bank Financial analyst Shubha Khan said today in an interview. “The environment for listing fees has also improved and the fear I had in regards to equities trading may have been a little overblown.”

TMX benefited from a 40 percent rise in trading at its Montreal Exchange unit, fueled by its main interest-rate contract, which helped offset a slump in equity trading. Speculation on interest rates and market volatility sparked by concern about European debt drove the surge, Khan said.

TMX fell 1.9 percent to C$28.75 at 4:10 p.m. Toronto time, its biggest decline since Feb. 4. The stock has retreated 13 percent this year.

Trading Fees Fall

Trading and related fees dropped 4.4 percent to C$58.5 million as a decline in equities trading revenue offset gains from the derivatives and energy business. Trading on the Toronto Stock Exchange and TSX Venture Exchange fell 7.2 percent to about 40.9 billion shares for the period, according to TMX statistics.

The Standard & Poor’s/TSX Composite Index, the benchmark measure of Canadian equities, declined 6.2 percent in the second quarter, breaking a four-quarter streak of gains.

The Group of 20 summit, the June 26-27 gathering of world leaders in Toronto, may have hurt trading volumes in June compared with May, TMX Chief Executive Officer Thomas Kloet said in a conference call.

“We believe that the decrease was largely due to the displaced trading community during the week prior to the G-20 meeting,” Kloet said. “We’re also hearing that volumes are down because of a World Cup effect.”

Montreal Exchange

The number of derivatives and options contracts on the Montreal Exchange rose 40 percent to almost 12 million, according to company statistics. Three-month Canadian Bankers’ Acceptance Futures contract, or BAX, more than doubled to 3.76 million contracts from a year ago. Boston Options Exchange trading fell 39 percent to 23.8 million contracts.

Reported listing fees rose 13 percent to C$40.6 million, while the value of equity sales such as initial public offerings on both the Toronto Stock Exchange and TSX Venture Exchange was unchanged from a year earlier.

TMX had 72 percent of the Canadian market for equities trading at the end of June, down from 87 percent a year earlier, according to statistics from the Investment Industry Regulatory Organization of Canada. Alpha Trading Systems, whose owners include the nation’s six largest banks, had almost 19 percent of the market by shares traded, up from 7.6 percent a year ago.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net.

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