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Executives

Paul Malcolmson – Investor Relations

Thomas A. Kloet – Chief Executive Officer

Michael S. Ptasznik – Chief Financial Officer

Analysts

John Reucassel – BMO Capital Markets

Jeff M. Fenwick – Cormark Securities, Inc.

Edward Ditmire – Macquarie Group Ltd.

Geoff Kwan – RBC Capital Markets

Richard Repetto – Sandler O’Neill

TMX Group Inc. (OTC:TMXGF) Q3 2012 Earnings Call November 9, 2012 8:00 AM ET

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time I would like to welcome everyone to the TMX Group Third Quarter 2012 Analyst Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Paul Malcolmson, you may begin your conference.

Paul Malcolmson

Thank you, Melissa, and good morning, everyone. Thank you for joining us today for the Third Quarter 2012 Conference Call for TMX Group Limited. As you know, we announced our third quarter 2012 results this morning. A copy of the press release and our MD&A is available on our website under tmx.com, Investor Relations.

The MD&A contains further supplementary information, including the full third quarter for TMX Group Inc., CDS and Alpha, which is on page 12. Today, we have with us Tom Kloet, our Chief Executive Officer; and Michael Ptasznik, our Chief Financial Officer. Following opening remarks from Tom and Michael, we’ll have a question-and-answer session.

Before we begin, I would like to remind you that certain statements made on the call today may be considered forward-looking. And I would refer you to the risk factors outlined in today’s press release and MD&A and other reports filed by TMX Group Limited with regulatory authorities.

Now, I would like to turn the call over to Tom.

Thomas A. Kloet

Thank you, Paul, and good morning, everybody. Thank you for attending today’s call to discuss our third quarter results. This is the first report for the combined organization, which now includes the results of TMX Group Inc., CDS and Alpha for two months. And because TMX Group Limited is a new reporting issuer, the third quarter of 2012 report is complex. But while the report itself is complex, it’s quite clear that the global market environment has continued to affect TMX Group’s financial performance. I’ll spend the next few minutes on our operational performance for the quarter ended September 30, and I will provide a brief update on our integration efforts of the new companies. I will then turn it over to Michael to discuss our financial results with you.

We aim to leave as much time as possible available for your questions. So I’ll begin with our equities business. It appears that the global economic recovery remains fragile, moving at what some would call a glacial pace. It is also evident that this situation is having pronounced impact, both on companies that are looking to go public and on equity investor confidence.

IPO financing was down 74% in the third quarter of 2012 compared to the third quarter of 2011, and down 68% on a year-to-date basis. We are continuing to pursue our business development strategy during this lull. We are finding that company interest is good. However, market conditions are most definitely holding back, holding some new issuers back.

A bright spot in our equity trading statistic has been the level of total equity capital raised on Toronto Stock Exchange and TSX Venture Exchange. According to the World Federation of Exchanges, together Toronto Stock Exchange and TSX Venture Exchange were third in the world in equity financing rates for the first nine months of the year. In 2011, we were sixth in the world.

Total financing was up 33% during the third quarter of 2012 compared to the third quarter of last year and year-to-date financing dollars was up 5% year-over-year. This financing activity is excellent for our issuers. They successfully raised the capital they need to achieve their objectives, and the market clearly welcomed these transactions. However, the number of financing transactions, which is an important revenue driver for us, continues to be behind 2011 levels. The number of financings was 8% lower in the third quarter of 2012 compared to the third quarter of 2011. On a year-to-date basis, financings were 21% lower on the exchange than last year.

Turning to equity trading now, again it is important to note that the decline in equity trading volumes during the third quarter was not unique to our markets. Total equity volume traded in the third quarter of 2012 decreased significantly compared to the third quarter of 2011 levels in exchanges around the world. Combined total volume on Toronto Stock Exchange, TSX Venture Exchange and TMX Select was down 24% in the third quarter of 2012 compared to the third quarter of 2011, and down 26% on a year-to-date basis.

Total volume on Alpha was down 35% in the third quarter of 2012 compared to the third quarter of 2011, and was down 38% year-to-date. Revenue from CDS clearing and settlement operations are also dependent on trading activity on Canadian equity marketplaces. As a result, total trades processed on CDS were down 29% in the third quarter of 2012 compared with the third quarter of 2011. In the third quarter of 2012, activity in our derivatives business decreased compared with the same period of 2011.

MX trading volume was down 9% from the third quarter of 2012 compared with the third quarter of 2011. However, at September 30, 2012, the level of open interest on MX was up 8% compared to September 30, 2011, and up 2% when compared with June 30, 2012.

BOX trading volume in the U.S options market was down 21% in the third quarter of 2012 compared to the same quarter last year. While the volume decrease was disappointing, we note that industry volume was down 27% showing that BOX achieved market share gains.

On a year-to-date basis, BOX volume was up 12% compared to the first nine months of 2011. NGX trading and clearing volume was down 15% compared to the third quarter of 2011, and down 3% in the first nine months of 2012 compared with the same period of 2011.

In terms of business initiatives during the third quarter of 2012 new products and services were introduced in a number of different parts of our organization. These include a new equity trading risk product, issuer services products, and a new derivatives market simulation tool which has seen very good use since it was launched. But as you’re all aware the Maple transaction closing was the main initiative achieved during the third quarter.

The final step occurred when TMX Group Inc. shares were delisted and TMX Group Limited shares began trading on Toronto Stock Exchange on September 19. Integrating TMX Group, CDS, and Alpha has been the key priority of the organization from the moment the deal closed, and it will continue to be in the near term. The planning and regulatory approval stages are now complete and we have now begun to implement our integration plans.

A number of decisions have already been made which I will now summarize for you. AS you saw in our release, we issued during the quarter and also CEO elected to leave the company, Alpha is now led by Rob Fotheringham who is also Senior Vice President of Equity Trading.

Alpha will continue to operate as a marketplace, because it has products and features that our customers value. However we have determined, Alpha will not be operated as a listing bank. We’ve also decided that Alpha’s outsourced technology will be migrated on to our TMX Quantum trading platform. In addition, Alpha will be moved into the TMX Data Center. We expect to complete this migration work by the end of the second quarter of 2013. In addition to streamlining our operations and helping us to achieve the target of synergies, we expect these changes to Alpha’s technology will also deliver important benefits to our customers, including increased efficiencies and reduced costs.

Corporate support functions are now in the process of being integrated across the companies, which will deliver both operational efficiencies and costs savings. It has been determined that 100 positions will be eliminated from the organization over the next 12 months. Those are very difficult decisions but were made after a thorough analysis.

Ultimately, all of the changes we are making are intend to improve execution, enhance efficiency, and allow us to deliver greater value to our customers. Achieving the right organizational structure and cost base will position us to fund the future innovations needed to be the most effective business partner possible for our customers and for all our stakeholders.

Our teams are now turning to the hard and exciting work of capitalizing on the opportunities present by having CDS and Alpha as part of the TMX Group. Our integration work to-date continues to be in line with the targets we set earlier, which is to achieve annual cost synergies of approximately $20 million on a run rate basis beginning in the first quarter of 2014.

Before I turn the call over to Michael, I want to take a moment to recognize Peter Krenkel, who is retiring as NGX President at the end of this year. His successor, Jim Oosterbaan has joined the company and they are now in the process of finalizing the transition. Peter has led NGX since its creation in 1994. He is a great leader, a great colleague and frankly he’s been a super guy to work with. On behalf of everyone at TMX Group, thank you very much for your service to NGX and TMX Group, Peter and we wish you the very best.

I’d also like to take the opportunity to thank Ian Gilhooley, who has been CEO of CDS, for his service to both CDS and the Canadian marketplace. Ian announced earlier this year that he is retiring at the end of 2012. We are currently recruiting his replacement who will report to me. Ian, we wish you the very best as well.

Finally, I want to be sure you’re aware that the Toronto Stock Exchange celebrated its 160th anniversary last month. Way back on October 24 of 1852, a group of Toronto entrepreneurs met, they created a Broker Association, which form the framework for the Toronto Stock Exchange. We applaud their vision. The Exchange started out with trading on 18 securities. Today, there are over 4,000.

On day one the founders could sit around one table. Today, we have more than 110 participants representing traders from all over the world. I won’t even try to summarize how the speed of trading has evolved over the last 160 years. Let’s just we have come a very long way. But over these 160 years, TSX has been Canada’s economic engine. We have changed, adapted, innovated and successfully operated through up-cycles and down-cycles.

I think historic milestones like these provide important perspective. They encourage one to pause and take a long view, both of what came before and excitingly at what lies ahead. So on October 24, we gathered all of our employees across the country and celebrated our past. And perhaps more importantly, we toasted the future of our company. Collectively, our team is focused on maximizing the opportunities in front of us, and on positioning TMX to grow and thrive as economic conditions improve.

I will now turn the call over to call over to Michael to review TMX Group Limited’s third quarter financial performance. Thank you.

Michael S. Ptasznik

Thank you, Tom and good morning everyone. Before I go through our financial results for Q3, I want to talk about the approach that we’ve taken in the earnings release and the MD&As report on a highly complex quarter. The financial statements include the operating results of TMX Group Inc., CDS and Alpha from August 1, 2012, and comparative financial statements for TMX Group Limited only for and as at the three and nine months ended September 30, 2011.

In the press release and MD&A, we have provided you with a supplemental view of the operating performance and cash flows of TMX Group. Our discussion of revenue, operating expenses, net income attributable to non- controlling interest and cash flows for the quarter, and nine months ended September 30, 2012 includes the operating results of TMX Group Inc. from July 1, 2012 and January 1, 2012 respectively, along with those of CDS and Alpha from August 1, 2012. These measures are compared with what we had reported at TMX Group Inc. for the three and nine months ended September 30, 2011. We have called this Supplementary Information.

Simply put, for discussion purposes, the operational comparison in our document and what I’m about to discuss has been prepared for the most part as of TMX Group Inc. acquired CDS and Alpha on August 1, 2012. While we have made our best efforts to give meaningful context to the results, while we remains clear in reporting for 2012 are the negative impacts on our business, resulting from the sustained global economic slowdown.

As Tom mentioned, key drivers across our business were effective. Revenue was $162.3 million in Q3 2012, down 3% compared with $167.8 million in Q3 2011, reflecting lower revenue from issuer services, cash markets trading, derivatives trading, and clearing and technology services and other. These decreases were largely offset by the inclusion of $14.8 million of revenue from CDS and $3.2 million of revenue from Alpha, effective August 1, 2012 and increased revenue from information services, which includes the revenue from TMX Atrium, which we acquired July 29, 2011.

Issuer services revenue in Q3 2012 was down 15% in comparison to Q3 2011, driven by initial listing fees, which were down 58%, primarily due to a decrease in the number and value of new listings on Toronto Stock Exchange and TSX Venture Exchange. Additional listing fees in Q3 2012 decreased 12%, primarily due to a decrease in the number and value of additional financing and TSX Venture Exchange and the number of additional financing at Toronto Stock Exchange. The decrease of 8% in annual sustaining fees was due to the overall lower market capitalization of listed issuers of both exchanges at end of 2011, compared with the end of 2010 and also due to reduction in certain fees that were effective on January 1, 2012.

In our Trading, Clearance, Depository and related revenue lines, cash market equity trading revenue decreased 7% primarily due to decreased volumes on Toronto Stock Exchange and TSX Venture Exchange in Q3 2012, compared with Q3 2011 and as a result of changes to our market making fee schedule for Toronto Stock Exchange, which came into effect on October 1, 2011 including introduction of monthly credits.

Partially offsetting the decrease was the inclusion of $2.8 million of revenue from CDS clearing and settlement revenue and $1.4 million of revenue from Alpha effective August 1, 2012. Along with the clearing revenue, CDS depository revenue of $7.9 million is included for August and September 2012.

Derivatives markets revenue was down 14%, compared with Q3 2011 reflecting lower revenues from BOX due to a decrease in industrywide volumes, partially offset by the positive impact on BOX revenues, depreciation of the Canadian dollar against the US dollar in Q3 2012 compared with Q3 2011. Revenue from BOX was also higher in Q3 of last year due to the inclusion of options regulatory fees. As of May 14, 2012, the fees charged and the related costs incurred by the BOX SRO entity are no longer consolidated into the TMX Group results.

Lower volumes largely due to decreased trading in the BAX contract, index derivatives and equity options led to a decrease in trading and clearing revenue from MX and CDCC. However, open interest was up 8% at September 30, 2012, compared with September 30, 2011.

Energy markets revenue was down 4% in Q3 2012, compared with Q3 2011, reflecting a 15% decrease in total energy volume on NGX, primarily due to a decrease in natural gas volumes, partially offset by the impact of the depreciation of the Canadian dollar against the US dollar and by NGX having deferred less revenue in Q3 2012 on a net basis, than in Q3 2011, due to a decreased level of forward contracts.

Information services revenue was up 10%, compared with Q3 of last year, largely due to the inclusion of $1.8 million of revenue from Alpha and $1 million of revenue from CDS from August 1, 2012. The increase in revenue was also attributable to revenue from TMX Atrium and higher revenue from co-lo services, data feeds and PC-Bond.

Technology services and other revenue decreased 38% overall, primarily due to net foreign exchange losses on US dollar account, accounts receivable in Q3 2012 whereas we recorded net foreign exchange gains in Q3 2011. The decrease also included the loss in revenue from IIROC following the termination of our contract to provide services effective March 31, 2012, which amounts to approximately $6.7 million on an annual basis.

In addition, revenues from prior periods included revenue related to services that were provided to CDS, which have now been eliminated upon consolidation effective August 1, 2012. This revenue from CDS was approximately $1.7 million in 2011. Offsetting these decreases in revenue was the consolidated revenue from Razor Risk effective from February 14, 2012. Technology services and other revenue, includes $2.7 million of revenue from CDS services, SEDAR, SEDI and NRD. The current contract is due to expire on October 31, 2013. At the June, the CSA announced that it’s seeking competitor proposals to acquire certain services in connection with the operation over CSA National Systems including these services.

Operating expenses in Q3 2012 were $100.2 million, up 39% from the $72.3 million Q3 2011, due to the additional operating expenses included from acquisitions. These included $13.5 million or expenses from CDS and $3.1 million of expenses from Alpha for the two months. There was also an increase related to the incremental amortization of intangible assets related to TMX Group Limited’s acquisition of TMX Group Inc. of $6.5 million. In addition, the increase was attributable to the inclusion of an aggregate of $4.2 million of incremental expenses related to TMX Atrium, Razor Risk and ir2020.

Year-to-date through September 30, 2012 revenue was $492.1 million, down 4% from the first nine months of 2011 reflecting lower revenue from issuer services and cash markets trading. These increases were partially offset by the inclusion of $14.8 million of revenue from CDS of $3.2 million of revenue from Alpha and increased revenue from Information Services, including revenue from TMX Atrium, derivatives trading and clearing, and technology services and other.

Operating expenses in the first nine months of 2012 were $265.5 million, up 20% for the first nine months of 2011, primarily due to the inclusion of $13.5 million of expenses from CDS and $3.1 million of expenses from Alpha. There was also an increase of $6.5 million related to the incremental amortization of intangible assets related to TMX Group Limited’s acquisition of TMX Group Inc. In addition, the increase was attributable to the inclusion of an aggregate of $15.3 million of incremental expenses related to Atrium, Razor Risk and ir2020.

There was also an overall increase in salary and benefits cost, information and trading system costs, and depreciation and amortization somewhat offset by lower G&A cost due to the inclusion in the first nine months of 2011 of a commodity tax adjustment of $4.8 million relating to prior periods. TMX Group Limited held cash and marketable securities totaling $378.3 million at September 30, 2012 including cash and marketable securities held by TMX Group Inc. which was acquired on July 31, 2012.

Cash flows used in operations were $67.1 million in Q3 2012, a decrease of $120.2 million compared to cash flows generated from operations of $53.1 million in Q3 2011 primarily due to $84.3 million in Maple transaction related cash outlays and $14.5 million of interest paid on TMX Group Inc.’s $430 million of debt, which has since been repaid and the $1.5 billion in debt incurred to support the Maple deal.

For the nine months ended September 30, 2012 cash flows used in operations were $105.9 million, net of $99.3 million of cash outlays pertaining to Maple related costs and TMX Group Inc. paid $29.9 million in dividends on its common shares in August 2012.

And finally, yesterday the Board declared a quarterly dividend of $0.40 per common share to be paid on December 7, 2012 to shareholders of record on November 23, 2012.

With that, I will turn the call back to Paul for the Q&A session.

Paul Malcolmson

Thanks, Michael. Melissa, could you please outline the process for the question-and-answer session.

Question-and-Answer Session

(Operator Instructions) Your first question comes from the line of John Reucassel from BMO Capital Markets. Your line is now open.

John Reucassel – BMO Capital Markets

Just a clarification, Michael, if you could just help me, if I am looking at page 12 of the MD&A and you have income from operations there of $61.1 million, if I want again EPS number on that for kind of the fully loaded pro forma. I just want to make sure I understand the process, I’d figured the non-controlling interest or the minority interest and then I’ll take out the financing costs, which look to be like $9.3 million, and then taxes. Is that about right, is that how you do that?

Michael S. Ptasznik

I think the $9.3 million was only for the two months time you have to treat that with it was for full quarter.

John Reucassel – BMO Capital Markets

Okay, so okay so and as the scores in the some the average rate on the $1.5 billion of debt?

Michael S. Ptasznik

Sorry yeah it’s at disposal, if you are going to normalize this you’ll take the $1.5 billion of debt, use the rates that we provided in the MD&A, which is around 3 points, I think it’s around 3.6 mark for the quarter.

John Reucassel – BMO Capital Markets

Okay.

Michael S. Ptasznik

Plus or minus 3.6, 3.7.

John Reucassel – BMO Capital Markets

Yeah.

Michael S. Ptasznik

So you have the interest expense and…

John Reucassel – BMO Capital Markets

And the tax rates we assume, it all TMX Group tax rate.

Michael S. Ptasznik

Yeah, I mean a normalized tax rate would be around the 27% range.

John Reucassel – BMO Capital Markets

Okay. Okay that is helpful. That is helpful, so thanks for that clarification now, the amortization of this intangible, it looks like its tax deductible, but it’s going to be around for a long time. Is that correct?

Michael S. Ptasznik

Yeah it’s not, it’s technically not tax deductible, but there is a future tax asset put on the books, so that when you do the P&L from the P&L standpoint, it is tax deductible from a cash standpoint, it not

John Reucassel – BMO Capital Markets

Okay, okay I got it. So it’s an accounting?

Michael S. Ptasznik

Exactly.

John Reucassel – BMO Capital Markets

It’s an accounting okay. So that is an accounting expense. So that is helpful. Two last questions, first how much cash or capital on the old format, you had a restricted cash. How much should we think about now that you have CDS and CDCC or another, how much do we think about your cash you need to kind of keep around for business.

Michael S. Ptasznik

But the number it is in the MD&A, I don’t know which page number, but it’s in the MD&A, $250 million is the amount that we now believe is required to provide enough capital for the recognition order purposes, in addition to the working capital plus some of the other requirements under CDS.

John Reucassel – BMO Capital Markets

Okay. And last question Tom. I don’t know want you feel left out.

Thomas A. Kloet

It’s okay.

John Reucassel – BMO Capital Markets

So in the past, TMX has given kind of medium to long-term growth targets. Are you guys willing to do that now, given that you have seen Maple for a while?

Thomas A. Kloet

No, we haven’t given guidance now for quite sometime and it’s not the intent to give guidance now.

John Reucassel – BMO Capital Markets

Okay, I’ll be in queue, thank you.

Operator

Your next question comes from the line of Jeff Fenwick from Cormark Securities. Your line is now open.

Jeff M. Fenwick – Cormark Securities, Inc.

I just wanted to start off with a question on CDS here. You noted in the MD&A that they have lost the contract for IIROC over the last year. And you have a few more that are up for competitive bid right now. What was the situation with the IIROC agreement there? Was that also a competitive bid? I’m just trying to get a read on what kind of risk we have to the existing other contracts there.

Michael S. Ptasznik

Just to clarify first that the loss of the IIROC technology revenue was not a CDS event first of all. It was a TMX event. And we had explained that last quarter, if you may recall we had a revenue item that came in for the early end of that contract. And it wasn’t lost in a competitive bid, essentially what happened was the IIROC had made a decision several years ago to create an inter-market surveillance system that would allow them just smartly, I will add, to be able to do market surveillance across marketplaces. Now we have a multi-marketplace environment, that’s really important to make sure that those execution requirements are fulfilled.

Corresponding to that, they went to a vendor, we were not in the business of building inter-market surveillance technology we hadn’t been in that business they went to a fairly well recognized vendor to do it. They achieved their goal bringing it in price, correspondingly to that we made the determination upon working with IIROC that it was best for the marketplace that rather than IIROC use our old surveillance equipment to do the surveillance work they do over TSX and TSX Venture that the economics of having that work done via the system they bought was in the best interest of the marketplace. So, that’s what happened with that technology.

There wasn’t a bid per se, but it is really the result of the market becoming multi-marketplace environment and IIROC became a vendor that could provide that kind of technology. So, that’s why that agreement ended and why in the last quarter we actually had revenue we recognized as a result of your early termination of that agreement. With respect to the CDS Inc. business which I think is what the second part of your question was. The CSA has in accordance with what the government does periodically, as I understand it, gone out to competitive bid process to see, if there are other that essentially open up bidding for this contract.

The contract’s been extended once already to CDS. It’s clear in our view that we continue to provide service that exceeds the SLA agreements or the service level agreements and we are an excellent vendor for that, but the CSA will go through this process and we’ll see how that comes out. But I can’t give you anymore of a read as to where that, this is a process that will take some time for the CSA to work its way through, in the meantime, we are trying to operate the system as best we can everyday.

Jeff M. Fenwick – Cormark Securities, Inc.

Okay, fair enough. And then maybe we can just flip it over to the other side of the perspective there around growth from CDS. I think it sounds like the REPO initiative you guys have been working on in clearing, the contribution is relatively modest today, and it looks like there was some commentary out of the government, I think with the Bank of Canada that maybe suggesting that it would be okay for the financial firms here in Canada to use global clearing entities other than you guys. How do you feel in terms of opportunity to grow new revenue areas for CDS going forward from here in the current environment?

Thomas A. Kloet

I think there are a number of, as we get to understand CDS better and understand the links between CDS and the rest of the organizations, I think there are a number of opportunities we can pursue to grow the product and services offering of CDS well beyond the core clearing and depository services that it offers today. I remain optimistic that we are going to have some new business development, that will take time, some of it’s going to be de nova new build or we may have to acquire some products and services as well, and bolt them onto CDS’s existing offerings, or other parts of the institutions offering.

With respect to, so I’m quite optimistic, now let me go back to the early part of your commentary and your question about REPO and OTC derivative clearing.

With respect to the REPO project, I want to remind everybody that we have only completed Phase one of at least a three-phase project, and probably a four-phase project with the next phase of phase two being where we allow the buy-side to come into the REPO product offering.

So we’re in the early days and early stages of this offering. Now, that CDS and CDCC represent the same corporate family, we’ll find that the development of that will be easier to manage for sure, but I remain optimistic that what we’ve provided gives real value to the marketplace, and I think the Bank of Canada has been very clear about the fact that having REPO clearing is an important value. And I think in the end, this is a journey that will end well, but it’s a journey that we have to stay on and continue to work to develop the product and service.

With respect to the OTC derivative clearing that we would hope would be on the other end of that process. Bank of Canada has allowed the market participants to use an international clearing organization or international clearing organizations to clear in the current term their interest rate swap contracts. We recognize that, that’s the global reforms and the commitments of both the G8 finance ministers and then later ratified by the G20 leaders themselves, committed to doing that, that’s an important part of the financial reform that’s going on here.

But we view that and I think in Bank of Canada’s comments, I don’t want to put words in their mouth, but I think they allowed for the fact that they would like to see a domestic solution offered as well for those interest rate swaps that are executed among domestic counterparty.

We continue to think we’re the best entity to give that service. And, in fact, we feel stronger about it now that we have CDS as part of the family. So we’ve not given up that view. We are studying the economics of it and the economics have to make sense for our shareholders, and we have to have the development path forward to do that. But the first step in that journey is to continue the REPO project. And that’s where we are at is in the effort of implementing Phase two. So I hope that helps give you some clarity. These developments take time to both develop and to build a marketplace for.

Jeff M. Fenwick – Cormark Securities, Inc.

Thanks, Tom. That’s a lot of good color there. And then, Mike maybe just one quick one. The amortization number there in the quarter, how much of that would be over just the two months, or I’m trying to get a sense of what the run rate is going to look like going forward?

Michael S. Ptasznik

The $6.7 million is the incremental for the two-month period.

Jeff M. Fenwick – Cormark Securities, Inc.

Okay. All right. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Ed Ditmire from Macquarie. Your line is now open.

Edward Ditmire – Macquarie Group Ltd.

Good morning, gentlemen.

Thomas A. Kloet

Good morning.

Edward Ditmire – Macquarie Group Ltd.

Can I ask about the philosophy around the uses of free cash flow over the next few years? I would presume there is a focus on deleveraging, given the relatively high leverage versus publicly traded exchange periods, but there has also been plenty of commentary and speculation that TMX is unusually acquisitive. Can you comment?

Michael S. Ptasznik

It’s Michael. I think the answer is we are, yes, you are right, we are going to look to reduce the debt and use the free cash flow to pay down the debt. However, as we stated historically, we will continue to look for opportunities to growth the business and whether that’s using the cash or whether we would look to equity finance if it was strategic and made sense both strategically and financially for the business, we will look to continue to grow the business through acquisitions as well. But with respect to just normal operations and barring any opportunities, now we will look to pay down the debt over time.

Edward Ditmire – Macquarie Group Ltd.

And so there is not an overriding schedule that you are going to hold yourself towards in terms of the deleveraging, i.e., for the right opportunity that could be put on hold, so that you could spend more money on acquisitions, et cetera, it’s just flexible at every point in time?

Thomas A. Kloet

Well, you can see in the credit agreement, there is a schedule where we have requirements in the covenants, and they do tighten over time. So there is incentive for us to continue to pay down the debt that exists. But as I said, there are means whether it’s debt financing based on the earnings of the potential acquisitions or whether it’s equity financing, we will look to continue to grow the business. As necessary, we do want to reduce the debt, but we also don’t want to give up on opportunities to grow the business.

Edward Ditmire – Macquarie Group Ltd.

Okay. Thank you.

Operator

Your next question comes from the line of Geoff Kwan from RBC Capital Markets. Your line is now open.

Geoff Kwan – RBC Capital Markets

First question just on that exhibit on Page 12 with the three months period, just wanted to get a sense, because part of that would have been with all of the entities, how indicative that might have been of any potential synergies that might have been realized initially?

Michael S. Ptasznik

There is no synergies in Page 12, so the synergies we’ve just started to implement some of the changes, then we’ve made some of the final decisions in getting regulatory approval, so the quarter that’s represented on Page 12 would not include any synergies.

Geoff Kwan – RBC Capital Markets

Okay. And then given that you guys have had a closer look at all the operations now, are you able to comment about, roughly on the pace of realization on synergies, as well as the recording of the integration costs, any incremental stuff going forward?

Michael S. Ptasznik

Well, I would say, we are still on track for achieving the full run rate of synergies of $20 million in the first quarter of 2014. We have informed about a 100 employees that they will be affected through the transaction. But those will be phased in over time depending on the transition of both the technology and some of the other integration initiatives that we have. So we don’t have an update as to how that we got phased in, but we have, as I said, started to make decisions, and started to move forward with the integration plan.

Geoffrey Kwan – RBC Capital Markets

Okay. And then last question I had was just maybe expanding on Ed’s previous question on free cash flow usage. Absent doing some sort of acquisition, how do you think about the dividend? Is there a certain level of leverage that you want to get to first before you might consider an increase on the dividend?

Michael S. Ptasznik

Yeah, I would say for the next while, I mean this is something that we have to continue to discuss with our Board, but the primary use of the cash will be to pay down the debt for the next while. The dividend rate currently is a healthy yield and it’s a reasonable payout. The focus will be on the reduction of the debt, but it’s something that we will continue to revisit over time.

Geoffrey Kwan – RBC Capital Markets

Okay. Thank you.

Operator

Your next question comes from the line of Rich Repetto from Sandler O’Neill. Your line is now open.

Richard Repetto – Sandler O’Neill

Yeah, good morning, Tom, good morning, Michael.

Thomas A. Kloet

Hi, Rich.

Michael S. Ptasznik

Hi.

Richard Repetto – Sandler O’Neill

I guess my question and I apologize if this has been asked or not, but given the events over the last year and a half, not only the Maple transaction, but the earlier proposed merger with the LSE. I guess, so what are your thoughts on cross border or international expansion? I know you have a lot on your plate up front right now with Maple, but did you see that as an opportunity moderate to longer-term? And how would you view that, in what ways?

Thomas A. Kloet

I think Michael largely just addressed that. But as he indicated and as we’ve indicated that elsewhere, our first focus is really on completing the integration. We have a major task in front of us to complete the integration and to achieve both the synergies and the cost savings that we have in there. So that’s out key focus and what I would call the near-term.

We’ve made great progress thus far Rich. We put together the plan under the new recognition order. We had to go to the securities regulators and get approval on that integration plan, and we’ve achieved that, and we’ve started to execute that plan. We want to make sure not to take our eye off executing that plan, so it’s important to shareholder value. And when I talk about synergies there I don’t just mean expense synergies. But I also mean we will look for the new products and services we can add to the existing business. And that’s quite exciting for us.

All that said, while we are juggling the need to pay down the debt, because Michael indicated there are important covenants within the debt agreement that we clearly are incentive to comply with. The marketplace is moving and there will be opportunities out there that will be very interesting to us. And we’re going to continue look at that as well. This has become a very complex organization that we have now. But it is also not an organization with strong shareholders behind it. We’re committed to grow this company and build our business, whether it’s domestically or internationally and we intend to balance all of these things and look at opportunities as they arrive.

So the real answer to your question is that, we’re very focused on the integration. But we’re still watching these opportunities come forward. Our pencil is very sharp. But we will look at those opportunities and depending on whether or not, they fit the balancing act that I’m referencing will look at them very seriously.

Richard Repetto – Sandler O’Neill

Okay, that’s helpful Tom. And we’ll be watching how the TMX Group emerges as well. Thanks.

Thomas A. Kloet

Thanks.

Operator

Your next question comes from the line of John Reucassel from BMO Capital Markets. Your line is now open.

John Reucassel – BMO Capital Markets

Just a quick follow-up, Tom, could you talk about the high-frequency traders and just the trends in the volume or percentages that has been going on the exchanges, particularly the TSE and Alpha?

Thomas A. Kloet

Well, in Canada, first let me back up and say that. Just remind everybody that as an exchange, we have some data on high-frequency traders, principally via our ELP program. But we don’t have the full visibility of that that you might think we do, because we receive orders via the brokers don’t participate on marketplace, and that’s we know, that’s our direct customer.

But we do have some anecdotal data and we have some visibility as to who’s participating in our marketplace and we’re out selling the marketplace around the world to get that. But my observation would be first that to remind everybody, that the high-frequency trader penetration in our market for sure, it’s less than it is elsewhere in North America and certainly less than it is in North America and in Europe.

And my anecdotal view and my team may correct me here, but is that the percentage of our marketplace represented by high-frequency trading has kind of stayed steady and their volumes down consistent with our volumes are down generally. I don’t think there’s been a big difference in the percentage of market share that they represent. There is puts and takes here and there, but it’s not dramatic.

So it continues to be kind of I’ll give you a broad range, between the 20% and 30% range probably. But maybe a bit less than 20% or maybe 15% to 20%, I would guess. But clearly they’re watching the regulatory environment with care, and as are we, it’s our continued view, particularly my view that they add liquidity to the marketplace and that they keep spreads narrower than the market would be without them. But we’ll have to see what comes out of all the various regulatory reviews.

John Reucassel – BMO Capital Markets

Okay, that’s helpful.

Michael S. Ptasznik

But generally, it’s down a little bit as a percentage of the overall market share, but not dramatically.

John Reucassel – BMO Capital Markets

Okay, that’s helpful. And then just on page 13 of the MD&A again, it looks like you’ve separated CDS revenue into depository and there are some in the cash trading and some in information services. Is that correct?

Michael S. Ptasznik

Yes, it is. And it is broken out within those individual sections in the actual, in the quarterly reconciliation and in the documents.

John Reucassel – BMO Capital Markets

Okay, I’ll get there. Thanks Michael. Thank you.

Michael S. Ptasznik

You’re welcome.

Operator

There are no further questions at this time. Mr. Malcolmson, I’ll turn the call back over to you.

Paul Malcolmson

Well, thank you everyone for listening today. The contact information for media as well as Investor Relations is in today’s press release, and we’d be happy to take further questions. Once again, thank you and have a good day.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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