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Executives

Paul Malcolmson - Director of Investor and Government Relations

Thomas A. Kloet - Chief Executive Officer, President, Director, Ex-Officio Member of Finance & Audit Committee, Ex-Officio Member of Public Venture Market Committee, Ex-Officio Member of Governance Committee and Ex-Officio Member of Human Resources Committee

Michael S. Ptasznik - Chief Financial Officer, Senior Vice President and Chairman of Treasury Committee

Analysts

Jeff Fenwick - Cormark Securities Inc., Research Division

Sachin Shah

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Doug Clark - ITG Investment Research Inc

Justin Schack - Rosenblatt Securities Inc., Research Division

TMX Group (OTC:TMXGF) Q1 2012 Earnings Call May 11, 2012 8:00 AM ET

Operator

Good morning. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the TMX Group Q1 2012 Analyst Conference Call. [Operator Instructions] Thank you, and I'll now introduce and turn the call over to Mr. Paul Malcolmson, Director, Investor Relations. You may begin your conference, sir.

Paul Malcolmson

Thank you, Tracy, and good morning, everyone. Thank you for joining us this morning for the first quarter 2012 conference call for TMX Group. As you know, we announced our first quarter results earlier this morning. A copy of our press release is available on our website, tmx.com, under Investor Relations. Today, we have with us Tom Kloet, our Chief Executive Officer; and Michael Ptasznik, our Chief Financial Officer. Following some opening remarks from Tom and Michael, we'll have a question-and-answer session.

Before we begin, I want to remind you that certain statements made on the call today may be considered forward-looking and refer you to the risk factors contained in today's press release and reports filed by TMX Group with regulatory authorities.

Now I'd like to turn the call over to Tom.

Thomas A. Kloet

Thank you, Paul, and good morning, everybody. And thank you for attending today's call. Like the fourth quarter of 2011, the first quarter of 2012 proved to be less profitable for the TMX Group because of continuing global economic uncertainty. Unlike previous economic downturn, this uncertainty has resulted in steep declines in the level of equity trading and financing activity. This decline affected our financial results this quarter. You'll note that our global exchange peers are experiencing the same phenomena, as well as similar effects on financial performance. As you can see, other parts of our diversified organization partially offset the decline in our equities business. And it was an active and successful quarter in terms of our business initiatives. But the bottom line is that TMX Group is a fundamentally strong company well positioned to weather economic cycles. I'll spend the next few minutes on our operational performance for the first quarter, and then I'll provide a brief update on the Maple Group offer. I'll then turn it over to Michael to discuss our financial results with you.

Let me start with the equities business area. While trading volume during the first quarter of 2012 were slightly higher compared to the fourth quarter of 2011, volumes were down significantly compared to the first quarter of 2011. Toronto Stock Exchange was off 19%, and TSX Venture Exchange was down 43%. It is important for you to note that the decline in trading variance during the first quarter of 2012 was not unique to the TMX Group equity markets. We are seeing this all over the world. However, TMX Group's average Canadian equity market share did remain stable in the first quarter of 2012 at approximately 69%, which is exactly where it was at the end of the first quarter of 2011.

Before leaving the topic of equity trading, I'd like to comment on the key elements of the CSA/IIROC regulatory framework for dark liquidity that was announced last month. The framework is wholly consistent with public interests and with our view that the primacy of the visible market and the requirement for meaningful price improvement preserve and enhance the integrity of Canadian capital markets.

Turning to equity financing now. Total equity capital raised on Toronto Stock Exchange and TSX Venture Exchange during the first quarter was $17 billion. This represents an increase of 19% compared to the first quarter of 2011. While financing on TSX was up 40% compared to the first quarter of 2011, this included a number of large financings that did not translate in the higher revenues because issuers paid the maximum listing fee. Total financing on TSX Venture Exchange was off 49%, indicating that the economic environment made it more challenging for junior companies to access public markets. The total dollar value of equity financing was clearly positive for our list of companies and for the investors who trade them. However, another significant driver of our revenue is the number of transactions. Compared to the first quarter of 2011, the number of financings was actually down 23%. Michael will spend more time on this important point in a few minutes during his review of the financial results.

The year began well in terms of graduations from TSX Venture Exchange to the Toronto Stock Exchange, which is an important measure of success, both for the companies we serve and for our markets. While the equity market slowed, the challenging economic environment, along with our efforts to grow volumes, helped drive trading on Montréal Exchange. Compared to the first quarter of 2011, trading then was up 12% in the first quarter of 2012 and open interest was up 27%. And compared to the prior quarter, volume was up 14% and open interest was up 9%. MX again set a number of trading records during the past quarter. NGX volumes were down 2% compared to the first quarter of 2011, largely reflecting the continuing low price and volatility of the natural gas market.

The TMX Group team had a very active quarter in terms of our business activities. In February, CDCC launched its fixed income central counter-party solution for Canadian repurchase agreements. We are very proud to have this service up and running. We thanks the IIAC, our industry stakeholders and the Bank of Canada for working so diligently with us on this endeavor. We're also proud that the Bank of Canada recently designated this service under the Payment Clearing and Settlements Act, which speaks to its systematic -- systemic importance.

During the first quarter, we announced the launch of our equity trading technology initiative, TMX Quantum XA. The markets and technology teams are spending a great deal of time talking with and listening to our customers about this very exciting initiative, which will result in dramatically improved speed and capacity for our market. We expect to launch it on TMX Select in the first half of 2013, with implementation on TSX and TSX Venture Exchange to follow beginning at the end of 2013.

We completed the acquisition of Razor Risk Technologies during the quarter, and integration into our TMX technology business area is well advanced. This acquisition both provides an important entry into the risk management technology sector and expands our technology offerings. In our TMX Datalinx area, we announced the expansion of our co-location facility to meet market demand. And NGX again expanded its U.S. network with 3 new trading and clearing hubs added, bringing its total to 43.

Our listing teams recently kicked off their Canadian financing series. The team plans to visit 6 cities this year. It held a very successful event earlier this week in the Kitchener-Waterloo area where there is a significant hub of technology companies. Montréal Exchange recently received the news that the S&P/TSX 60 Index Mini Futures contract, which was launched last year, was cleared for sale to U.S. investors by the CFTC. The product can now be traded through direct access from U.S. trading desks. This is a very positive development as it increases the market for this product significantly.

These are just a few of the examples of the initiatives we have undertaken since we last reported. It is clear that we remain committed to investing in our existing business and to exploring new opportunities. However, at the same time, we are continuing to look for additional ways to realize efficiencies in our organization.

Turning now briefly to the Maple bid. On April 30, Maple and TMX extended the outside date to July 31, 2012. The Maple offer itself was extended to May 31, 2012. On the same day, Maple announced that it had reached agreements for the acquisitions of CDS and Alpha. Last week, the OSC and the AMF published recognition orders. The 30-day comment periods conclude on June 4. The Competition Bureau recently advised Maple that the OSC recognition orders, if finalized and enforced, may materially change the regulatory environment such that the Competition Bureau's serious concerns may be substantially mitigated. While many of the provisions in the recognition orders may be unnecessary within the current robust structure, we believe that they strike the right balance for a globally competitive TMX Group after the Maple transaction. Maple understands that the Alberta Securities Commission and British Columbia Securities Commission also intend to publish notes with respect to the Maple transaction. There has been a lot of positive action and progress of late. We are continuing to work very hard with our partners at Maple to secure the necessary approvals and successfully complete this transaction.

Looking ahead to TMX Group, management and employee team will continue to pursue our overall strategy, which is to enhance our core business domestically and to expand horizontally, vertically and geographically by offering innovative products and services across asset classes. We will continue to focus on the successful operation of our business, as well as on business development and providing excellent service to our customers. TMX Group will also continue to explore all growth opportunities within the context of our strategic plan. I will cover all this in more detail at TMX Group's Annual and Special Meeting, which will be held here in our gallery in Toronto this afternoon.

I will now turn the meeting over to Michael to take us through the company's first quarter financial performance and then we'll be happy to take your questions. Thank you for your time this morning.

Michael S. Ptasznik

Thank you, Tom, and good morning, everyone. As Tom indicated, our first quarter results were negatively impacted by macroeconomic factors affecting business groups and exchanges around the world. A slowdown in new listings and equity trading activity drove the overall decline of performance compared to the same period last year. Revenue for the first quarter of 2012 was $162.3 million, down 7% from $174.7 million for Q1 2011, reflecting lower revenues from issuer services and cash markets trading partially offset by increased revenue from derivatives market trading and clearing, information services, which includes revenue from TMX Atrium acquired July of last year and technology services and other revenue, which includes revenue from Razor consolidated to our results from February 14, 2012. Net income attributable to TMX Group shareholders was $56.8 million or $0.76 per common share, down 10% compared with $63.1 million or $0.84 per common share on a diluted basis from Q1 '11.

I will now briefly take you through some of the factors impacting our first quarter results compared with last year. Issuer services revenue in Q1 2012 was down 19%. As you know, we derive revenue primarily from 3 types of fees per listing on Toronto Stock Exchange and TSX Venture Exchange: initial, additional and sustaining fees.

Initial listing fees in Q1 2012 were 53% lower than in Q1 2011. There was a decrease of both the number and value of new listings on Toronto Stock Exchange compared with Q1 last year. It's important to note that initial fees were almost $3 million higher in the first quarter of last year due to the large number of issuers who converted from income trust to corporate entities in that period. Additional listing fees in Q1 2012 were 21% lower than Q1 '11, primarily due to decreases in the number and value of additional financings on TSX Venture Exchange and the number of additional financings on Toronto Stock Exchange. In our financing statistics, as Tom mentioned a few minutes ago, the dollar value of secondary financings on Toronto Stock Exchange in Q1 '12 was significantly higher when compared to Q1 '11. As we have indicated in the past, and as stated in the listing fee schedules, we charge listing fees based on the value of the listing transaction subject to caps.

In Q1 '12, we had a number of larger financings that did not necessarily translate into higher revenues because the issuers paid the maximum listing fee. We recognized that financing dollars do not give the full picture. And in fact, when modeling, investors must look at the number of transactions in addition to the dollar value. It's also necessary when analyzing initial and additional fees to take into account the mix of financings, especially between corporates [ph], funds and EPS. And while most of this information is available in our daily publications, we are planning on adding the number of transactions to our monthly equity financing statistics release as an additional data point.

Annual sustaining fees were down in Q1 2012, primarily due to the overall lower market capitalization of listed issuers on both exchanges at the end of 2011 compared with the end of 2010.

In cash markets equity trading, revenue was down $9 million or 27% due mainly to a 43% decrease in volumes traded on TSX Venture Exchange and a 19% decrease in volumes traded on Toronto Stock Exchange. This is despite the increase in market share in the quarter. The decrease is also was a result of changes to our equity trading fee schedule that we implemented since Q1 2011.

Finally, the decline in overall cash markets revenue also reflected lower volumes from Shorcan fixed income trading in Q1 '12 compared with Q1 '11. Offsetting some of the decrease in revenue was the continued strong performance of our derivatives markets. Revenue was up 14% in derivatives trading and clearing, reflecting higher revenues from BOX due to a 23% increase in BOX volumes and increased revenue from MX and CDCC due to a 12% increase in MX volumes over Q1 2012. Derivatives markets revenue also includes fees earned by CDCC for providing the clearing service on repo transactions, which we launched on February 21, 2012. Although given that we are still in the early stages, this was not a driver of revenue in the quarter. Information services revenue was $42.8 million, a 7% increase compared with Q1 '11, primarily due to revenue from TMX Atrium, higher revenue from TMXnet, co-location services, fees and PC-Bond. Operating expenses in Q1 '12 were $83.1 million, up 8%, primarily due to the inclusion of approximately $5 million of expenses related to TMX Atrium, Razor and ir2020.

In addition, our ongoing initiatives resulted in an increase in salary and benefit costs and information and trading systems costs somewhat offset by lower G&A cost due to the inclusion of -- in Q1 2011 of a commodity tax adjustment of $4.8 million related to the prior period.

Looking now at sequential -- at our sequential performance. Revenue was up slightly in Q1 compared with Q4 '11 due to higher cash markets and derivatives markets trading and clearing revenue, as well as higher technology services revenue and lower net foreign exchange losses on U.S. dollar accounts receivable. The increases were somewhat offset by lower issuer services revenue, primarily related to initial listing fees and lower information services revenue. Net income attributable to TMX Group shareholders for Q1 '12 increased over Q4 '11, primarily due to lower Maple-related costs.

Cash and marketable securities totaled over $447 million at March 31, 2012, a decrease of $43 million from December 31, 2011. We generated $12 million of cash flow from operations in Q '12, a decrease of $60 million -- $59.9 million from Q1 '11, primarily due to lower income before taxes and an increase in trade receivables reflecting the fact that there was later billing and collecting of our sustained fees in 2012. We paid approximately $30 million in dividends and invested $22 million of capital in Razor and other new initiatives. Our revised credit facility remains at $430 million and will expire on June 29, 2012. We plan to extend this facility again next month. And finally, the board declared a quarterly dividend of $0.40 per common share to be paid on June 8, 2012, to shareholders of record at the close of business on May 25, 2012. And while we have a significant cash position in accordance with the terms of our support agreement with Maple, we will not be making any changes to our capital structure or dividend at this time.

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

Paul Malcolmson

Thanks, Michael. Tracy, could you please outline the process for the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jeff Fenwick with Cormark Securities.

Jeff Fenwick - Cormark Securities Inc., Research Division

So good to see some progress in terms of the Maple deal here, especially the acquisition agreements that are now in place with Alpha and CDS. I'm just wondering how involved have you been in that process? Are you starting to get a sense now of the integration effort that's going to be required? How long it might take, potential costs and synergies? And when are we going to be able to start getting some information flow on those items?

Thomas A. Kloet

Well, I think it's premature to get a lot of information on that given that we do not have an agreed-upon -- we don't have an approved transaction, I should say, from everybody that needs to approve it. We have been -- I would say we've been somewhat involved in the CDS transaction, but not very involved in the outflow transaction at all and I think you can understand given the competitive dynamics why that would be the case. We did, obviously, have to approve the amounts and have some broad parameters around that, but it's really premature for us to get into a lot of the integration efforts because we don't have the arrangements approved. That said, as you would probably know, Jeff, we sit on the board of CDS and have an ownership interest in it and have worked in collaboration with them in many fronts, including the most recent efforts around the repo clearing arrangement. So we -- the teams know each other well. We work exceptionally well together, I must say. And I think that we have a good understanding from a broad stroke perspective as what would be involved with the integration there.

Jeff Fenwick - Cormark Securities Inc., Research Division

I think it's just a bit challenging, obviously. I know you're working through this approval process but there will be a, I guess, relatively brief period of time between the approvals being received from regulators and then the tender date. And would we be getting some color ahead of that tender date? Or is this something that's maybe the second piece of the pie here after -- or second piece of the puzzle here after the...

Thomas A. Kloet

I think it'll be -- we have to be very respectful of the process we're going through, and I think everybody has been extremely -- everybody in the transaction has been -- or in the series of transactions, I should say, since it's a 2-step transaction, have been very respectful of the process that we're going through with the regulatory authorities and with the Competition Bureau. So given all that and given we want to make sure and do everything exactly the way we should, I think it's more likely we'll have more color on that at the back end rather than the front end, to be fair, because we just -- there are conversations that we just shouldn't have and we're not going to have them before the appropriate time.

Jeff Fenwick - Cormark Securities Inc., Research Division

Okay, sure. And then just to understand, there's a lot of shareholders that are unsure of the process once we get through the first key one of the revelatory approval. So any color you can continue to add there post that time period is very helpful.

Thomas A. Kloet

Well, the one piece of color I will say beyond repeating that we -- I'm very appreciative of the shareholder concern that you raised. At the same time, I ask the shareholders to understand that we need to respect the process. And I know you get this, but it's an important point for me. I'll say, we need to respect the process that's in front of us. And as I've said, everybody is doing a great job on all sides of the transaction of doing that, and we want to let the authorities do what they have to do before we go too far in any planning. That said, what I am confident of is -- and continue to be confident of is that these transactions remain good for the Canadian capital market and they're good for our ability to keep this institution competitive both -- particularly on a global environment and I remain more and more convinced of that, and I think that the shareholders should be confident that if that's the case, the institution's financial results will take care of itself.

Jeff Fenwick - Cormark Securities Inc., Research Division

Okay. And maybe just moving on then to existing business. As you mentioned, the repo clearing got underway. Just any color you could offer there in terms of what the rollout looks like from here? And you have -- do you have everybody, all the key players, connected that you'd like to see connected there? And is it a process now of just encouraging them to start to port some volumes on to your platforms?

Thomas A. Kloet

Yes. I'm actually quite pleased with how this is going. I know you heard through several calls that we are working out, that we're going to deliver it and it did take longer than we had originally hoped, but that planning and the work done by the steering committee that was created by the IIAC has resulted in a very smooth process going forward. The customized software that we built is working exceptionally well and between -- just to give you some dynamics here, between February and April, there were 802 transactions across 14 ISINs. Now an ISIN is equivalent of a CUSIP or a security number for each one of the securities. So in essence, we're clearing trades on 14 securities for a total of about $36.8 billion in notional value. So we're quite pleased with that especially given there's only 14 ISINs. There is a well thought through bring-on strategy, if I can call it that, for this particular effort. We are exactly on plan with it. We will be increasing the number of ISINs significantly over the course of the next couple of months, but we did have, to a certain extent, a soft launch with a limited number of ISINs because this is so important, systemic risk and the systemic risk program in Canada that we wanted to make sure everything was working right through that first initial period. And I'm really, really happy with how it's gone. I personally spent some time with the team that's working on it and we're off to a very, very good start here.

Jeff Fenwick - Cormark Securities Inc., Research Division

Great. And then maybe just one last one, if I can. On Razor Risk, you closed that in the quarter. Michael, can you add any color in terms of the contribution to expenses and revenues that came from that?

Michael S. Ptasznik

We identified that the combination of Razor, Atrium and ir2020 in the quarter was about $5 million in additional expenses. And right now, it's roughly around a breakeven, plus or minus. Is where it's currently operating.

Thomas A. Kloet

That was $5 million for the quarter. I just want to be clear, that was $5 million for the first quarter.

Operator

Your next question comes from the line of Sachin Shah with Tullett Prebon.

Sachin Shah

I just want to understand kind of the sequence of things that we should expect. You're waiting for the AMF, the OCS (sic) [OSC] approvals. You're also waiting for -- those approvals or comments should be due by June 4, and you're also waiting for Competition Canada and then any kind of timing on that? And is that going to lead to the final approval? And the shareholders are going to decide how much cash and stock that they want, approximately $40 in cash and $10 in stock and then that's going to be determined. They're going to be receiving the stock at closing? Is there any kind of trading of that stock beforehand? Just trying to understand the intrinsic value of that stock component also.

Thomas A. Kloet

Well, let me kind of back up to the beginning of your question. I'm not exactly sure I got all the question there, but let me try to answer that and then you can ask me something else if I don't get it. Yes, you're right. You're right in the process. The process is we need OSC and AMF final approval of their recognition orders, which are out to public comment as I indicated earlier and the comments are due June 4. So all that's correct. We also are still waiting for a Competition Bureau approval and I think they've made their own comments with respect to the process, so I don't think it's appropriate for me to comment beyond that. In addition to those 2 things you cited, we have the approval of -- from the British Columbia Securities Commission, the Alberta Securities Commission that were also -- that we also need before completing the transaction as well. Then there's the tender process that the shareholders will go through. And I think the Maple offer, as you know, is $50 a share, for 80% -- up to 80% of the shares with a minimum take-up required of 70%. So hopefully, that answers your question. That is the sequence of events, I guess, is that we'll get those approvals as I understand it, in approximately that order although the Competition Bureau clearly can weigh in whenever it pleases. It's independent of the securities process. But they've made their own comments in terms of what they're looking at and I don't think it's appropriate for me to add anything to that, but that's the sequence of events. So I hope I've answered your question, but I'm not sure that I have.

Sachin Shah

Okay. Just to follow up. So okay, the tender offer is set to, like, I think, expire end of this month but the termination date is July 31. So it seems like you're probably going to have to extend it again. Just -- Maple Group, from the release a week and change ago, as well as yourself, stated that you expect the deal to be closed with all the approvals in place, hopefully by July 31. So I just want to understand what's the margin of error for that July 31 termination day or walk day as you expect to have many of these things completed. Many of these things specifically referring to, obviously, the regulatory approvals.

Thomas A. Kloet

Well, I think we, as Maple has said, we're optimistic we'll get through that process by that date, but we are in the -- we are supporting the transaction. The decision to extend would largely rest with Maple. I think they've shown their commitment to the transaction with several extensions. So I think I'll let them add anything to that, but we are working very hard with them and I think making significant progress on the -- on working our way through a multi-faceted process.

Sachin Shah

Okay. And as far as the stock component. So there's no determination on how that stock component of approximately $10 is going to be valued at? At this point it's still too early for...

Thomas A. Kloet

I mean, I think the market will value that, not myself. I mean, I think the market will determine that. And I think that relates to the earlier question, which was how will the integration work and all that. Clearly, the market will make its determinations as we work our way through that process.

Operator

Your next question comes from the line of Geoff Kwan with RBC Capital Markets.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

I just had a question that's more of a technical thing. If the transaction closes as proposed, I'm assuming there'll be some sort of success fee payable. Has that been accrued in some of the prior charges? Or is that something that will come out in the quarter when the transaction actually closes?

Thomas A. Kloet

That's disclosed in the MD&A last year, Geoff. The -- let me just flip through it, make sure it's -- Paul, do you want to just quote a number?

Paul Malcolmson

I think it's 29.

Thomas A. Kloet

Geoff, the answer is it hasn't been accrued yet. So it is a contingent liability in our statement.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Excellent. And just on the pipeline. Obviously the markets have been a little bit more jittery as of late. Just wondering how -- what you've seen in terms of the pipeline, both kind of near to medium term?

Thomas A. Kloet

The pipeline is reflective of the macroeconomic environment we're working in, which has a great deal of uncertainty. There are -- we still believe that there are a lot of companies that want to go to the market but they're seeking a little bit more clarity in terms of market direction and market -- exactly where the market is going to go. I noted the comment by the head of listings at NASDAQ yesterday at their Investor Day that they think the Facebook IPO may lead to a stronger IPO market for high-profile IPOs. Granted it's theirs, not ours. I would have loved to have had it, obviously. It's theirs, not ours, but perhaps that will generate some more confidence. But you have an environment, particularly in Europe, but still in the United States where there's, I believe, there's a recovery going on but it's a fragile recovery and it's a slow growth recovery. And I think we all know about the uncertainty in Europe and I think that overhangs a lot of people's timing with respect to the market. But one thing I will -- I want to make sure in comment, I believe our competitiveness as a global listing environment has never been stronger and the interest in coming to our market is still very, very strong. Timing is an issue. And as the CEO, I think I'm charged with helping guide the institution through these peaks and troughs. And no doubt that with the situation in Europe and the situation in the United States, there is a bit of a trough going on. But we're working our way through that and our teams are continuing to work on establishing that pipeline because there is, to your question, Geoff, and I know it's embedded in your question, is there is -- it takes time to prime that pump and it takes time to work with new issuers that want to come to market. But we remain very, very pleased with the reception we get at our various venues when we're doing events, like I referenced, the Kitchener-Waterloo event yesterday.

Geoffrey Kwan - RBC Capital Markets, LLC, Research Division

Okay. And the last question I had is just in terms of -- if I look at the operating expenses, I know that, obviously, there's going to be a little bit more given the timing of the Razor Risk acquisition closing mid-quarter. Just thinking about how I think about going forward. I know you don't give specific guidance, but were there certain levers toward expected in terms of is this quarter relatively reflective of what we see kind of going forward, adjusting for the Razor Risk, for example? Or is there some incremental spend, for example, on the Quantum that we can expect towards the end of the year?

Michael S. Ptasznik

I think, as we said in previous calls, that from a cost standpoint, this -- first of all this quarter was a fairly typical quarter, i.e. there weren't significant amount of onetime items in the quarter. Looking forward as, again, as we've said every time, there will continue to be investments in new initiatives as we continue to try and grow the business and grow the revenue; however, we're also going to continue to try and look for operating efficiencies across the organization. So you know I can't really give you much guidance except for to really tell you that there wasn't anything unusual in this quarter. And you are right, we didn't have a full quarter of Razor.

Operator

[Operator Instructions] Your next question comes from the line of Doug Clark with ITG.

Doug Clark - ITG Investment Research Inc

Quick question for you. I'm fully respecting that there's a regulatory approval and all that you said when you're talking to Geoff, Tom. But given that this is possibly the last quarterly call before the deal gets approved, if not closes, can you give us some idea of how you'll change the landscape without that? Will you continue to run all of the various markets, Alpha, TSX, Venture and Select? And also, have you had any conversations with the regulators about the potential to continue to charge 2 data fees? Or would you see yourself going to 1 data fee, just so we can model up what that looks like?

Thomas A. Kloet

We would be -- we have not had the necessary interaction with Alpha. For all the right reasons -- let me back up a sec, because I don't want anybody to misunderstand this. For all the right reasons, given the respect we have for the profit that we're going through, we've not had the kind of conversations that we would need to have with outlook to understand their business, to really answer your question, Doug. I mean, I just -- we just haven't had that and I think you can understand why it would be important for us not to do that ahead of the full approval for the regulatory authorities, both Competition Bureau and securities commissions. So I'm not trying to duck the question, but the honest answer is if I told you anything, I'd be shooting from the hip because I don't have the information that I'd be able to answer that question. What I do know is that I believe that the integrated institution will be a stronger institution, but I can't get into the specifics because at TMX we're not that far into that integration discussion. So I'm genuinely not trying to duck the question, but if I said anything, I'd be telling you something without the -- I wouldn't have the information, actually, to answer that question yet.

Doug Clark - ITG Investment Research Inc

Okay, fair enough. Do you think that if you get the regulatory information, say, sometime in July before the shareholder vote, would you suspect that you would be able to answer those types of questions to let people understand potentially the value of the stub?

Thomas A. Kloet

We sure hope to be able to do that, yes. I mean, it all depends upon how the process unfolds. And again, I want to repeat, we're very, very -- we want to honor a process that's in front of us and with extreme respect for the Competition Bureau process and the securities regulators. So I don't want to do anything that will jeopardize that.

Operator

Your final question comes from the line of Justin Schack with Rosenblatt Securities.

Justin Schack - Rosenblatt Securities Inc., Research Division

BOX has been a nice contributor for you guys for a little while now. As you probably know, NASDAQ is launching another options market. We may see Miami Exchange come in later in the year and then possibly another options market launch by the ISE. How are you thinking about all this with respect to competition and what affect it may have on your market share there or pricing in margins in that business?

Thomas A. Kloet

Great question. The competitive dynamic of the U.S. equity options market is constantly evolving and getting more competitive as we speak. That said, there are some important developments at BOX, and if I can just spend a minute because I didn't have them in my comments but I think it's important for the analysts and the shareholders to know. As you probably saw, we announced a few weeks ago that -- 2 weeks ago actually, that at the end of April the Securities and Exchange Commissioners had approved the establishment of BOX as an exchange. For the benefit of those that may have not fully followed the story, up till then, we had been operating BOX as a marketplace under the license owned by NASDAQ via their acquisition of Boston Stock Exchange. Beginning on Monday, I'm pleased to announce that BOX will operate as an exchange with its own license. Relevant to the question is NASDAQ is going to enter in with yet another model into that competitive space and there's talk of the Miami Exchange entering as you said. We think BOX remains very competitive. There are some competitive dynamics that we think are very, very strong for BOX. First, for the retail market, and let's remember that the U.S. options, equity options market is in many ways a strongly -- a very strong retail market. We think BOX offers some very unique strategic opportunities for market participants to send flow to. First off, the pit [ph] model, which we have some patents on is a strong model. There are others that we've licensed to use some of that but -- to use that -- those patents. But it's a strong model and it continues to be favorable for a number of people that route orders into BOX. Secondly, the SOLA technology, which we've developed is really a leading edge technology for equity options. And the next step of introducing complex orders into the -- into BOX will be an important development for us and the teams of both the BOX team in Chicago and Boston and the development team we have -- the IT development team we have in Montréal, at the forefront of developing those complex order strategies, that will continue to keep BOX competitive. So I'm very, very pleased with our increase in market share. And sometimes the numbers don't always display -- when you see just the broad market share numbers, they don't always display how competitive we are because you have to remember that CBOE's license -- current license agreement with S&P gives some exclusivity with respect to the index products there. But when you take that out, when you take those products out, the places where BOX can be competitive in and list options, we're doing very, very well and have grown market share consistently. And I believe, somebody correct me if I have the number wrong, but I think last month, for instance, our average daily volume was somewhere around 600,000 contracts a day at BOX, so it continues to perform very well. It's got an excellent management team. I'm very pleased with the -- that we're at the end of this long trail to become an exchange and stand on our own 2 feet fully at BOX and that we'll have the SRO response with the full registration at the securities exchange there. There are exciting developments there that I think our shareholders will find that, over the future, that, combined with all the other things we're doing, whether it's Razor Risk, whether it's Atrium, whether it's the continued development of our efforts at Montréal Exchange, whether it's our listing team continuing to work on listings around the world and our continued effort to develop our technology and to being the best technology footprint in our marketplace, we're building a very, very solid foundation here for an excellent company for long-term growth and BOX is just part of it. So as you can tell, I'm pretty excited about where it's going.

Justin Schack - Rosenblatt Securities Inc., Research Division

That's helpful on the BOX stuff. I appreciate it. Just a quick follow-up. What is the timing on the complex order functionality rolling out?

Thomas A. Kloet

We haven't announced that yet because we're still working with the team. I think that we will -- we're making good progress on the development of that but I don't think we're prepared to announce the date yet.

Operator

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

Paul Malcolmson

Okay. Well, thank you very much, everyone, for listening today. Just a reminder for those of you in Toronto that the Annual and Special Meeting will be here in the gallery in the Exchange Tower in Toronto at 2:00 this afternoon. Also, 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 throughout the day. Thank you very much, and have a good day.

Thomas A. Kloet

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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