TMX CEO Sees Inflation Jolting Demand for Fixed Income Futures

(Bloomberg) -- Higher inflation and central banks’ response to it are driving a surge in trading of fixed-income futures that looks poised to continue in the months ahead, TMX Group Ltd. Chief Executive Officer John McKenzie said. 

Derivatives trading and clearing revenue rose 32% in the third quarter from a year earlier, the strongest gain among TMX’s four main lines of business, the Toronto-based exchange operator said Monday in its earnings statement. 

Average daily volume in the Canadian short-term interest rate futures product was up 12% in the nine months ended Sept. 30, executives said on a call with analysts Tuesday.

“With some speculation around inflation, changing of rates, and more volatility across the yield curve, we’re seeing very strong pickup right across that product suite,” McKenzie said in an interview. “I expect that to be a strong indicator going into the fourth quarter as well, and we’ve already seen it in the numbers that have come out for October.”

Higher Costs

Overall, TMX Group’s revenue rose 11% to C$231.3 million ($186 million), roughly in line with analysts’ estimates. Revenue from equities and bond trading fell slightly. But higher expenses were the major reason why adjusted profit came in at C$1.57 a share, trailing analysts’ C$1.62 average estimate.  

The earnings miss sent the shares down the most in a about a year. TMX fell 2.9% to C$134.19 at 1:15 p.m. in Toronto. TMX is up 5.6% this year, compared with a 24% gain for the S&P/TSX Composite Index. 

Initial public offerings may remain strong for the foreseeable future, partly driven by private equity firms and pension funds seeking to get liquidity out of their investments, McKenzie said. Revenue from capital formation rose 20% to C$60.2 million last quarter.

“There really isn’t a cliff that you see in the future as to when it may stop,” he said. “You continue to have strong liquidity in the market, strong valuations and companies are getting successful deals done. That’s the rationale for other companies to come to market.”

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