TSX Commentary

TMX Group Inc. (X) – $30.29 – Announces Trading Fee Reductions
Underperform, Above Average Risk, Price Target: $33.00
TMX announced plans to reduce trading fees for low-value securities (<$1/share) effective March 1, 2010. This follows Alpha’s announcement two weeks ago that it would reduce trading fees for low-value securities. RBC CM believes it was imperative for TMX to follow suit to minimize volume loss and even benefit, perhaps, from the new pricing levels, given the firm is charging a lower active fee than Alpha. TMX will have lower active fees, but it will also pay lower rebates relative to Alpha for low-value securities. RBC CM believes the revenue decline is likely to be less than what TMX indicated, due to increasing industry trading volumes. TMX estimates that annual revenues could decline $15-$18 million (2.7%-3.2% of RBC CM’s 2010 revenue forecast) based on historical trading patterns and trading mix, if offsetting benefits such as increased volumes are not realized. RBC CM maintains its $33/share 12-month target and Underperform rating. RBC CM expects to revise its financial forecasts when it publishes its Q4/09 preview shortly. The TMX Group reports Q4/09 results on Wednesday, February 10, with a conference call at 4:00 p.m. ET. Dial-in: 888-231-8191 or 647-427-7450.