October 29, 2008 / 7:38 PM / 10 years ago

UPDATE 3-TMX Group profit rises, stock jumps 10 pct

* EPS 66 Canadian cents ahead of market expectations

* Will cut equity trading fees, boost data fees

* Shares jump 10.2 pct to close at C$27.49 (Adds CEO, analyst comments; updates share price)

TORONTO, Oct 29 (Reuters) - Exchange operator TMX Group Inc (X.TO) said on Wednesday its third-quarter profit rose 19 percent, boosted by the addition of the Montreal Exchange derivatives business this year, and it outlined some fee changes that could increase revenue.

Shares of TMX Group, which operates the Toronto Stock Exchange, jumped 10.2 percent to close at C$27.49. The stock is down 48 percent year-to-date.

TMX Group said it will cut stock-trading fees and increase fees it charges for market data, both effective Jan. 1.

The reduction in equity trading fees is designed to attract more participants and activity as the company faces growing competition, including a closely watched alternative trading system that is due to launch next week.

The company’s net income climbed to C$50.9 million ($41.7 million), or 66 Canadian cents a share, in the three months ended Sept 30. That compares with a profit of C$42.7 million, or 62 Canadian cents, in the year-earlier period.

Profit was slightly ahead of the median analyst forecast of 65 Canadian cents a share before items, according to Reuters Estimates.

“People have become so heavily negative on the story that now they’re beginning to outperform expectations,” said Jeff Fenwick, an analyst at Cormark Securities in Toronto.

Some investors view TMX as a cyclical stock, as its listing, trading and financing activity tends to track market conditions, Fenwick noted.

“But if you look at the fundamentals of their business they’ve continued to grow,” Fenwick added. “Another encouraging sign was that market data continued to grow in the quarter, despite the weakening conditions in terms of layoffs in the sector.”

The company booked new revenue from the Montreal Exchange derivatives business, acquired in May, and from the Boston Options Exchange. TMX acquired a controlling stake in BOX in August.

Amid unprecedented volatility in global financial markets, overall equity and derivative trading volumes fell in the quarter, led by a 28 percent drop in volumes on the junior TSX Venture Exchange.

But trading volume on the senior Toronto Stock Exchange, was up 12 percent over last year, TMX Chief Executive Tom Kloet said on a conference call, and transactions were up 50 percent.

“To us, that suggests a positive trend towards increased program and algorithmic trading in the Canadian markets,” Kloet said.

The company said changes to its trading fees could reduce trading revenue by about C$11 million to C$14 million on an annual basis if an offsetting increase in volume is not realized.

The planned increase in prices for data subscriptions followed a review of data fees on other global exchanges, Kloet said.

“Our market data has great richness, there’s a lot of value in what we put out,” he said.

Overall, TMX’s revenue rose 32 percent to C$139.4 million, boosted by the company’s diversified business operations and the integration of the Montreal Exchange. Expenses rose 40 percent to C$62.3 million due to higher compensation and transition costs.

Investors are waiting to see how a new alternative market called Alpha Trading Systems, backed by the country’s largest investment banks, will affect TMX exchange group. Alpha is expected to start operations Nov. 7.

Kloet, who took the helm at TMX in July, reiterated the company was committed to staying competitive “in all aspects” of its business. ($1=$1.22 Canadian) (Reporting by Jennifer Kwan and Lynne Olver; editing by Rob Wilson)

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