TMX Forges Ahead to Offer Round-the-Clock Derivatives Trading

Canadian exchange operator TMX Group will continue with plans to extend market hours and release products in 2020 and 2021, says Luc Fortin, president and CEO of the Montreal Exchange (MX) and TMX Group’s global head of trading.

TMX is going ahead with efforts to execute those plans despite the global coronavirus outbreak, which has put many businesses—and entire industries—on hold.

Several of the exchange’s growth plans are centered on its derivatives business. TMX already extended derivatives trading hours by four hours in 2018, when market open went from 6 am ET to 2 am ET. Fortin says the exchange will next flip the switch on near 24-hour trading in early 2021 to match what its G7 peers offer, and to give European and Asian investors the freedom to transact on their terms, rather than Canada’s.

“In the most volatile days—because God knows we’ve seen them—we’ve seen some of that average daily volume spike to almost 10%. Just those four extra hours represent four to 10% of our total daily volume,” Fortin says. “Our anticipation is that within two years of flipping the switch on extended hours, we should see our entire extended hours represent—and this is a fairly conservative estimate—15% of our average daily volume.”

The details haven’t been finalized yet, but Fortin expects that the new market open will be around 7 pm ET or 8 pm ET. The exchange is already working on how to surveil those added hours, adjust market operations, and put more boots on the ground, particularly as someone will have to make margin calls day and night now.

Though more than 90% of TMX staff are now working from home due to the Covid-19 health crisis, the exchange has onboarded a number of new members. It’s possible, however, that at least some of its planned product releases might be pushed back, Fortin says. For now, it’s too early to tell.

Fortin says the exchange will also launch a series of new short-term interest rate contracts this year in response to the Libor (London Inter-bank Offered Rate) phase-out, and Canada’s retention of CDOR (Canadian Dollar Offered Rate). The new contracts will reflect TMX’s ongoing work with the industry to establish new benchmarks based on transaction volumes, as opposed to posted rates or survey findings.

Equities ESG Enhancement

The exchange’s equities product suite is also expected to see some of its own upgrades pertaining to environmental, social, and governance (ESG) transparency. In partnership with S&P, TMX is working on retooling the S&P/TSX 60 ESG index, used by investors looking to include sustainability criteria in their stock analysis. There have been some “dysfunctional, socially irresponsible” indices around, Fortin says, but with very little AUM under them.

The retool aims to offer greater transparency into TMX’s products, giving investors a heightened ability to assess the ESG risks in their investments. The launch is expected to be within the next month.

“The objective is to make sure that we have futures contracts that will be able to adapt,” Fortin says. “It’s one of the first ESG products that we will be looking to have, and it will ensure that if you are a global investor gaining exposure to Canadian equities via futures, you don’t have to fret about what the constituents of the index are.”