TMX Group Ltd. paid $12.4-million to settle a lawsuit launched against it by a former partner company, weighing on profits during a volatile second quarter.
The parent company of the Toronto Stock Exchange disclosed the “litigation settlement costs” on Wednesday in its quarterly earnings report. The settlement pushed up TMX’s operating expenses for the three months ended June 30, contributing to a 12-per-cent drop in profit compared with the same quarter last year.
The company did not name the counterparty involved in the lawsuit, and TMX spokeswoman Catherine Kee said the name of the plaintiff was confidential. She did confirm that “the litigation costs were in regards to a planned initiative that we ultimately chose not to proceed with,” adding that “we settled the matter with our former partner.”
Last September, cryptocurrency company Paycase Global Corp. sued TMX and its subsidiary Shorcan Digital Currency Network for terminating joint plans to build a trading platform for digital currencies such as bitcoin and ethereum. Court records show that the lawsuit, which sought US$500-million in damages, was withdrawn by the plaintiffs last month.
The partnership between Paycase and Shorcan had been announced in March, 2018. At the time, John Lee, the TMX’s head of enterprise innovation and product development, called the project “a significant step forward in the execution of TMX Group’s digital strategy.” TMX terminated the project without warning in December, 2018, according to statement of claim filed by Paycase in the Ontario Superior Court.
Paycase did not respond to a request for comment. Paycase had hired law firm Osler, Hoskin & Harcourt LLP as well as litigation finance firm Bentham IMF, now called Omni Bridgeway. Both firms declined to comment.
The $12.4-million litigation cost – which contributed to a 16 cent drop in TMX’s earnings per share – came during a challenging quarter that saw a huge increase in trading volumes across various TMX exchanges, but also a decline in fees from companies raising money and a drop in revenue from derivatives trading.
Overall revenue rose 4 per cent in the quarter, year over year, to $217.7-million. This was driven by a spike in trading volumes for equities and fixed income products as investors rushed to capitalize on the market rebound following the unprecedented sell-off in March.
“In equities and fixed income trading there was a 36-per-cent increase in revenue in Q2 compared with last year, driven by a 56-per-cent increase in volumes across all of our exchanges,” Paul Malcolmson, TMX director of investor relations, said on a Thursday analyst call.
Strong trading results on the Toronto Stock Exchange, TSX Venture Exchange and Alpha Exchange, however, were offset by a drop in derivatives trading on the Montreal Exchange. The company also earned fewer fees from listed companies raising additional money.
“High volatility during the first half of the year presented less-than-ideal conditions for companies to raise capital,” interim chief executive John McKenzie said on the call.
“As a result, the number of large additional financing transactions by existing issuers decreased compared to the first six months of 2019, and contributed to a 7-per-cent decrease in overall capital formation revenue,” Mr. McKenzie said.
The continuing search for a full-time CEO to replace Lou Eccleston, who stepped down in January, was not addressed on the call.
TMX announced on Wednesday that it is raising its dividend by 6 per cent, which is the company’s third dividend increase in the past 18 months. TMX shares closed down 1.63 per cent on Thursday.
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