Recent Trends and Performance in Canada’s Securities Industry 

IIROC FAS ConferenceSeptember 2014

Key Observations 

• Robust Canadian and U.S. equity markets• More active trading and financing• Increased demand for wealth management products and services

• Fee‐based revenue now largest retail revenue component

• Overall Improvement in industry revenue and profits• Welcome rebound in boutique earnings• Client AUM at record levels• Some margin pressures persist• Industry consolidation continues

2

Equity Markets

3

Source: S&P

TSX Venture Market

4

Source: S&P

TSX: 31%

Venture: ‐14%

Client Assets Under Management

5

$B

0

200

400

600

800

1000

1200

1400

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Full‐service brokers

Online/discount brokers

Source: Investor Economics

77% increase

Assets in Equity Mutual Funds

6

$B

Source: IFIC

200

250

300

350

400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014

Secondary Bond Trading

7

$Tr

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013

Secondary Equity Trading

8

$Tr

0

0.5

1

1.5

2

2.5

2007 2008 2009 2010 2011 2012 2013

Debt and Equity Financing

9

$B

0

5

10

15

20

25

30

35

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014

Corporate Bond

Common Equity

Small Equity Financing

10

Deals < $20M

0

500

1,000

1,500

2,000

2,500

3,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010 2011 2012 2013 2014

$M

Operating Revenues and ProfitsIndustry

0

1

2

3

4

5

6

7

0

2

4

6

8

10

12

14

16

18

20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Operating Revenue Operating Profit $B$B

Revenue: +13%Profit: +42%

Revenue Breakdown

2013

12

Mutual Fund Commissions

14%Non‐MF 

Commissions18%

Investment Banking19%

Fixed Income Trading10%

Equity Trading1%

Net Interest11%

Fees21%

Other6%

Integrated65%

Boutiques35%

2007

Revenue ShareIndustry Total Revenue

2013

13

Integrated74%

Boutiques26%

Integrated74%

Boutiques26%

2012

Profit Distribution

2013

2013 % change

Integrated $4,374M 36%

Institutional $860M 42%

Retail $160M 979%

14

Integrated81%

Institutional16%

Retail3%

Industry Operating Revenue and Profit

15

H1 2014/2013

$B

+21%

+48%

0

2

4

6

8

10

12

Op. Rev Op. Profit

H1 2013 H1 2014

Profits123 firms

Losses79 firms

2013

Profits117 firms

Losses89 firms

2012

Overall ProfitabilityNumber of Firms with Operating Profits and Losses

Profits169 firms

Losses37 firms

2007

16

IIROC Firms with Profits and Losses

17

# of Firms

0

20

40

60

80

100

120

140

160

180

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M

2008 2009 2010 2011 2012 2013 2014

Profits

Losses

$B

Commission RevenueExcluding Mutual Fund Sales

2.73.0

3.43.5

4.0 4.1

3.73.4

3.7 3.7

2.93.1

1.7

0

1

1

2

2

3

3

4

4

5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014

$B

Mutual Fund Revenue

1.1

1.4

1.7

2.0

2.2

1.9

1.6

2.0

2.2 2.2

2.4

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014

Net Sales of Equity Mutual Funds

20

$B

Source: IFIC

‐6

‐4

‐2

0

2

4

6

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014

21

$B

Investment Banking Revenue

2.7

3.1

3.64.0

4.5

3.1

3.9 4.0 4.0

3.6

3.2

2.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014

Composition of Investment Banking Revenue

22

Equity57%

Debt13%

Corporate advisory30%

2007

Equity46%

Debt29%

Corporate advisory25%

2013

Share of Investment Banking Revenue

23

Integrated v. Boutiques

58%61%

66%64%

69%

73% 74% 73%

42%39%

34%36%

31%

27% 26% 27%

20%

30%

40%

50%

60%

70%

80%

2007 2008 2009 2010 2011 2012 2013 2014e

Integrated

Boutiques

Fee Revenue

24

$B

1.1

1.4

1.7

2.1

2.6 2.62.4

2.7

3.13.2

3.7

2.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 2014

Industry fee‐based revenue

Market Share

25

Integrated76%

Boutiques24%

2013

Integrated70%

Boutiques30%

2007

Fee‐based Revenue

26

Integrated v. Retail boutiques$M

Retained EarningsBoutique’s Share of Industry Total

27

35%

30%

25%

22%

14% 13%11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2007 2008 2009 2010 2011 2012 2013

Net Interest

28

The Advantage of Scale

29

Operating Costs per Dollar Revenue

Industry Consolidation: IIROC Resignations* 

30

* Resignations include amalgamations and acquisitions

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012 2013 H1 2014

Summary

• Competition in industry remains high• Diversified business lines• Soundly regulated

• Regulatory capital at historic high

• Demand for Canadian investment product strong internationally• Canadian dollar growing as a reserve currency

• Canadian Capital Market Infrastructure• Efficient clearing and settlement systems• Already well regulated  further bolstered by new IOSCO Principles

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Summary

• Boutique firms continue to face pressures:• Prolonged poor earnings• Wide dispersion in profitability • lack advantage of scale• Competition:  Downstream from EMDs  Upstream from 

Integrated

• Changing investor demographics/preferences

• Significant technology and compliance fixed costs• CRM – gradual phase‐in of CRM requirements• FATCA – July 2014• Mutual Fund Point‐of‐Sale • OTC Derivative Reporting – July 2014• Debt Securities Transaction Reporting – pending• Fiduciary standard ‐ unknown

32

Summary

• Dealers benefit from improved markets & economy• Investor and issuer confidence improved• More active trading and financing

• Increased retail investor participation• greater demand for financial and estate planning and 

retirement products and services• High cash holdings• Record AUM levels

• Capital raising for corporations and governments

• Strategic partnerships/amalgamations

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