Recent Trends and Performance in Canada’s Securities Industry

IIROC FAS Conference

Whistler, British Columbia

September 2015

Key Observations

• 2014: Broad-based improvement in industry revenue and profits

• Welcome rebound in boutique earnings

• Active trading and financing despite depressed stock market and commodity valuations

• Client AUM at new record levels

• Increased demand for wealth management products and services

• Margin pressures persist

• Current headwinds pose challenges

2

Real GDP Growth

3

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

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

2010 2011 2012 2013 2014 2015

Source: Statistics Canada

Commodity Price Index

4

Source: Bank of Canada

-49%

Oil Prices and Canadian Dollar

5

Source: Bank of Canada, Federal Reserve

-64%

-20%

Gold price

6

Source: Deutsche Bundesbank

-40%

Equity Markets

7

Source: S&P

-1%

-12%

TSX Venture

8

Source: S&P

-48%

-12%

Operating Revenue and Profit Industry

$M

$20,000M +15%

$6,951M +29%

Operating Profit

10

$M

Integrated v. Boutiques

$5,293M +21%

$1,657M +62%

Profit Distribution

2014 % change

Integrated $5,293M 21%

Institutional $1,294M 50%

Retail $363M 126%

11

Integrated 76%

Institutional 19%

Retail 5%

2014

0

2,000

4,000

6,000

8,000

10,000

12,000

Op. Rev Op. Profit

1H 2014 1H 2015

Industry Operating Revenue and Profit

12

1H 2015/2014

$M

+3%

-5%

Profits 123 firms

Losses 79 firms

2013

Overall Profitability Number of Firms with Operating Profits and Losses

Profits 169 firms

Losses 37 firms

2007

13

Profits 116 firms

Losses 59 firms

2014

14

Overall Profitability Number of Firms with Operating Profits and Losses

IIROC Firms with Profits and Losses

15

# 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 J S N J M M

2008 2009 2010 2011 2012 2013 2014 2015

Profits

Losses

IIROC Dealers by Revenue

16

0

5

10

15

20

25

30

35

40

45

Greater than $1B Greater than $100M Greater than $10M Greater than $5M Less than $5M

Source: IIROC Annual Report 2014-2015

Based on 185 IIROC Members reporting revenue between April 1, 2014 – March 31 2015

Percentage of Firms

40%

14%

35%

8%

3%

Commission 29%

Investment Banking 19%

Fixed Income Trading

8%

Equity Trading 1%

Net Interest 15%

Fees 23%

Other 5%

Revenue Breakdown

2014

17

Integrated 65%

Boutiques 35%

2007

Revenue Share Industry Total Revenue

2013

18

Integrated 74%

Boutiques 26%

Integrated 73%

Boutiques 27%

2014

$M

Commission Revenue Excluding Mutual Fund Sales

4,029 4,066

3,732

3,447 3,681 3,660

2,942 3,081

3,224

1,539

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015

+5%

Secondary Equity Trading

20

$Tr

1

1.5

2

2.5

2007 2008 2009 2010 2011 2012 2013 2014

$2.3Tr +16%

Secondary Bond Trading

21

$Tr

0

2

4

6

8

10

12

14

2007 2008 2009 2010 2011 2012 2013 2014

$10.8Tr +76% since 2009

$M

Mutual Fund Revenue

1,966

2,249

1,860

1,605

1,950

2,156 2,175

2,435 2,576

1,450

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015

+6%

23

$M

Investment Banking Revenue

3,950

4,546

3,077

3,915 4,029 3,977

3,565

3,191

3,793

1,884

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015

+19%

Composition of Investment Banking Revenue

24

Equity 57%

Debt 13%

Corporate advisory

30%

2007

Equity 54%

Debt 21%

Corporate Advisory

25%

2014

Investment Banking Revenue

25

Integrated v. Institutional

$M

16% $2.75 B

$0.83 B 29%

Share of Investment Banking Revenue

26

Integrated v. Boutiques

20%

30%

40%

50%

60%

70%

80%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Integrated

Boutiques

Collapse in SME Financing

27

Common Equity <$20M

$M

Debt and Equity Financing

28

$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 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014 2015

Corporate Bond

Common Equity

Fee Revenue

29

$M

2,146

2,636 2,624 2,385

2,721

3,094 3,206

3,660

4,614

2,575

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 1H 2015

+26%

Industry fee-based revenue

Market Share

30

Integrated 70%

Boutiques 30%

2007

Integrated 78%

Boutiques 22%

2014

Fee-based Revenue

31

Integrated v. Retail boutiques

$M

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Integrated

Retail

+29%

+16%

0

200

400

600

800

1,000

1,200

1,400

1,600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Full-service brokers

Online/discount brokers

Client Assets Under Management

32

$B

Source: Investor Economics

92% increase

Net Interest

33

33%

Industry Consolidation: IIROC Resignations*

34

* Resignations include amalgamations and acquisitions

4

12 13

6

8

20

18

9

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014 1H 2015

IIROC Dealers by the Number of Approved Persons

35

0

10

20

30

40

50

60

70

80

90

Over 1,000 501-1,000 101-500 11-100 10 or fewer

Source: IIROC Annual Report 2014-2015

Number of Firms

67

85

8 5

22

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37