CEO’S LETTER TO SHAREHOLDERS

I am pleased to report on my first full year as Chief Executive Officer of TSX Group Inc.

At TSX Group, we have put a sharp focus on building our business where the strongest gains are to be made. We employ a disciplined approach to cost control and seeking new efficiencies.

These approaches produced 19 per cent more revenue for the year, four per cent lower expenses and 51 per cent higher net income for 2005 compared to 2004.

All of this came in the context of growing Canadian economic strength – and strength in our capital markets to match. That strength was reflected throughout our business. In 2005, TSX Group had:

• Record listings with 223 new companies on Toronto Stock Exchange. Structured products, a key growth area, represented 59 of the
  137 IPOs and 52 per cent of all IPO financing on TSX last year.
• Record trading, whether measured by value, volume or the number of transactions. We broke through the $1 trillion mark on
  Toronto Stock Exchange for the first time in our history, handling more than 55 million transactions, another record. Trading on
  TSX Venture Exchange was also at record levels.
• Record levels in data sales, and data subscriptions hit a new all-time high.
• Record volumes in trading natural gas and electricity contracts on our Natural Gas Exchange (NGX).
• As well, value traded on CanDeal.ca Inc. was $148 billion, up 68 per cent over 2004. CanDeal, Canada’s leading electronic fixed income
  marketplace, is owned by TSX Group (45 per cent) and Canada’s six largest banks.

These records are not without consequence. Record numbers of orders and trades – and a rising ratio of orders to trades as computer-program or algorithmic trading became more widespread – required that we constantly ensure adequate trading system capacity to meet rising demand.

We doubled our trading capacity through two separate upgrades during the year, cut our response time and added other enhancements to maintain our technological leadership. A strong technology base is essential to our customer’s success.

So far this decade, the performance of the Canadian economy has been the success story of the global economy.

From December 31, 1999 to December 31, 2005, the S&P/TSX Composite Index was up 34 per cent. The comparable U.S. index, the S&P 500, was down 15 per cent, the Dow Jones Industrial Average down 7 per cent, the NASDAQ Composite down 46 per cent and the main London index, the FTSE 100, was down 19 per cent.

This out-performance is even more impressive when the currency gains as a result of the rising Canadian dollar are added in.

In certain sectors, TSX Group exchanges set the global standard.

TSX and TSX Venture are the mining exchanges for the world. Again last year, our equity exchanges were the largest single source of financing for mining projects and attracted listings from many parts of the world. Some 60 per cent of the world’s mining companies continue to be issuers listed on Toronto Stock Exchange or TSX Venture Exchange.

This is a significant strength, especially during the cyclical strengthening of the industry that has accompanied the rise of China and India as important global economic players. More importantly they are societies that increasingly demonstrate the middle-class consumption patterns that fuel the demand for the basic materials that are a traditional Canadian strength.

TSX Group was well represented last fall at China Mining, that country’s most important global mining conference. And last fall, during the annual meeting of the World Federation of Exchanges (WFE) in Mumbai, India’s financial capital, I spent time with Indian business leaders and came away with a strong sense of the potential importance of stronger links between the Indian and Canadian capital markets, especially in the energy sector where India has burgeoning needs and Canada has expertise that can contribute to their meeting those needs.

Energy is the second major area where we set the global standard. In this sector, we have two sources of strength. Two of our exchanges, TSX Venture Exchange and NGX, are based in Calgary, Alberta to serve our customers there.

Our two equity exchanges have global leadership in the industry, with more energy companies listed than any other exchange or exchange group in the world.

NGX, which we acquired in 2004, is an increasingly important part of our business, representing six per cent of revenues in 2005. Volumes traded and/or cleared in natural gas and electricity contracts on NGX in 2005 increased by 20 per cent over 2004.

These two leadership sectors, along with our strengths in life sciences, information technology and other sectors, have combined to lift TSX Group to a leading position among the world’s exchanges.

Our main competition is from the two large U.S. exchanges and to a lesser extent the London Stock Exchange.

According to the World Federation of Exchanges, when 2005 ended, more money had been raised on TSX and TSX Venture Exchange in initial public offerings than was raised on NASDAQ – U.S. $12.8 billion versus U.S. $12.2 billion. We were comparable to the London exchange in total capital raised – the LSE was the source of $51 billion U.S. in capital, our exchanges $43.2 billion U.S. – through both initial and secondary offerings. We finished the year third (behind NYSE and LSE) in the world in terms of capital raised on exchanges.

Our equity exchanges were seventh in the world in terms of market capitalization, sixth in the world in terms of turnover in exchange traded funds (ETFs) and for a good part of the year had stronger turnover in ETFs than NYSE. Among global exchanges, we showed one of the strongest gains in market capitalization of listed issuers (25.9 per cent) and in value of share trading (38.1 per cent), (both measured in U.S. dollars).

Against our strongest competitors – NYSE and NASDAQ – we have been making clear gains not only in passing NASDAQ in the amount of capital raised but in overall market share in Canadian-based inter-listed trading.

At TSX Group, we have worked with others in the Canadian capital markets to evolve our markets into aggressive competitors for global capital. We believe that our world leading performance of the last few years cannot be taken for granted in the future. Canada must prepare its capital markets to face these large foreign competitors. Further change in regulation, exchange services and marketplace structure are necessary to ensure Canada’s continued success.

As TSX Group, we welcome these developments and look forward to the future opportunities they will create.

RICHARD NESBITT
Chief Executive Officer
TSX Group Inc.