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Letter from the CEO

As the year progressed, the global economic condition changed considerably, most dramatically over the second half of the year. Virtually every country across the globe has been impacted, with businesses around the world dealing with the dual challenges of a locked credit market coupled with significant destabilization in the real economy. Governments around the world have intervened with strong and immediate action, the success of which remains to be seen. The Canadian economy has weakened in the past year and TMX Group is certainly feeling the effects. Like any business, our operations are subject to economic factors that are beyond our control.

However, I remain excited by the opportunity to be heading up an exchange group in Canada, despite the fragile environment. Great opportunities exist for our newly combined company. We believe that over the long term, exchanges and clearing houses will become even more critical by providing transparent markets for price discovery, well regulated venues for capital formation and effectively collateralized central clearing mechanisms for managing counterparty credit risk.

Another reason for my optimism is that although we are not immune to market fluctuations, the diversification of our company over the last few years has reduced our dependence on purely equity market performance. Our 2008 financial results display signs that our diversification is beginning to provide results.

In May 2008, we took the latest and most important step in this diversification as we completed our business combination with Canada’s derivatives exchange, Montreal Exchange, or MX, to form TMX Group. By achieving this milestone, TMX Group became Canada’s capital markets trading centre, offering cash and derivatives products across multiple asset classes. For the year ended December 31, 2008, trading revenue from the Toronto Stock Exchange accounted for only 20% of our total revenue compared with 32% just three years ago. This was achieved with compound annual growth in revenue of over 22% during that same period. This diversification opens new avenues for growth and better positions us to face the challenges of the future.

Despite the market environment, overall results for 2008 were positive. Revenue increased 26%, net income increased by 22% and diluted earnings per share was up 14% over 2007. Much of the year over year revenue increase was due to the inclusion of revenue from MX. But the results also reflected the strong performances of our energy market and core business market data operations. Revenue from Natural Gas Exchange (NGX) was up 38% over 2007 due to higher transaction volumes from adding new products, more customers and an improved distribution network. NGX continues to increase its presence in the U.S. market, now offering physical natural gas clearing services at thirteen U.S. hubs. Revenue from market data grew 23% over 2007, due to the combination with MX and also due to our success in selling direct data feeds to U.S. clients, increases in our index business and the launch of co-location services.

The achievements of 2008 are evidence that our strategy of offering leading-edge technology, innovative products and competitive pricing across each area of our business is beginning to work. I am confident that we have a strong team in place to continue to execute this strategy.

A major priority for 2008 was the development of an integration plan subsequent to the acquisition of MX. With the plan developed, we are now in the execution phase of this plan. We also advanced a number of our other initiatives during the year including the work our technology team began in meeting the demands of record-breaking trading activity through our Quantum matching engine. In September 2008, Toronto Stock Exchange set a daily record for the number of transactions and in December 2008, we set a daily high for volume traded. Overall, despite the uncertain market conditions we faced, TSX trading volumes were up 14% and transactions were up 54% in 2008 compared with 2007, largely due to our efforts in attracting new participants to our marketplace.

In August, we completed the acquisition of an additional 21.9% of the Boston Options Exchange (BOX). As a result, TMX Group is now the majority owner of BOX, further diversifying our derivative product and geographic base. We believe BOX’s market structure, coupled with its use of our SOLA technology, positions BOX well for growth in the competitive US equity options market.

In October, we announced the launch of a new Electronic Liquidity Provider (ELP) program, which offers significant fee incentives to high-velocity traders. We think the ELP program will benefit equity markets by tightening spreads, reducing friction costs, increasing overall turnover and attracting more liquidity from outside of Canada. We’re very pleased with the new liquidity that we are already seeing as a result of this program.

In December, we launched our smart order routing solution for FIX connectivity on a pilot basis. This product has been designed to help market participants efficiently meet their best price regulatory obligations by routing trades to any exchange or alternative trading system in Canada. Full roll-out is scheduled for the first half of 2009.

In market data, we continued to make strides in our on-going effort to deliver low-latency, marketplace neutral solutions for market participants. We launched the Consolidated Data Feed of pre and post-trade data for equity marketplaces in Canada, reducing the costs of building multiple feed formats for vendors and clients, and helping our trading customers meet best execution and trade-through obligations. The second phase of the Consolidated Data Feed, the Canadian Best Bid and Offer real-time data feed, was launched in November 2008.

In order to deliver the ultra-low latency required by our algorithmic and high velocity traders, we began to offer clients the opportunity to locate their trading applications in the same physical data centre as the TSX Quantum equity trading engine and the TSX market data content provider. In November, we announced that following the completion of the integration of Montreal Exchange and TSX data centres, co-location services will be expanded to include derivatives trading and data clients in 2009.

Despite the downturn in markets, our business development teams continued to promote TMX Group exchanges as listing destinations worldwide, particularly in areas of our expertise, the energy and mining sectors and small to medium-sized enterprises. In 2008, we visited Australia, Argentina, Chile, Peru, Hong Kong, South Africa, U.K., Russia and Israel. And in November we completed our 2008 U.S. Campaign, which focused on increasing awareness among small to medium sized businesses of Toronto Stock Exchange and TSX Venture Exchange as listing destinations. At December 31, 2008, we were the listing venue of 273 international issuers and we remain optimistic about the pipeline of potential future issuers both in Canada and beyond.

This past year has been a difficult and even calamitous one for global markets and it is unclear when market conditions will improve. I believe the steps we have taken in 2008 to integrate Canada’s cash and derivatives markets will benefit Canada’s capital markets in both the short and long term.

Our vision remains focused – to be a leading Canadian public company that is the best operator of electronic marketplaces on a global standard. We are also keenly aware that we operate in a dynamic and competitive environment. Our competitive response is in our daily work to best serve our customers and to continue to deliver efficient, responsive and adaptable products and services.

While this year has been challenging, we have experienced a number of successes in keeping with our priorities to integrate, enhance and innovate across our business. TMX Group’s foundation is built on the effort of a tireless team guided by a dedicated Board of Directors, along with the support of our customers, intermediaries, shareholders and regulators. I look forward to updating you on our progress as our effort continues.

Thomas Kloet CEO