Bloomberg News

TMX Group Sale to Banks Hinders Competition, Brokers Say

November 25, 2011

(Updates with Jones comments from fourth paragraph.)

Nov. 24 (Bloomberg) -- TMX Group Inc.’s proposed C$3.73 billion ($3.56 billion) takeover by Canadian banks and pension funds would hinder competition in the country’s capital markets, industry groups, brokers and investors told Quebec’s regulator.

The Autorite des Marches Financiers held a hearing today in Montreal on Maple Group Acquisition Corp.’s plan to buy the owner of the Toronto Stock Exchange and Montreal derivatives market, and combine it with bank-owned Alpha Group and the Canadian Depository for Securities Ltd. clearinghouse. Maple won support from TMX’s board Oct. 30, four months after it scrapped a deal with London Stock Exchange Group Plc.

Dealers including Edward Jones and groups such as the Investment Industry Regulatory Organization of Canada said in written comments to the regulator that integrating Alpha with TMX will limit competition and turn CDS’s clearing and settlement service into a “for-profit” business, which may drive up prices.

“It is not in the best interest of individual investors in Quebec or across Canada or the capital markets to allow a ‘for- profit’ model in a monopolistic environment,” Douglas Bennett, a principal at Edward Jones, said today in the hearing. “The existing cost-recovery model at CDS has worked well and should be maintained.”

Pricing, Governance Concerns

TMX’s three trading platforms handled 65 percent of Canadian equity trading in October, according to data compiled by IIROC, the regulator for Canada’s dealers and owner of 15.2 percent of CDS. IIROC advocates the “status quo” for the clearinghouse, citing concerns about pricing, governance and access to clearing and settlement services if bought.

“An unrestricted ‘for-profit’ monopoly for all clearing and settlement services in Canada would not be in the interest of the Canadian capital markets,” IIROC said in its submission.

The takeover by Maple Group, whose 13 members include the Caisse de Depot et Placement du Quebec, Desjardins Financial Group and Fonds de Solidarite FTQ, requires approval from provincial regulators and Canada’s Competition Bureau. Ontario’s regulator scheduled hearings on Dec. 1-2 in Toronto.

Maple spokesman Luc Bertrand and TMX Chief Executive Officer Thomas Kloet outlined the transaction today at the AMF hearing, which continues tomorrow.

Competitive Exchange

“What we have proposed, with the support of TMX Group, is a plan that makes sense, a plan that serves all market participants and Canada’s capital markets overall,” Bertrand said. “We believe we can work together to build on TMX Group’s clear strengths so that it becomes one of the most competitive exchange businesses in the world.”

TMX gained 8 cents to C$44.73 at 3:59 p.m. in trading in Toronto, below Maple’s C$50-a-share offer.

“Through this agreement, TMX Group’s ability to execute a business plan focused on growth is improved and accelerated, and our company’s global position is strengthened even further,” Kloet said.

The Board of Trade of Metropolitan Montreal, the Canadian Advocacy Council for Canada CFA Institute Societies and Edward Jones were among 11 presenters on the two-day schedule.

‘Efficient’ Market

TMX and Maple said in a Nov. 10 statement that an integrated exchange model incorporating CDS and Alpha will deliver “cost savings and operational efficiency” to all market participants, creating a market with “globally competitive pricing.”

Combined operations will attract new investment to Canada and allow Canadian companies greater opportunity to raise capital, Maple and TMX said.

Canadian Advocacy Council’s Chairman Keith Summers said in his presentation that CDS and Alpha should remain independent of the TMX. He also raised concerns about Maple’s board composition, corporate governance and conflicts of interest from ownership.

“The interests of Canadian issuers and investors are not necessarily best served by having the TMX controlled by Canadian institutions, but rather through smart regulations that promote investor confidence and efficient capital markets,” Summers said.

He called the integration of Alpha, which is owned by nine Canadian financial-services firms including Canada’s six biggest banks “just a loss of competition” that’s “not necessarily in the best public interest.”

Good for Montreal

Montreal’s Board of Trade CEO Michel Leblanc said he views the transaction “in a positive light” and called for a guarantee that Maple’s derivatives business be permanently based in the city. The deal “is very important for Montreal’s economy,” he said.

Tomorrow’s schedule includes presentations by the Institute for Governance of Private and Public Organizations, the Mouvement d’education et de defense des actionnaires and IIROC.

Maple’s tender offer expires Jan. 31 unless it’s extended or withdrawn. Maple needs to acquire 70 percent of TMX shares for the transaction to proceed. About 36 percent of TMX shares had been deposited under the offer as of Oct. 31, according to Maple.

--Editors: Paul Badertscher, David Scanlan

To contact the reporters on this story: Doug Alexander in Toronto at; Frederic Tomesco in Montreal at

To contact the editors responsible for this story: David Scanlan at; Nick Baker at

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