Monopolistic Concerns Continue To Circle TMX-Maple

Terry Flanagan

Market participants in Canada remain hesitant about the implications of the combination of TMX-Maple as regulators continue to mull the deal.

“Concerning the TMX-Maple deal, I’m pretty surprised that given the breadth of what’s being proposed that there isn’t more discussion about how a monopoly is being created there,” said Nick Thadaney, chief executive of ITG Canada, a brokerage and financial technology firm. “This is not a minor issue, this is substantial.”

While market participants throughout Canada are all keeping an eye on the outcome of the deal, and what it would do for competitive balance, there has not been substantial discussion on what it would mean to have one entity controlling some 80% of order flow in Canada. If approved, it would be going against the grain seen in other developed markets, where fragmentation has outpaced consolidation.

“Unless there is serious opportunity for regulatory oversight, [the deal] will have a major impact on competitive balance in Canada,” said Richard Carleton, chief executive of the Canadian National Stock Exchange.

TMX Group is the operator of the Toronto Stock Exchange, TSX Venture, as well as the Montreal Exchange.

Maple’s acquisition of TMX is contingent on it also adding Alpha Group, Canada’s second largest equities trading venue, and CDS, Canada’s central clearing house. Alpha last month made the move from alternative trading system to exchange, allowing it to compete directly against TMX.

Ironically, Alpha was founded in 2007 by a group of banks looking to compete with TMX, in the hope of driving down fees and bringing an alternative to the markets. Some of those same banks are backers of Maple, including CIBC, TD Bank, National Bank of Canada and Bank of Nova Scotia. Another Alpha shareholder, Bank of Montreal, is not a member of Maple but is advising TMX on the transaction with Maple.

According to the latest statistics from regulator the Investment Industry Regulatory Organization of Canada, as at the end of the first quarter this year, the Toronto Stock Exchange handled 62% of Canadian equities order flow, while Alpha handled 17%.

Maple Group’s $3.8 billion acquisition of TMX Group is being jointly reviewed by Canada’s Competition Bureau and the Ontario Securities Commission (OSC). The Bureau is studying the draft terms and conditions proposed by the OSC. Bureau commissioner Melanie Aitken said that the OSC has “an expertise that we don’t, and we have a contribution to make from the perspective of what competitive consequences those transactions might have if they go ahead”.

Maple last week extended its offer for TMX for the seventh time, from April 30 to May 31. With the extension, the parties now aim to close on the transaction by July 31.

TMX announced in November that it had entered into a support agreement with proposed suitor Maple Group regarding a deal for all of TMX’s outstanding shares, in a transaction valued at $3.8 billion. Under the deal, Maple agreed to pay TMX a reverse termination fee of $39 million if the transaction fails due to regulatory concerns. TMX had previously been sour on the Maple bid, particularly when the London Stock Exchange still had its TMX takeover offer on the table.

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