Concerns Surround TMX-Maple

Terry Flanagan

The proposed deal between Maple Group and TMX Group continues to be under the watchful eye of many market participants and observers.

Although the acquisition of the Toronto Stock Exchange’s owner by Maple Group has become friendly, and some worries regarding the board structure of the new entity have been addressed, market participants believe that there remain several concerns yet to be alleviated.

“I have concerns about the merits of the deal for smaller independent broker-dealers,” said Tim Price, chairman of Montreal-based broker MacDougall, MacDougall and MacTier. “Intuitively, it seems to me that if you have the two largest trading platforms in Canada coming together, it’s not necessarily going to be good news for pricing. However, Maple Group may be able to address those concerns in some fashion.”

TMX Group, the operator of the Toronto Stock Exchange, announced Monday 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 has agreed to pay TMX a reverse termination fee of $39 million if the transaction fails due to regulatory concerns. Regulatory hearings at the Autorité des Marchés Financiers in Montreal and the Ontario Securities Commission in Toronto are scheduled for the coming weeks.

If all the requisite approvals are granted, then the parties hope to close on the deal by early 2012. As part of the support agreement, Maple has extended its offer until Jan. 31, with the possibility of a further three-month extension possible if necessary to obtain the necessary regulatory approvals.

After the deal was initially announced, observers noted that having Canada’s largest banks and pension funds controlling the largest exchange and dark pool, together handling a substantial portion of domestic order flow, would be a concern for the Canadian trading landscape. CDS Clearing and Depository Services would also be under the control of the entity. This so-called vertical integration silo is also one of the main issues the regulators are considering in the NYSE Euronext-Deutsche Borse merger.

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