09.22.2011
By Terry Flanagan

Exchanges Vie for Profits

Exchanges look for revenue via technology—or “synergies.

As the Canadian trading landscape and market structure change, so need the sell-side service providers. In this group lies exchanges, which some say, continue to struggle with improving cost efficiency, and innovation

The possible Maple Group Acquisition Group takeover of the TMX Group, the owner of Canada’s premier stock exchange, the Toronto Stock Exchange (TSX) is still in limbo. Such uncertainty has left market participants guessing.

“The merger would create a vertically integrated market structure that can leverage synergies from a cost point of view—revenue synergy, said Jos Schmitt, chief executive of trading systems’ provider, Alpha Group.

Schmitt noted that the Maple/TMX deal would promote “cost efficiency and innovation,” but noted that while the merger is an attractive “vision” that Alpha Group shares…such an idea may not play not favorably in “execution and strategy.”

“There’s a vision, execution and strategy and right now, we just have a vision,” Schmitt said.

While shareholders of the TSX may benefit from increased market share, others say that regardless of ownership structure, the merger will need to face regulators.

“Ownership structure surrounds the business aspects, and that doesn’t mean anything,” said Cindy Petlock, general counsel and corporate secretary for CNSX Markets.

“This will depend on the government structure that’s imposed; will the government allow it?” she said. “People will fear the market they know and love will change.”

U.S. exchanges have proven that one way of extracting non-traditional revenue is to delve into technology. Canada may follow suit as some market participants look to technology to generate the growing need for profit in Canada.

“Exchanges are trying to diversify their revenue generation by providing technology services,” said Larry Hansen, vice president and head of Canada at Sapient Global Market, citing one of the industry’s biggest players—the New York Stock Exchange (NYSE), and its NYSE technologies division.

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