Rivals Eye Opportunities From Any TMX-Maple Deal

Terry Flanagan

While the hot topic surrounding the TMX-Maple deal is the implications it would have on competition in Canada, others are seeing potential opportunities for growth resulting from the potential tie-up.

“If you rolled Alpha Exchange into TMX Group, that would give them about 83% market share of trading on one venue,” said Sean Debotte, director of business development at Canadian alternative trading venue Omega ATS. “However, it’s not likely that they would maintain that. When you compress a fragmented market, usually there is diffusion flowing into other venues.”

Debotte recalls the NYSE and Arca merger in the U.S., in which the venues controlled about 30% and 35% of equities market share, respectively. However, once combined, they didn’t retain 65% market share, it was closer to 45%, as order flow diffused to other venues.

“This natural diffusion to other venues may occur because of speed, trading strategies or order types,” added Debotte.

Maple Group’s $3.8 billion acquisition of TMX Group, operator of the Toronto and Montreal exchanges, is being jointly reviewed by Canada’s Competition Bureau and the Ontario Securities Commission. Maple, a 13-member bidding consortium whose members include four of Canada’s big banks, proposes folding into TMX an alternative trading platform owned by the banks, known as Alpha Exchange, as well as CDS Canadian Depository Services, the main securities clearing house in which the banks are also big shareholders, as part of the acquisition.

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”.

The regulators in Canada have clearly been taking their review of the deal very seriously, as the deal could potentially have substantial and far-reaching effects on the Canadian market landscape.

“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 (CNSX).

Maple earlier in the month 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.

“The general consensus among Canadian market participants is that we would all like a decision to be made, whether it goes through or not,” said Debotte at Omega ATS. “We just want something to happen. The Maple bid has been holding the Canadian markets in suspended animation for the last year. The impact has been that there is very little new developments and competition entering the space, and very little changes to pricing and technology, while everyone is concerned with how the markets will fare once the dust settles. While it’s been business as usual here, the rest of the country is sitting on their hands waiting for the results—it’s holding everyone hostage.”

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