A Canadian consortium aiming to buy the operator of the country's largest exchanges said the C$3.8 billion deal would likely win regulatory approval, its hopes boosted by a first day of hearings on Thursday.
In an appearance before regulators in the French-speaking province of Quebec, Maple Group defended its proposal to buy TMX Group against criticism it would create a monopoly and squash competition. Maple is comprised of 13 of Canada's most powerful financial institutions.
There was nothing there that was troubling for us, they were completely understandable questions. I think we answered well ... and can go ahead with our project on this basis, Luc Bertrand, chief representative of Maple Group and vice-chairman of National Bank Financial
TMX operates the Toronto Stock Exchange, the Montreal Exchange derivatives market, and the TSX Venture exchange for small-capitalization companies, among others.
Maple's proposal would put TMX-owned exchanges, plus some clearance and settlement bodies that it runs, under the wing of the country's securities dealers, also owned by the big banks. Such an arrangement is similar to a model used at Germany's Deutsche Borse, Brazil's Bovespa and others.
That has raised concerns about conflict of interest and the creation of an entity so dominant that it would raise costs for customers and hinder competition.
Shares of TMX rose 0.22 percent to C$44.75 on Thursday in Toronto, hovering about 10 percent below Maple's C$50-a-share bid price. The shares were not traded on the New York Stock Exchange, which was closed for U.S. Thanksgiving Day.
Mario Albert, president of the provincial regulator Autorite des marches financiers (AMF), grilled both Maple and TMX chiefs about how their new board of directors would represent the interests off small investors.
He also sought assurances the deal would protect Montreal as a respected center of derivatives trading and expertise.
Critics in the province fear a flight of business and from Montreal to Toronto, the country's traditional financial hub.
Bertrand, speaking on behalf of Maple, and Tom Kloet, chief executive of TMX, argued that the merger of several market platforms would help reduce administrative costs, attract investment and make the TMX more competitive vis-a-vis exchanges in the United States and elsewhere.
It's all about making our marketplace as efficient as we can and also making us a stronger institution to build our global reach as well, said Kloet.
A wave of global exchange consolidation leaves Canada at a disadvantage if it does not follow suit, they said.
DECISION WEEKS AWAY
The tone of the exchange between the AMF and business officials was collegial, and the hearing hall was only half-full with about 50 audience members.
Quebec will take several weeks to make a decision in the case, an AMF spokesman said.
The two-day Montreal session will be followed by a similar session December 1-2 in Toronto before the Ontario Securities Commission, Canada's major securities regulator. Two other provinces, Alberta and British Columbia, must also audit the proposal before ruling on it.
In addition, the deal will have to pass muster with the federal Competition Bureau.
RISKS VS SYNERGIES
Anticompetition concerns arise from plans to unite TMX's exchanges with Alpha Group, Canada's biggest alternative trading system, to control more than 80 percent of all stock trading.
Another key concern AMF spent a big chunk of time on was Maple's plan to bring into its fold the country's not-for-profit national clearing and settlement shop, the Canadian Depository for Securities.
CDS currently operates under a cost-recovery model, meaning any money it generates helps defray costs for users.
Under the Maple deal, the clearing house would become a for-profit entity that could result in higher fees for customers, critics say.
Kloet said that the combination of CDS with the clearing house now operated by the Montreal Exchange, the Canadian Derivatives Clearing Corp. (CDCC), would help that derivatives market grow while keeping that business in Montreal.
I think it helps our derivative market business significantly. ... I think it will push us to the next level in that, and I'm very excited about it and excited about what it'll mean for our business here in Quebec.
Answering queries about oversight of the consolidated market infrastructure, Bertrand said the model would make it easier for regulators to supervise activity across a broader swath of the market and identify risky behavior.