A Canadian consortium's proposed takeover of TMX Group , operator of the country's largest exchanges, will make capital markets more efficient and better able to compete on the world stage, supporters of the C$3.8 billion deal said on Thursday.

We believe this transaction will drive important benefits to capital market participants and will enhance Canada's competitiveness on the global stage, said Tom Kloet, TMX's chief executive, said at a regulatory hearing in Montreal.

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, he said in defending the plan against criticism that it would stymie competition..

The remarks came as Maple Group - a consortium of 13 banks, pension funds and other financial institutions - sought to persuade the securities regulator in the province of Quebec to approve its proposal. TMX operates the Toronto Stock Exchange, the Montreal Exchange derivatives market, and the TSX Venture exchange for small-capitalization companies.

The proposal would put TMX-owned exchanges plus some clearance and settlement bodies that it runs under the wing of the country's big bank-owned securities dealers, similar to a model used at Deutsche Borse and some other global exchanges.

That model has raised concerns about the creation of a monopoly and regulators are expected to seek assurances from Maple that the deal will not end up raising costs for clients, or hinder the entry of new competitors.

The two-day regulatory hearing in Montreal 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.

INTERESTS OF RETAIL INVESTORS

Mario Albert, president of the Quebec regulator, Autorite des marches financiers (AMF), said the Montreal hearings would focus on governance of the new company, the risks associated with the vertical integration of exchanges and clearing houses, costs of the new model, and benefits to Montreal as a financial center.

Speaking before a subdued, half-full public hearing hall, AMF officials said a key concern raised during public consultations was how the interests of retail investors, or the public at large, would be represented on the new board of directors.

Maple Group representative Marie Giguere replied that the board consists of diverse members of the financial community that already comply with rules that take into account the public interest. Going beyond that would be inappropriate, she said.

AMF was also eager to hear Maple's views on whether financial system risks would grow as a result of its plan for one-stop shopping for trading, clearing, settlement and depository services for a broad array of financial instruments.

Luc Bertrand, chief representative of Maple and CEO of National Bank Financial, said the model would in fact make it easier for regulators to supervise activity across a broader swath of the market and identify risky behavior.

He also said the new, larger market infrastructure would allow the company to reduce costs and make Canada more competitive in a world of increasing exchange consolidation.

The AMF asked if the plan would leave room for new players with alternative trading platforms.

Kloet responded that lower clearing costs and improved liquidity would benefit all market players, not just those associated with the Maple-TMX merger.

We will have a stronger marketplace overall, which is a key element to allowing competitors to build their market. It provides opportunity for alternatives to come in, he said.

ALPHA, CDS CONCERNS

Maple plans to unite TMX's exchanges with the bank-owned Alpha Group, Canada's biggest alternative exchange, giving it control of more than 80 percent of all stock trading.

Another key concern is 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.

Again, Bertrand pointed to efficiencies gained from a larger operation.

The integration of the exchange and the clearing service for the full range of derivatives products and titles will enable us to achieve significant efficiencies ... that favor the intensification of economic activity and an increase in international investment in Canada, and will contribute to the stability of Canada's financial system, he said.

($1=$1.05 Canadian)

Canada