TMX-Maple merger: IIAC raises favouritism concerns

Author: | Published: 2 Aug 2012
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TMX Group shareholders’ approval of Maple Group Acquisition Corporation’s tender offer on July 31 ended the multi-year sale of the Toronto Stock Exchange and concentrated trading and clearing services under a for-profit company. But the move has also raised concerns over market favouritism.

Maple, a consortium of investment banks, pension funds and other financial companies, also acquired the Canadian Depository for Securities Limited (CDS), Canada’s dominant clearing house, and Alpha Group, Canada’s largest alternative trading system, as part of the deal.

It is hoped the merger will provide Canada with a higher profile internationally, and that that will help attract foreign investors.

“The merger provides the integration of trading and clearing,” Ian Russell, president and CEO of the IIAC, told IFLR. “Many say that will provide important synergies that will lead to efficiencies and cost-savings.”

But he added he wanted to work with regulators to build an efficient regulatory framework to ensure the merger did not inhibit market fairness.

Concerns have been raised regarding the possibility that Maple could potentially manipulate trading and clearing costs, favour its own clearing house over possible competitors and charge unfair costs for market data. Canadian securities regulators proposed behavioural remedies intended to mitigate these concerns in approval of the tender offer last month.

“I think the regulators have done a good job in demanding a lot of concessions out of Maple,” Russell said.

The IIAC is in the process of creating an oversight committee to provide industry expertise to regulators and assist in the creation of an official compliance program for the new company.

The compliance programme could result in expensive new trading infrastructure and higher user fees for traders as a result. Any pricing changes will also have to be approved by regulators.

“We expect there will be a lot of requests coming out of Maple for price increases,” Russell said. “I think that is to be expected [because] there are going to be technological changes and investments.”

Approximately 91% of outstanding TMX Group shares were deposited in Maple at $50 per share for a grand sum of roughly C$3.8 billion. The offer was extended to August 10 to allow any remaining TMX shareholders to sell their shares.