The Caisse de dépôt et placement du Québec today announced it stands by its initial endorsement of the proposed merger between the Toronto Stock Exchange and the Montreal Exchange (MX), but it is asking Quebec’s securities regulator to look into the continuity of operations in Montreal and the governance structure of the new TMX group.

On December 10, following the merger announcement of, the Caisse issued a press release stating that while it found the proposal interesting, it had a number of concerns.

After examining the documents made public since then and after obtaining additional information, the Caisse has concluded that this project offers advantages for all the parties and therefore generally stands behind its initial endorsement. The Caisse has a stake of about 8% in the MX.

However, the Caisse would like the Autorité des marchés financiers (AMF) to obtain formal undertakings from the TSX Group with regards to certain specific aspects such as the continuity of operations in Montreal and the governance structure of the new TMX group.

In a statement the Caisse said, “The undertaking of the TSX Group to the AMF stating that the trading of derivatives and related products will remain in Montréal should be clearer and firmer. In fact, the Caisse believes that the TSX Group should also provide an undertaking to the AMF to the effect that all future derivatives activities, initiatives and developments in Canada or elsewhere will be under the responsibility of the Montreal Exchange (which will become a division of the TSX Group) and will be managed from Montréal.”

In addition, “The Caisse believes that the undertakings regarding the appointment of directors should include the obligation to appoint directors who are residents of Quebec and who have relevant derivatives experience and expertise.”

“The AMF should insist that the TSX Group (and then TMX) have its board of directors define an expertise and experience profile for its members. AMF would have to approve this profile and sign off on any changes,” the Caisse stated.

The break fee for the proposed merger is $45.7 million. The Caisse is not making the fee a reason to oppose the merger.

The Caisse added that it will support the new group “as both a client and shareholder with a view to making it a stronger, more viable institution in an intensely competitive market.”

The Caisse is a financial institution that manages funds primarily for public and private pension and insurance plans. As at Dec. 31, 2006, it held $143.5 billion of net assets.