Maple TMX deal conditional on integration of CDS, says Bertrand

Bertrand added Thursday in a presentation to Ontario regulators that the Maple offer for TMX (TSX:X) is conditional on the integration of CDS and if regulators prevent the merger, the deal would be void.

He says combining trading and clearing under one umbrella would give regulators a clearer picture and better tools in times of crisis.

CDS Clearing and Depositary Services Inc. is a central part of Canada’s stock and securities trading. Among other things, it manages the transactions required to complete purchases and sales of securities on Canada’s public markets.

It also manages a number of national databases on behalf of the provincial securities regulators, including the SEDAR repository for regulatory filings by publicly traded companies.

Bertrand’s remarks come as a response to question by a panel hearing by the Ontario Securities Commission.

Thomas Kloet, CEO of TMX added that the combination would create efficiencies and those cost savings would be passed along to market participants.

“Mr. Chairman, with your help I think we have a real chance at developing a superior model,” Kloet said.

“CDS is a necessary missing element,” Kloet said.

To alleviate concerns about fees, Bertrand said Maple would be willing to submit to an OSC order giving the regulator the ability to reject fees if it feels the need.

Kloet said the proposal is similar to the oversight the OSC has over changes to trading fees charged by TMX.

Critics of the deal have worried that too much control of Canada’s financial markets would rest with the country’s large pension plans, banks and other financial giants at the expense of smaller independent investment firms.

The federal competition commissioner has also expressed concern about the impact of the proposed TMX takeover but said Wednesday ahead of the OSC hearing that there’s room to adjust the plan.

Competition Commissioner raises concerns about proposed TMX Maple merger

In a prepared statement posted on the TMX website as Bertrand was speaking in Toronto, Betrand said that it is “imperative” for CDS to adopt a for-profit business model to create “incentives for innovation.”

Bertrand said the benefits of a more innovative CDS clearinghouse within TMX would “support the success of all participants, large or small, associated with Maple or not.”

Referring to remarks by the federal competition commissioner, Bertrand said Canada must “enhance its efficiency in a world of global and mobile capital.”

“We are a relatively modest market, representing roughly three per cent of global GDP and a comparable level of available global capital. And, to our south we have a competitor that is many times larger than we are,” Bertrand said.

“The Maple investors came together due to our belief in the future of TMX Group and a shared desire to see the company and our markets overall reach their full potential.”

There’s been a consolidation of the world’s major stock markets over the past several years, as a result of advancing technologies that allow quick communications and transactions and an increasingly global economy.

The Maple Group was formed after TMX Group announced early this year that it wanted to merge with the company that owns the London and Milan stock exchanges, creating a transatlantic organization with special strength in mining.

That deal fell apart, however, after the TMX failed to get sufficient support from its shareholders.