TMX Group Inc. and the consortium proposing to take over the stock exchange operator told Quebec’s securities regulator Thursday they won’t make any new commitments to Montreal.
The head of the Autorité des marchés financiers asked if the proponents were willing to further to clarify their commitments to maintaining Montreal as the Canadian centre for derivatives trading.
Will regulators buy into Maple’s plan?
Luc Bertrand, lead spokesman of Maple Group Acquisition Corp., said the commitments already made to the city could not be stronger.
“What we have proposed, with the support of TMX Group, is a plan that makes sense — a plan that serves all market participants and Canada’s capital markets overall,” said Bertrand, who is also deputy chairman of National Bank (TSX:NA).
He said the plan has “tremendous potential value” for Montreal and the Quebec financial community.
TMX Group chief executive Tom Kloet added he did not foresee job losses in the city following the transaction.
“We believe that this proposal allows us to move forward in a way that benefits our stakeholders across Canada and here in Quebec,” Kloet said.
In order to continue growing, the Montreal Exchange would have to continue to expand its activities outside Quebec, Bertrand and Kloet added. It recently opened an office in London.
The Quebec regulator is the first in Canada to conduct hearings on the proposed takeover. The Ontario Securities Commission holds hearings next week.
Bertrand said an integrated exchange and clearing group for equities and derivatives offers significant efficiencies and creates the right conditions to boost economic activity and international investment in Canada.
It will also contribute to the ongoing stability of Canada’s financial system, he added.
The Montreal Board of Trade said Thursday it supports the deal and believes the composition of Maple assures it the economic interests of Quebec and Montreal will be represented.
“However, the minority status of proponents from Quebec requires that the AMF obtain an explicit, formal guarantee that Maple will continue to concentrate derivatives expertise in Montreal in the future,” board president Michel Leblanc said in a news release.
“In the past, Montreal’s financial sector has suffered major losses to Toronto, and we would like to ensure that our city’s expertise in derivatives does not suffer the same fate, but, that on the contrary, this transaction will allow it to flourish.”
The TMX board had originally supported a merger proposal with the London Stock Exchange Group and dismissed the Maple Group offer over a number of debt, competition and regulatory concerns.
But after the LSE deal failed to gain enough shareholder support this summer, the board turned its attention to the richer Maple offer. The two sides had been in talks for nearly four months.
TMX (TSX:X) owns the Toronto Stock Exchange, the junior Venture market, the Montreal derivatives exchange and other Canadian trading assets.
Maple — a 13-member group of large pension funds, banks and insurers — persuaded the TMX board after months of talks to support the $3.8-billion takeover deal that it originally opposed.
The consortium includes the Alberta Investment Management Corp., Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, CIBC World Markets (TSX:CM), Desjardins Financial, Dundee Capital Markets, Fonds de solidarite des travailleurs du Quebec, GMP Capital (TSX:GMP), National Bank Financial (TSX:NA), Ontario Teachers’ Pension Plan, Scotia Capital (TSX:BNS), TD Securities (TSX:TD) and Manulife (TSX:MFC).
Critics have said the plan to merge the CDS clearing house and the alternative Alpha trading system with the TMX operations could create a monopoly that would favour the banks and insurance companies, who would also own the exchange.
Independent firms have expressed concerns about whether the bank’s will play fair and grant them cost-effective access to clearing and settling trades.
Critics also say the deal would create a virtual monopoly that could lead to higher fees and create enforcement and transparency issues.
The TMX and Maple groups tried earlier this month to reassure market users by committing to limit any one investor from owning more than 10 per cent of the company.
The deal still needs to be approved by regulators in Quebec, Ontario, British Columbia and Alberta, as well as Canada’s Competition Bureau.
If the deal is approved by shareholders and regulators, Maple says its name will incorporate the TMX brand.
To further alleviate some monopoly concerns, Maple says the new board of directors will have an independent chair and half of the directors will also be independent.