In the five months since Richard Nesbitt took the helm at TSX Group Inc., he has set an ambitious and aggressive agenda for Canada’s largest stock exchange, including expansion into the derivatives market and extending its reach into North America.

“What you’ve seen [globally] is the growth of strong public regional exchanges,” says Nesbitt, 49, who succeeded Barbara Stymiest as CEO in December. “In North America, you have three [main] equity markets: TSX, New York Stock Exchange and Nasdaq. The competition for us is
regional; it’s Canada and the U.S.”

The TSX Group — consisting of the Toronto Stock Exchange, the TSX Venture Exchange, TSX Markets, TSX Datalinx and TSX Technologies — posted revenue of $295.6 million in 2004, up 26% from the previous year, and net income of $98.4 million, up 29% from 2003. Nesbitt says its strength arises, in part, from the fact that it was early off the mark, compared with other exchanges, in going public and implementing technological efficiencies.
And the U.S. is the natural market for expansion.

“The more we can break down the protectionist barriers we see in the U.S. markets to allow the TSX to operate as an exchange, the better,” he says. “Because we’re not a [Securities and Exchange Commission] registered exchange, we have limitations on what we can do.”

What the TSX Group would like to do, as Nesbitt noted in an April speech at the Harvard Club in New York, is to have trading operations in the U.S. that are subject to Canadian law. He sees no problem in U.S.
equity exchanges having trading operations in Canada under U.S. law. He does not see it as probable, or necessary, to harmonize securities regulation between the jurisdictions.

“We don’t fear having U.S. exchanges operating in Canada as long as we get the same access to the U.S.,” Nesbitt says.
“What we are against is allowing access for U.S. and foreign exchanges into Canada if we don’t get reciprocal rights. We’re dead set against that.”

Nesbitt says TSX officials have met from time to time with both the SEC and Canadian federal politicians to make the case for free markets in the securities industry. He has also praised the leaders of the three NAFTA countries — Canada, the U.S. and Mexico — for pledging at a summit in March to work together on opening the securities market in North America.

The TSX already does business in the U.S.
by selling its products, data and memberships to the exchange. It wants to expand this business.

Nesbitt is also creating waves in Canada with the announcement that the TSX intends to expand fully into the derivatives market in 2009, the year a non-compete agreement with the Montreal Exchange expires. The TSX gained a toehold in derivatives with the January 2004 purchase of NGX, a Calgary-based natural gas and electricity exchange, for $38 million. The TSX paid the ME $5 million to clear the way for the purchase.

Some see this as an opening gambit toward acquisition of the ME by the TSX, although Nesbitt has shied away from saying any such thing. The ME says there have been no discussions with the TSX, and a takeover bid would probably attract bids from foreign bourses.

Nesbitt makes it clear, however, that the Canadian capital market is badly served under the current arrangement. “If you look around the world — Australia, EuroNext, Deutsche Bourse — what they have done is brought cash markets and the derivatives markets together,” he says. “Our view is: it’s natural; it’s what the customers want. It’s efficient and it’s where we have to be.”
Diversifying its product offerings and expanding geographically are certainly goals of TSX Group, but, Nesbitt says, its first priority is strengthening its core business.

“We list securities, we trade securities and
we sell data based on those two activities.
And all three components of our business are continuing to grow and we believe will continue to grow in the future,” he says.
The TSX Group posted $127.1 million in revenue from the listings business on both the senior and junior exchanges in 2004, an increase of 29% over the previous year.
Revenue from the trading business, including the NGX, was $99.6 million, an increase of 39% over 2003; revenue from the market data business was $58.8 million, an increase of 12%. Nesbitt says TSX Group’s goal remains to raise earnings per share by 10% to 12% a year.