Toronto-based TMX group Inc. has taken another step in the expansion of its listing business abroad with the announcement earlier this month that it is opening its first international office in London, England, early next year.
The overseas expansion is, in part, an attempt to offset the competitive pressures that TMX, Canada\u2019s largest stock exchange operator, faces in its home territory. In fact, the London announcement comes just a few weeks after TMX had made significant changes to its international and domestic operations.
In late September, TMX formed an alliance with the Oslo, Norway-based Oslo Stock Exchange as a way to expand the marketing of its mining listing services. A few weeks later, TMX announced it was launching TMX Select, an alternative trading platform that would put it in the same arena as Chi-X Canada ATS Ltd. and Alpha Trading Systems LP, both based in Toronto.
Since late 2008, competition in the Canadian securities-trading business has been a sore spot for TMX. The growing popularity of ATSes has eroded the market shares of TMX\u2019s Toronto Stock Exchange and TSX Venture Exchange. For the year ended Dec. 31, 2009, the percentage of the value of all the securities traded in Canada, on average, on the TSX and TSXV combined had dropped to 81% from 97.5% a year earlier, according to statistics from the Investment Industry Regulatory Organization of Canada<\/b>. Since then, for the nine months ended Sept. 30, 2010, the percentage of the value of all the securities traded in Canada, on average, fell to about 68% for the TSX and TSXV.
As a result of the competition that growing ATSes in Canada present for TMX, expect it to get more aggressive, says Etienne Phaneuf, managing director, sales and trading, with Toronto-based ITG Canada Corp.:<\/b> \u201cWith its home base threatened, it makes more sense [that TMX] is looking for opportunities abroad.\u201d
TMX is no stranger to competition abroad, as it has always gone head to head with U.S. exchanges for U.S. listings business, as well as with other exchanges abroad. Currently, 147 of 300 non-Canadian companies that list on the TSX\/TSXV are based in the U.S. Of the remaining 153 non-U.S.-based international companies, 22 are from London or Europe. As well, TMX had partnered with the London Stock Ex-change in May 2009 to acquire 20% of the latter\u2019s derivatives exchange, EDX London Ltd., in an effort to grow the derivatives business of a TMX subsidiary, the Montreal Exchange.@page_break@Given TMX\u2019s share in the EDX and a growing interest from the British and European investment community about trading derivatives in Canadian dollars, opening a TMX office in London made the most sense, says Ronald Elepian, director of marketing and communications for TMX: \u201cThere\u2019s a real interest from international participants who want to hedge or manage their assets in Canadian dollars, and we wanted to have a physical presence to build those relationships.\u201d
TMX\u2019s London office will be the first of its kind outside Canada and will focus on the business development of the MX\u2019s derivative products, such as equities index futures and options, as well as data services. Management is most likely to staff the office with employees from the MX, in addition to recruiting a small number of people abroad.
In terms of resources and staff, developing the data side of the international business will be given priority, says Elepian, as more and more global traders are demanding more information on Canadian markets. For example, with trades in shares of companies in the cleantech business becoming more popular, equities and derivatives traders abroad have a greater need for getting detailed information about the opening and closing prices for these companies\u2019 shares.
The opening of a second international TMX office, in China, is also a possibility in the near future, although no formal announcement has been made. With TMX executives making five to eight visits a year to Asia, it\u2019s likely TMX will want a more physical presence there, says Ungad Chadda, senior vice president, TSX: \u201cThat\u2019s the next place of aggressive growth for us.\u201d
TMX also has been testing the waters for expanding its listings and trading businesses in South America, Australia and Israel, meeting with local business leaders and investment banks to get a feel for the opportunities. Chadda and his team also are headed to India this autumn.
When TMX enters a new country, adds Chadda, its personnel are constantly asking two questions: \u201cIs the market well served from banking perspective? Is it well served from a capital-markets perspective?\u201d
Of all the marketplaces abroad, the U.S. has been the biggest \u2014 and that is most likely to continue to be the case. Part of the reason for that is the TSX\u2019s century-long history, which U.S.-based exchanges can\u2019t compete with, says Chadda: \u201cWhen customers look at where they are going to list, they look for the 160-year history the TSX has. One thing people tend to forget about the listings business is you don\u2019t only compete on price.\u201d
For the nine months ended Oct. 31, TMX\u2019s total revenue was $424 million. Of that, revenue from trading, clearing and derivatives provided $176 million, or 41.5%; listing revenue provided $121 million, or 28.5%; and data revenue comprised about 27%, with the remaining revenue coming from other, business-related services.\t
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