Regulator sees draft rules on TMX-Maple deal soon

Tue Apr 24, 2012 1:35pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canada's main securities regulator will soon unveil terms and conditions under which it might approve Maple Group's C$3.8 billion ($3.84 billion) bid to take over the operator of the Toronto Stock Exchange.

The draft rules to be issued by the Ontario Securities Commission are likely to address investor concerns that the deal, under which a consortium of 13 financial institutions is seeking to buy market operator TMX Group, would create an unfair monopoly in Canadian securities trading and clearing.

As part of its proposal, Maple wants to buy the Canadian Depository for Securities Ltd (CDS), which clears and settles all trades in Canada, and fold it into TMX, the operator of most of the country's securities exchanges.

That has spurred fears that clearing and settlement of transactions would favor Maple shareholders, which include Canada's top banks, insurers, big pension fund managers and some broker-dealers.

Another area of concern is that the CDS would turn into a for-profit model from its current cost-recovery model, which could open the door to price hikes. To get the deal done, Maple has said it is ready to give the OSC a role in overseeing clearing and settlement price models.

Another sticking point is Maple's plan to acquire Alpha Group, TMX's biggest domestic competitor. Alpha - once a so-called alternative trading system that now has full status as an exchange - is owned by some of the members of the Maple consortium. Such concentration of power must be supervised, critics say.

The combined TMX-Alpha entity would control some 85 percent of all stock trades in Canada.

"I think they'll come down the middle and make sure that monopoly powers are not used to unfairly limit competition both in the securities market and allow people to have access to the clearing and settlement system," said Jeffrey Kennedy, managing director of equity capital markets at investment dealer Cormark Securities.   Continued...