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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.
"How they're going to do that I don't know."
Susan Greenglass, director of market regulation at the OSC, said in a statement on Tuesday the regulator expects the draft rules to be published shortly. A 30-day public comment period will follow.
The bid, formally proposed last May, is scheduled to expire on April 30, but Maple could extend it for a seventh time.
Ed Ditmire, an analyst at Macquarie Securities in New York, said he expects the draft orders to contain conditions, for example, that ensure the board of the new TNX entity is comprised of a diverse group of people who have a say in how the company is run.
"I would expect a lot of governance issues," Ditmire said. "That's the kind of thing that is very important thing for customers, but probably wouldn't meaningfully change the proposition for shareholders."
He also anticipates regulators to provide rules for the supervision of equity, clearing and settlement fees.
In addition to the getting consent from the OSC, the deal must still pass muster with the federal Competition Bureau, which is an independent agency. It also requires approval from the securities commissions in British Columbia and Alberta. Quebec's Autorité des marchés financiers said in March it intends to approve the deal.
The Competition Bureau, which warned in November that it had serious concerns about the deal, made clear on Tuesday that view had not changed.
"The commissioner continues to have serious concerns with Maple's proposed acquisitions of TMX Group, Alpha and CDS," spokesman Greg Scott said in an email. Scott added the bureau is monitoring the reviews by securities regulators with respect to Maple's proposed acquisition, but that its review and conclusions are independent.
Whatever the outcome, TMX investors are anxious to get some clarity as the deal has languished in limbo for nearly a year.
"What is totally frustrating is all these deadlines are established and they keep getting pushed out. We're months and months after the process, we're almost a year now since this thing began," said Thomas Caldwell, chairman of Caldwell Financial Ltd and a TMX shareholder.
"They (investors) don't have the adequate information to make an informed decision whether to buy, sell or hold. The No. 1 thing in this company is a deal. Is there a deal is there not a deal? What form is it going to take, what price is it going to be. The public is no more informed of that information they need than they were a year ago."
TMX shares were little changed at around C$44.50 on Tuesday afternoon on the Toronto Stock Exchange, about 11 percent below the C$50 a share bid price.
Editing by Frank McGurty, Jeffrey Hodgson and Peter Galloway