December 15, 2011 / 10:27 PM / in 6 years

Alpha CEO sees strength under TMX-Maple's wing

TORONTO (Reuters) - Canada's financial trading system would grow stronger under a plan that envisions the country's dominant exchange operator taking charge of Alpha Group, its main competitor, according to Alpha's chief executive.

The Alpha takeover proposal is part of a sweeping plan by Maple Group, a consortium of 13 Canadian financial institutions, to buy TMX Group (X.TO), the operator of the Toronto Stock Exchange, for C$3.8 billion ($3.67 billion).

But the deal hinges on regulatory approval of a side deal to buy Alpha - a so-called alternative trading system that recently became a full-fledged exchange. If Alpha and TMX were combined, the enlarged entity would control about 80 percent of Canadian stock trades, raising the possibility that regulators will shoot down the deal.

"I am very supportive of the vision," Alpha Chief Executive Jos Schmitt told Reuters in an interview on Thursday. "I don't see any reasons why it would be impossible to execute upon that vision."

"By bringing all those entities together, you bring together a lot of components that, if you combine them, you create a stronger entity," he said, declining to comment on the public criticism of the plan.

A recent drop in TMX's share price to Thursday's close at C$41.61, compared with Maple's C$50 bid, suggests growing doubts by investors that the Competition Bureau will allow the deal without big revisions.

Alpha's trading venue, set up in the fall of 2008 by some of Canada's top institutional shareholders, now commands nearly a 20 percent share of Canadian stock trading.

PRICE CONCERNS

In late November, Maple and TMX conceded that the competition watchdog has serious concerns about the impact the deal would have on equities trading, as well as clearing and settlement services.

In a second side deal that has triggered concern, Maple wants to take control of the Canadian Depository for Securities Ltd, the country's sole clearing and settlement shop.

Questions have also surfaced about the price that Maple is willing to pay for Alpha.

The negotiations have been complicated by the fact that Alpha is owned by many of the same Canadian banks and pension funds that comprise Maple. Alpha's value might depend on those institutional investors guaranteeing a certain number of trades are placed through Alpha, analysts say.

A recent report in the Globe and Mail newspaper said the consortium and Alpha are still far apart. Both Maple and Alpha have declined comment on their negotiations.

Ed Ditmire, analyst at Macquarie Capital in New York, said the latest headlines have injected an element of uncertainty around the deal.

"I would describe it as relatively uncertain and put the odds at 50-50," he said.

"Those two things that we've learned over the last week or two have made us more cautious. The stock price has reflected that, too."

ALPHA'S IDENTITY

Schmitt declined to speculate on Alpha's role within the wider TMX-Maple umbrella. But he said it was business as usual at the newly minted exchange.

The venue recently won exchange status from Canada's most powerful securities watchdog, the Ontario Securities Commission.

"I expect us to be fully operational second half of Q1," said Schmitt, referring to the work needed to make the alternative trading system into a full exchange. "Then we'll start executing upon bringing in listings and really developing the business."

In addition to the Toronto Stock Exchange, TMX owns the TSX Venture Exchange for small-capitalization stocks and the Montreal Exchange derivatives market.

($1=$1.03 Canadian)

Reporting By Jennifer Kwan; Editing by Frank McGurty

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