Former Quebec premier Jacques Parizeau says the province’s securities regulator must impose conditions on Maple Group Acquisition Corp.’s $3.8-billion acquisition of TMX Group Inc., parent of the Toronto Stock Exchange and the Montreal Exchange.
Mr. Parizeau, who was the PQ premier from 1994-96, said Friday the deal must ensure Montreal remains the centre of derivatives trading in Canada.
After a $1.3-billion takeover by Toronto Stock Exchange in 2007, the Montreal Exchange stopped trading equities to focus on futures and derivatives contracts on stocks, currencies and other securities – a rapidly growing and profitable market.
Meanwhile, the TSX handled trading in senior companies and the Vancouver and Calgary exchanges were renamed the TSX Venture Exchange and handled junior companies.
Since the 2007 merger, the Montreal Exchange has rapidly increased the size of its futures business and has expanded into the United States with a joint venture called the Boston Options Exchange.
Quebec’s stocks regulator, L'Autorité des marchés financiers (AMF), has the power to veto the $3.8-billion transaction, which would make a group of banks and other financial companies owners of Canada’s stock exchanges.
Mr. Parizeau told hearings in Montreal that the regulator should exercise this power to ensure Montreal doesn't become a shell for derivatives.
He said he fears the derivatives business will not grow as much as it could through the merger.
Mr. Parizeau spoke as part of a delegation by the shareholder rights group MEDAC. The group doesn't oppose the transaction, but fears it could weaken Quebec.
It proposes a series of recommendations, including ownership limits by any group and representation by Quebec residents on the board.
On Thursday, TMX Group and the consortium proposing to take over the stock exchange operator told the hearings they won't make any new commitments to Montreal.
Luc Bertrand, Maple Group's lead spokesman, said the commitments already made to the city could not be stronger.
“What we have proposed, with the support of TMX Group, is a plan that makes sense – a plan that serves all market participants and Canada’s capital markets over all,” said Mr. Bertrand, who is also deputy chairman of National Bank of Canada.
He said the plan has “tremendous potential value” for Montreal and the Quebec financial community.
TMX Group chief executive officer Tom Kloet added he did not foresee job losses in the city following the transaction.
“We believe that this proposal allows us to move forward in a way that benefits our stakeholders across Canada and here in Quebec,” Mr. Kloet said.
In order to continue growing, the Montreal Exchange would have to continue to expand its activities outside Quebec, Mr. Bertrand and Mr. Kloet added. It recently opened an office in London.
The Quebec regulator is the first in Canada to conduct hearings on the proposed takeover. The Ontario Securities Commission holds hearings next week.
The Montreal Board of Trade said Thursday it supports the deal and believes the composition of Maple – with National Bank, the Caisse de dépôt et placement du Québec and Desjardins Group – assures it the economic interests of Quebec and Montreal will be represented.
“However, the minority status of proponents from Quebec requires that the AMF obtain an explicit, formal guarantee that Maple will continue to concentrate derivatives expertise in Montreal in the future,” board president Michel Leblanc said in a news release.
The TMX board had originally supported a merger proposal with the London Stock Exchange Group and dismissed the Maple Group offer over a number of debt, competition and regulatory concerns.
But after the LSE deal failed to gain enough shareholder support this summer, the board turned its attention to the richer Maple offer. The two sides had been in talks for nearly four months.
TMX owns the Toronto Stock Exchange, the junior Venture market, the Montreal derivatives exchange and other Canadian trading assets.
Maple – a 13-member group of large pension funds, banks and insurers – persuaded the TMX board after months of talks to support the $3.8-billion takeover deal that it originally opposed.
The consortium includes the Alberta Investment Management Corp., Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets, Desjardins Financial, Dundee Securities Corp., Fonds de solidarité des travailleurs du Québec, GMP Capital, National Bank Financial, Ontario Teachers' Pension Plan, Scotia Capital, TD Securities and Manulife Financial.
Critics have said the plan to merge the CDS clearing house and the alternative Alpha trading system with the TMX operations could create a monopoly that would favour the banks and insurance companies, who would also own the exchange.
Independent firms have expressed concerns about whether the banks will play fair and grant them cost-effective access to clearing and settling trades.
Critics also say the deal would create a virtual monopoly that could lead to higher fees and create enforcement and transparency issues.
The TMX and Maple groups tried earlier this month to reassure market users by committing to limit any one investor from owning more than 10 per cent of the company.
The deal still needs to be approved by regulators in Quebec, Ontario, British Columbia and Alberta, as well as Canada’s Competition Bureau.