For several hours on Wednesday, executives from the TMX Group Inc. and London Stock Exchange Group PLC answered questions - from analysts, from investors and from the media on both sides of the Atlantic - about their proposed stunning $7-billion merger.
But even after all that, there are still many unknowns about how it would work, how the exchange's customers could expect to benefit from the deal, what roles regulators in Canada and the United Kingdom would assume, and how the combined company would manage some 6,700 listings of public companies with a combined market capitalization of $6-trillion.
One thing is clear, however: Technology savings are an important factor behind the deal. IT development is a massive cost outlay for any exchange and huge teams of people are needed to both create and test new products. Once combined, two separate technology divisions would no longer be needed.
"At the end of the day, their [technology]development, I'm not going to say is cut in half, but it is cut very significantly," said Mike Bignell, president of Omega ATS, an alternative trading system that competes with the Toronto Stock Exchange.
NYSE Euronext and Deutsche Boerse, which are in merger negotiations of their own, said cost savings are a major driver behind their "advanced talks." If that deal goes through, cutbacks from economies of scale in information technology are expected to hit €300-million ($409-million). In the case of the TMX and LSE, cost savings have been estimated at around $56-million annually by the end of the second year.
Executives from Toronto and London executives de-emphasized the cost-cutting aspect and focused on their plans to grow by attracting resource companies and interlisting their current clients - which would see more London-traded companies listed in Toronto and vice versa. But they left out many of the details, such as how much they would charge for that.
"There are a few areas that stand out as serious opportunities for further development in the Canadian market," Tom Kloet, president and chief executive officer of TMX, said in an interview Wednesday. "For corporate issuers, by tapping into a much deeper pool of liquidity, you lower the cost of capital."
Junior companies listed on the TSX Venture and AIM, London's junior resource exchange, would possibly be the biggest beneficiaries. These businesses are always looking for more money and by listing in London, Venture exchange firms will have an entirely new market from which to tap capital. Mr. Kloet has already mentioned the possibility of launching an equivalent small-cap exchange in London to facilitate these interlistings. At the moment, AIM targets companies that are a bit larger, but still not mega-cap.
For those skeptical of the benefits of the resource focus, Mr. Bignell points to the technology-heavy NASDAQ as an example of how having an industry focus builds awareness of an exchange. "It was a good niche and it made them what they are today," he said.
Some resource companies around the world are enthusiastic about the merger. "I think it's fantastic," said Joel Kesler, corporate development executive at Anooraq Resources Corp., a Vancouver-based miner with a major South African platinum mine.
"It's a blending of the North American and British experience, which I think is absolutely key, from an African perspective. While the TSX has a good knowledge base on mining, the London capital market has a much closer direct link to Africa, because of history. We've got a hundred-year history between London and South Africa."
A combined resource exchange, particularly in mining, could also yield lucrative listing fees. At the moment the TSX and LSE are in competition with each other, so they win listings in part by lowering their fees. Once combined, they could charge the same rate, and if they market their mining platform well enough, they might be able to increase those fees, because miners will want access to these markets.
As for day-to-day operations, the two exchanges would operate in much the same way as they do now - each keeping its own name. Montreal would be the derivatives centre, Toronto the equities hub, and Calgary the energy marketplace.
Still, some say that both the benefits and the drawbacks to public companies are not significant. "I am not exactly sure how it is a massive improvement to the current situation, or a massive problem," said Graham Gow, a partner with McCarthy Tétrault LLP. "It's not that hard at the moment for large companies to get listed in both places."
Still, Ermanno Pascutto, a lawyer and the executive director of the Canadian Foundation for Advancement of Investor Rights, is worried because Toronto's stock exchange itself still plays a significant role in the regulation of listed companies.
The TSX says it takes the public interest into account as it enforces its rules, he said, but added that this commitment could start to slip under the new ownership if decision-making migrates to London.
With files form Geoffrey York, Jeff Gray and Andy Hoffman