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Royal Bank of Canada executive officer Barb Stymiest. (Christinne Muschi/Christinne Muschi for The Globe and Mail)
Royal Bank of Canada executive officer Barb Stymiest. (Christinne Muschi/Christinne Muschi for The Globe and Mail)

Opinion

TSX-LSE merger a deal about business building Add to ...

The following is excerpted from March 9 Remarks by RBC executive Barbara Stymiest to the Select Committee of the Ontario Provincial Legislature on the proposed transaction of the TMX Group and the London Stock Exchange Group:

What do you think about the proposed TMX-LSE merger? Should it be allowed? Join the debate in our comments area or on Twitter with @StreetwiseBlog

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I am speaking to you today as past president and chief executive officer of the Toronto Stock Exchange. As an executive with RBC, I remind you of certain conflicts, namely RBC's role as advisor to the LSE, and our partial ownership of Alpha, an alternative trading system.

Even in the mid-nineties, when I was board chairman of the TSE, the approaching storm was painfully obvious. New technology was pushing change upon stock markets everywhere. Transaction speed and transparency were the table stakes in a fast-moving exchange game for order flow, listings and greater visibility for listed companies. Electronic trading closed iconic trading floors all over the world but also created the possibility of growth. Finally geography was no longer an obstacle to being something larger.

It is important to understand the velocity of change that has ushered in a whole new way of thinking about equity and derivatives trading worldwide. Platforms are consolidating. And mergers are an attractive option for success in a technology-intense world. They help to address the all important question: Where is growth going to come from?

We in Canada found that answer in 1999, when exchanges in Vancouver and Calgary agreed to merge, and then merged with the TSE in 2001. I will let Venture's numbers as posted at the last trading day speak to those who feared the small cap market would disappear, or that the Canadian West would somehow lose its place in a unified Canadian capital market or that this aspect of our plan for building out the TSX, now TMX Group, was, well, nuts.

Nasdaq was headed in this direction and so was NYSE, although, distracted by other issues, they wouldn't finally make that jump until 2005. In Europe, historic change in trading dynamics across capital markets was moving even more quickly. When the oldest stock exchange in the world, Amsterdam, agreed in 2000 to merge with the Brussels exchange and the Paris exchange to become Euronext, I was convinced that we in Canada were not just running out of time, we were already behind.

I ask that you lift your heads up and see the future. What on earth is anyone afraid of in the face of this transaction? After all is said and done this deal is about business building. And that isn't a new idea for Canada.

In fact, none of this is really very new. As early as 2002 we at the TSE were meeting with both the big and small exchanges in the United States, exploring north-south opportunities. The lock Montreal had on derivatives moved us quickly to search for growth elsewhere, in Europe and the U.K. We met more than once with the LSE searching for the way forward in a fast-paced world of change.

But at that time, in more than one country, there was a board of directors or a government terrified of selling out the homestead and protecting the flag. It was a frustrating yet exciting time.

The issues being raised today about the TSX/LSE merge aren't new or material. They are old fears. Perhaps there's a sense we aren't ready to become something larger and transatlantic. It may be that, like the national securities regulator debate, there are too many interests protecting something other than the real subject of discussion. Or perhaps there is still confusion between trading and the process of capital formation.

Whatever the case, none of the ambitions for our Canadian exchange should be a surprise to anyone. In the prospectus for the TSX Group's initial public offering in 2002 we committed to do three things: enhance the core business, expand geographically, and diversify into new business opportunities. These goals, now 10 years old, are the catalyst to this merger proposal. No one questioned them then. Why question them now?

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