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Illustration of Tom Kloet, chief executive officer, TMX Group Inc. (Anthony Jenkins/The Globe and Mail)
Illustration of Tom Kloet, chief executive officer, TMX Group Inc. (Anthony Jenkins/The Globe and Mail)

THE LUNCH

TMX’s Tom Kloet: On Bay Street, but not of it Add to ...

Tom Kloet is an outsider at the centre of Canadian finance.

The executive, who spent much of his career in Chicago, was almost unknown in this country when he was tapped almost five years ago to head what is arguably Canada’s most vital piece of financial infrastructure, Toronto Stock Exchange owner TMX Group Inc. When the company decided to look beyond the country’s borders for a leader, it was a shocker for an institution that had always seen itself as Canadian through and through.

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What the company got was an American with an international résumé featuring a background more focused on the growing enterprise of derivatives than the fading business of stocks. He had no ties to Canada’s banks, unlike previous TMX bosses.

While Mr. Kloet’s Midwestern persona comes off low-key relative to many high-strung finance types, that belies his willingness to think big.

Two years ago today, Mr. Kloet sat in the TMX’s broadcast centre, under the colourful board of stock tickers, and announced a transatlantic merger with London Stock Exchange Group PLC. It didn’t fly. The move led a group of Canadian financial institutions calling themselves Maple Group to mount a counterbid, and eventually to take over TMX in a friendly transaction.

Nonetheless, the LSE deal was the most daring ever proposed by the TMX, and the resulting Maple takeover has the potential to reshape the way investors do business on Canadian markets.

Since coming north, he has become a big booster of Toronto, and Canada, as a place to live and work. He’s a huge proponent of Canada’s future as a growing financial centre. He’s even a Blue Jays fan, drawing a lesson from the baseball club’s big rebuild.

“They saw they could be opportunistic when others could not, and they went about it. That’s a good business strategy.”

He may have adopted Toronto’s team, but he has not totally gone native.

For lunch, he has chosen Blowfish, a block from the white tower that houses the TMX executive offices and the computers that now handle all the trading. It is a sushi hotspot where the clientele hails mostly from Bay Street, which the restaurant overlooks.

Toronto’s financial core tends to have a homogenizing effect – or maybe it’s just that the traders, bankers and lawyers who show up to work in financial markets share certain traits, from manner to dress. Suits are understated but expensive, many with a sleeve button pointedly left unbuttoned as a signal that the clothing is custom made. Watches are big, hairstyles are fussed over, ties a fashionable width, and complexions buffed.

As Mr. Kloet folds his rangy frame into the low chair, it’s clear he has not yet succumbed. He looks less like one of the country’s most important financial executives than Hollywood’s idea of a city councillor from a Midwestern burgh like Peoria, Ill. – which happens to be one of the towns where he grew up. His moustache is not one of those one-month wonders that sprout for November’s Movember charity drive, but a year-round fixture. His voice still reflects his roots, with vowels that are prairie-wide.

Mr. Kloet is immensely likeable. He possesses an endearing wonkishness and love of what he calls the “plumbing of markets.” He exudes a genuine excitement about the minutiae of running an exchange (and there are few businesses with more minutiae). He also exhibits a welcome frankness in financial circles, where executives are heavily coached and always cognizant that potential clients might be listening, and so are careful to avoid saying anything publicly that might be construed as offensive to a meal ticket.

Such as this sort of thing:

“If I had a wish, it would be that I would see more mid- to large-broker dealers who are not associated with banks,” he says. Those would be the banks that are his biggest customers, and which, since last year’s Maple deal, are some of TMX’s biggest shareholders.

Mr. Kloet, as bullish as he is on Toronto’s financial sector, is mystified as to why there are not more big independent brokers in Canada – firms like Charles Schwab. What happened to all the traders when physical trading floors closed? In Chicago, those traders started their own firms and built the town into a global centre for futures and options markets.

In Toronto, he keeps asking people why the traders didn’t do something similar. “Did they vaporize?” he wonders. Canada, he concludes, is just a “different environment.”

In that environment, he has pulled off two very difficult tasks. When he arrived in Toronto, the banks that were the biggest users of TMX’s services were so fed up with what they saw as overcharging and underperforming that they were in the process of starting a competing stock market called Alpha. It would go on to eat into TMX’s revenue.

“The institution, for better or for worse, had been at odds with its best clients for way too long,” he says, tucking into rock-shrimp rolls and panko-crusted chicken. “I didn’t like that. We didn’t like that. Nobody liked that.”

Now, with the Maple deal, Alpha is part of TMX and the banks are on his side. “Peace in the valley is very important.”

On top of that, Mr. Kloet finally got an asset coveted for years by TMX but long believed unattainable: the country’s stock clearinghouse. It is a utility that handles the actual exchange of cash and shares after a trade has been agreed to. The clearinghouse had been controlled by the banks, but as part of Maple has been rolled into TMX.

Clearing is a boring business, but hugely strategic. TMX now owns not only all the country’s main stock, derivatives and energy trading marketplaces, but the clearinghouses for each of those assets. Regulators are demanding more and more products be centrally cleared to make the financial system safer, an evolution that is a “sea change” and will create big opportunities for TMX, Mr. Kloet argues.

As a bonus, TMX got Maple to pay up with a premium takeover offer. Was it all a grand plan? That’s unlikely, even though some who work with him say Mr. Kloet does think a few moves ahead. Still, there is no denying the LSE deal that he championed led the banks to create Maple, when it appeared the LSE deal might get the thumbs-up from TMX shareholders.

Now TMX is probably in the strongest competitive position it has occupied in a decade.

Stock trading, the company’s traditional business, has gone into a slide that nobody’s sure it will pull out of again. But the Alpha threat is neutralized, and other areas such as the newly acquired clearing business are there to pick up the slack. TMX even owns cables that connect traders in London to stock markets in Moscow, thanks to a recent acquisition.

Mr. Kloet’s focus is on creating new products that tie together trading and clearing to make more money. What are they? He won’t say, but he looks to Apple Inc.’s iPod and iPad for inspiration.

“I wasn’t smart enough to know that I wanted my whole music collection on something you could hold like that,” he says, showing the palm of his hand. “I didn’t know I wanted a device about the size of this plate that I can access the Internet from virtually anywhere in the world. They are delivering to me things I didn’t know I needed. They are leading the customer. I hope we do it.”

I ask whether it’s doubly hard to run a business that is constantly in the public eye and upon which so many people depend. For more than a year, the TMX-Maple-LSE saga and the resulting debate rarely left the headlines.

Mr. Kloet laughs, noting that during the LSE merger process, even the doorman at his condo tower on Toronto’s lakeshore had an opinion.

“It’s just amazing to have something where when you walk through the door to have someone say, ‘Mr. Kloet, I want to talk to you about something,’” he said. “It’s fascinating because you get views from all walks of life. And it’s really interesting. I actually kind of like that.”

Chuckling, he tacks on an addendum: “They could care less about me. But it’s the institution that matters.”

CURRICULUM VITAE

Growing up

Born in Minneapolis, but grew up mainly in Peoria, Ill., home of Caterpillar, where his father was an executive. Also lived in Belgium for five years as a child.

Education

Trained as an accountant.

Bachelor’s degree in business administration from the University of Iowa, where he took classes in futures and options and market regulation that gave him a taste for the exchange business.

Family

Married for 32 years to Margaret, whom he met at university. His son Mark works in the markets business at CME Group; daughter Megan is with PricewaterhouseCoopers in London.

Career

Since starting work at the Chicago Mercantile Exchange, he has never left the markets. He has flipped from the broker side to the exchange side and back, with senior roles at trading firms such as ABN Amro Inc. and markets such as Singapore Exchange Ltd., where he was the first CEO, serving from 2000 to 2002.

Hobbies

Golf, tennis, theater, travel and the Blue Jays.

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Follow on Twitter: @boyderman

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