TMX Group CEO Tom Kloet speaks during a news conference regarding the merger of the TSX and the London Stock Exchange (LSE) in Toronto, February 9, 2011. The London Stock Exchange is to buy Canada's TMX to claw back lost market share and create the world's fourth-largest bourse trading $4.1 trillion of stock a year.MARK BLINCH/Reuters
TMX Group Inc. is in a sense a strategic asset for Canada, as some people are saying, but that is all the more reason why it should be free to expand its scope and compete beyond Canada by merging with London Stock Exchange Group PLC, giving Canadian issuers and investors wider opportunities. The adjective "strategic" should not be a synonym for "to be protected."
The proposed LSE-TMX merger began to grew out of TMX's licensing to LSE, two years ago, of its Sola derivatives-trading system for EDX, a derivatives exchange owned by LSE; TMX then bought 19.9 per cent of EDX.
That illustrates the fact that TMX is, among other things, an information-and-communications-technology provider - and in this case an exporter. About 40 per cent of its staff works in IT; Sola is a product of TMX's Montreal Exchange division. In turn, LSE also licensed Sola for the derivatives arm of its exchange in Milan, Borsa Italiana. And even before Montreal Exchange became the M in TMX, it licensed the system to the Boston Options Exchange in the United States.
This strength in options and derivatives is particularly promising now that other, lower-cost trading platforms - as opposed to full exchanges with listed companies - are handling a rising proportion of traditional share trading, and when derivatives are increasingly being moved into clearing systems - which is a welcome and overdue degree of regulation, in the aftermath of the crash of 2008.
For Canadian companies and investors generally, the combination of TMX and LSE - if not obstructed by economic nationalism and economic provincialism - should lead to a facilitation of cross-listing in both directions across the Atlantic. The cross-listing, among the various exchanges of the merged company, would be a desirable expansion of prospects for Canadians, whether they are seeking dividends or capital.
Good strategy is outward-looking, not merely defensive. TMX should be entitled to pursue its hypothesis that a transatlantic alliance would make it, more than before, a strategic asset for Canadians.