The $7-billion merger of TMX Group Inc. X-T and the London Stock Exchange is being met with a mixture of optimism and trepidation from the country’s business executives.
Top officials at Canada’s major banks viewed the news as a logical step toward creating a global exchange with influence on both sides of the Atlantic. Billed as a merger of equals, the marriage of TSX and LSE will combine management from both groups, and possibly give companies greater access to the capital flowing through the two exchanges, executives said.
But concerns about giving up Canadian oversight of the markets loom over the deal.
“When we saw this, we immediately asked the question, ‘How would such a transaction with such parties impact the oversight role that exchanges play in the Canadian market?’” said Wayne Kozun, senior vice-president of public equities at the Ontario Teachers Pension Plan.
The answer wasn’t immediately apparent. TMX Group issued a statement confirming a deal was forthcoming, but additional details won’t be known until Wednesday.
Veteran Toronto securities lawyer Joe Groia, a former director of enforcement for the Ontario Securities Commission, said the deal has immense potential, but also pitfalls. Mr. Groia praised the move as huge for the international profile of the TSX, but warned that it could create significant issues for market watchdogs.
“From the standpoint of expanding and growing the market, it’s a great step forward. And from the standpoint of policing the market, it’s going to be a regulatory nightmare,” Mr. Groia said.
For Canada’s resource companies, the merger has stoked hopes of better access to the international flow of money that courses through London.
“It definitely opens up access to all the European capital markets, which is a growing opportunity for Canadian companies,” said Richard Clark, chief executive officer of Eagle Energy Trust, a newly listed Calgary energy company.
But Mr. Clark, who has served on the TSX local advisory committee in Alberta, said the increasingly international business of securities also raises worries for companies that already spend heavily to navigate the thicket of regulations that surround the creation and maintenance of listings.
“The more global we get, the more concern I have about regional interests being properly addressed. The flexibility that we’ve come to know and love as Alberta issuers has slowly been removed,” he said.
The news comes shortly after China Investment Corp., the powerful Chinese sovereign wealth fund, chose Toronto as the home for its first permanent foreign office.
Janet Ecker, president of the Toronto Financial Services Alliance, said the deal “confirms that Toronto is a growing presence in the global financial services world.”
“Canada has incredible strength in the mining, metals, energy financing and listing space, and that strength is not going to go away,” Ms. Ecker said. “It could potentially be enhanced by [these] developments.”
The merger also raises numerous questions about how securities will be handled in future, even among those who say the deal could provide value for Canada’s resource industries.
“I think it would ease interlistings between Toronto and London, so that companies could be listed in both jurisdictions. That would be of benefit for sure, especially for companies that have an international focus – mining companies in particular,” said Kent Kufeldt, a Calgary-based securities lawyer with Macleod Dixon LLP.
But, he said, the complexities of bringing together the two systems could be difficult.
“Before you could say whether it’s an absolute benefit, you’d have to understand how those rules mesh together, and whether a listing on London does put you into a different morass of regulatory rules and procedures that are more difficult, or don’t reconcile well with what we do in Canada.”
