Knowing that the regulators will scrutinize every aspect of their proposed takeover, Maple Group Acquisition Corp. and TMX Group are being particularly careful to prove that they want to keep Canada’s capital markets open to all participants.
“Open and fair access to trading and clearing is a cornerstone of what we are going to build together,” Tom Kloet, TMX’s chief executive officer said on Monday’s conference call.
That’s something Maple has been preaching for some time, and they’ve used pretty explicit language. Because the consortium of banks, pension funds and dealers is restricted to 13 members, they have had to guarantee that anyone outside this group will not be at a disadvantage.
On fees, however, the language has been less clear cut -- particularly for clearing and settlement services conducted by the Canadian Depository for Securities.
For TMX and trading fees, the applications that Maple has filed with the provincial regulators go into detail about the need to keep them competitive, and Mr. Bertrand has long stated that Maple simply can't boost trading fees because trade flow would move to alternative platforms like Chi-X and Pure, which would have lower cost structures. It’s a valid point.
But what about CDS? The fear here is that because the organization has a monopoly in Canada, there aren’t any competitors to push back on pricing. Facing some heat on the issue in June, Mr. Bertrand said that Maple's takeover model “was not based on price increases” for CDS. But on Monday, his language was much more watered down.
To get a straight answer, the Globe asked about these fees again, noting that CDS currently has a mandate to get its fees as low as possible. And that from 2005 to 2010, the fees fell from 18 cents per exchange trade to 2.3 cents.
“We operate in a very competitive environment,” Mr. Kloet said in reply. “It’ll be very important that we keep our fees both competitive and fair.”
“You can be sure that as smart business people, our behaviour is not going to be one where we come in with policies, particularly with regard to fees and access, that go against the trend,” Mr. Bertrand added.
Both answers made no guarantees.
In the end, Maple may keep fees extremely low. If that's the plan, they need to be explicit about it, because the application they filed with the provincial regulators isn’t very comforting.
For starters, the language there also uses the vague ‘fair and reasonable' phrase.
“We understand that fees must continue to be fair and reasonable; open access must be maintained in both trading and clearing; and decisions within the organizations must be taken on a reasonable basis and in the interests of fostering confidence in the capital markets,” the application to the Ontario Securities Commission states.
More importantly, the consortium explicitly says: “Under Maple ownership, CDS Clearing will offer a for-profit customer-centric proposition which balances cost and service.” Currently, CDS operates under a cost recovery model, which means it only charges fees to cover its low costs.
Moreover, “CDS Clearing will have a practice of benchmarking its fees for its various products against relevant domestic and international counterparts.” Again, this part is troubling because Maple has praised exchanges such as Deutsche Borse and the Hong Kong Stock Exchange, which have already integrated clearing and settlement to create a vertical silo. But the fees in these places are also higher. According to its latest report, it costs domestic firms 66 cents to settle a trade on Deutsche Boerse, before any volume discounts.