The bank-led Maple Group has a threat for the other shareholders of the Alpha trading system: Sell Alpha to us, or you won't have much left to sell.
The warning is buried in legalese in the documents filed for Maple's bid for TMX Group Inc. Maple has a plan that could cripple Alpha if the other shareholders stand in the way of a sale by withholding the buy and sell orders that have made Alpha the No. 2 player in Canadian stock trading behind TMX Group.
Maple wants to buy TMX and then roll in Alpha to create a player with by far the biggest market share in Canadian stock trading. While Maple has six of the main Alpha shareholders already on side, there are three who remain outside the tent: Bank of Montreal, Royal Bank of Canada and Canaccord Financial.
Maple believes it has the power to force an acquisition of Alpha, according to the bid documents. However, if something stops that from happening, Maple has a Plan B that could put a lot of heat on the other Alpha shareholders.
The fighting stance is setting up a potentially nasty scrap among the Alpha shareholders over the wording of their agreement, should Maple succeed in buying TMX and move to ram through a sale of Alpha, and lingering bad blood even if Maple doesn't.
In the bid documents, Maple says that if it can't buy Alpha, then the brokerages that are Maple members will no longer make Alpha a top destination for the stock-trading orders they receive.
Maple's bid says that "if, and only if, the Alpha Transaction cannot occur for any reason other than the failure to obtain approval from the [Competition]Commissioner for the Alpha Transaction, the Dealer Investors and Desjardins" have agreed "to not preference trading on the facilities of Alpha Group with respect to their trading volumes in securities listed or traded on such facilities." The exception, of course, would be when regulators demand orders go to Alpha to satisfy requirements to get the best price and best execution for investors.
That could potentially cripple Alpha, as in many ways a stock market is just a creature of order flow. The technology to start a new market is available off the shelf, for relatively low cost. But those computers and wires and software programs are worth nothing without orders coursing through them.
Alpha's support from the big banks that own it, in the form of orders, has helped drive it to No. 2 in Canadian stock market volume behind TMX's markets. Without that support, Alpha is likely to be an also-ran.
Where would the orders go? Likely to TMX's markets, after a Maple takeover, strengthening it at the expense of Alpha.
A Maple spokesperson didn't immediately respond to a request for comment.