Competition regulators still have serious concerns about a plan by some of Canada's biggest financial institutions to buy the country's main stock market operator, TMX Group Inc. , forcing the would-be acquirers to extend their bid and offer a new round of potential remedies.
The Competition Bureau said Tuesday that after months of talks with TMX and Maple Group, the bidding consortium, there are still hurdles.
"Significant and material change to the competitive consequences to the proposed transaction would be required to sufficiently address the [Competition]Commissioner's serious concerns," the bureau said in a statement.
Maple extended its bid for TMX, which was to expire on Tuesday, until Feb. 29.
Maple, a group led mainly by banks and pension funds, wants to buy TMX and then combine it with the country's second-largest stock market, Alpha Group. Maple also wants to buy the not-for-profit CDS Inc. system that handles the clearing and settlement of stock trades, and turn it into a for-profit business under TMX.
Competition Commissioner Melanie Aitken told TMX and Maple Group in November that she had serious concerns about the competition implications of both the combination of stock markets and the purchase of the clearing system. She asked for more information, which Maple provided.
Maple recently submitted another round of proposals, including a pricing schedule for clearing and other potential remedies, said Peter Block, a spokesman for the consortium.
Many traders and investors outside Maple are concerned that the plan to change the clearing system from non-profit to for-profit would lead to higher costs for market users.
Currently, Canada has some of the lowest costs in the world for clearing and settlement – the transfer of securities and money that has to happen once investors agree to make a stock trade. Some market users are also wary of the fact that the TMX-Maple plan would create a company that would host more than 80 per cent of all trading in Canadian equities.
TMX Group's fate has been up in the air for almost a year. Last February, London Stock Exchange Group PLC unveiled a plan to merge with TMX. That prompted financial institutions such as Toronto-Dominion Bank, National Bank of Canada, Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan to band together as Maple Group to try to keep TMX in Canadian hands.
Maple launched a hostile bid to try to break up the LSE deal. LSE dropped out of the running last summer, after shareholders failed to support the merger idea, leaving Maple as the only suitor. Now, Maple and TMX have agreed on a deal at a price of $50 per TMX share.
But without the approval of the Competition Bureau and financial market regulators, the transaction won't be able to proceed.
When the LSE-TMX plan was unveiled, it was amid a global move to further consolidation in stock markets that appeared set to create globe-spanning super-exchanges. Almost at the same time, Germany's Deutsche Boerse and the owner of the New York Stock Exchange agreed to a merger.
However, in the intervening year, regulators around the world have shown a reluctance to allow such megamarket operators. European competition regulators have signalled that they will not approve the Deutsche Boerse-NYSE merger without massive concessions, which the companies have said they won't make.
TMX and Maple have until April 30 to work out a solution. After that date, according to the purchase agreement between the two, the parties can walk away.