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Rick Waugh, president and CEO of Scotiabank.Ian Jackson

Bank of Nova Scotia's top executive says there are shortcomings in the controversial merger between the owners of the Toronto and London stock exchanges that must be addressed in order to make the deal better for Canada.

In his first public comments since the deal was announced on Feb. 9, Rick Waugh, Scotiabank's chief executive officer, said the two companies need to negotiate further on governance issues, while at the same time preserving the economic benefits of the friendly $7-billion transaction.

The proposed merger has rekindled debate over shielding Canadian companies from foreign takeovers and has protectionists squared off against free-market proponents. It has also causes a rare public split among the country's largest financial institutions: Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, National Bank of Canada, and Laurentian Bank oppose the transaction, while Royal Bank of Canada and Bank of Montreal are supporters.

The views of Bay Street are important because the government of Ontario has a veto over the transaction - and provincial Finance Minister Dwight Duncan has expressed concern that the deal won't help Toronto's future as a financial centre.

In an interview with The Globe and Mail, Mr. Waugh placed his bank firmly on the middle ground.

"It is very important for us to not be protectionist, but at the same time, see if some improvements can be made on the existing proposal," he said after speaking at a conference in Calgary.

"Canada's interest should be evaluated. Hopefully, through negotiations, we can have a more enhanced transaction that meets [the stock exchanges']objectives and yet can meet the objections and objectives of the Canadian market."

Should the deal between TMX Group Inc. and London Stock Exchange Group PLC proceed, the merged entity will be incorporated in Britain and subject to its regulatory, security, and governance regulations, Mr. Waugh noted. A fresh round of negotiations should focus on governance and whether Canada's position can be improved, he said.

Mr. Waugh would not directly say if his comments meant he opposes the deal, although he did say the proposed transaction comes with advantages, and recognizes how stock exchanges are joining forces around the globe.

He stressed that TMX (which owns the senior exchange in Toronto, TSX Venture Exchange and a derivatives board in Montreal) and LSE should lead the way on negotiations, rather than banks and other institutions.

A handful of Canada's most powerful pension funds support the deal, despite potential downsides. They include Alberta Investment Management Corp., Ontario Teachers' Pension Plan, and Canada Pension Plan Investment Board. Others favouring the deal argue it would give Canadian companies a better shot at raising money by increasing their exposure to European investors. Increased trading volumes and lower costs for users are also touted as benefits.

Opponents fret about losing control of a historic Canadian company and giving up on building its own global presence. LSE shareholders will own 55 per cent of the new company if the deal, announced in February, is consummated.

In addition to Ontario, the deal needs approval from the federal government and Quebec.

In Ontario, an all-party committee has completed hearings on the issue and is working on its report. Alberta, whose public markets are dominated by oil and gas companies, backs the transaction and has said that, if necessary, it will work to convince other provinces to support the merger.

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