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Bond index deal a legacy of failed TMX-LSE merger

Tom Kloet, C.E.O of the TMX.


Back when TMX Group Inc. was looking at merging with LSE Group, TMX chief executive officer Tom Kloet would get pretty excited any time the opportunity to combine his business with the index business of LSE would come up.

The LSE's well-known FTSE indexes would provide entrée into many other markets.

The TMX-LSE combination is long dead, with TMX having instead merged with rival Maple Group, but the logic of the index combination endured. When TMX and LSE announced Tuesday that they were doing a deal to combine their fixed income index businesses, it was a legacy of those earlier talks.

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TMX has developed a bond index business that gathers prices from 11 different bond dealers, filters the pricing for outliers, and feeds various bond index products. But it had reached a "now what?' moment.

"It has been one of our higher growth business lines," said Eric Sinclair, who heads the TMX's data division. "The issue for us was how do we get to the next level and how do we go global." FTSE, the index business of LSE, provides that global reach and brand. There's also an index research group hunting for new products.

"We're excited about working with the research group at FTSE, and combining our know-how with their know-how," he said.

For FTSE, TMX's fixed income business comes with a model that involves getting prices from multiple bond dealers. That's something that may be able to win business when applied in countries where the current bond indexes are mainly run by investment banks, and have limited pricing inputs.

"We will be opening an office in Toronto, expanding our North American footprint," said Jonathan Horton, President FTSE North America. Then FTSE will "look at how we take that model and build it out into other markets."

"I think it has the opportunity to become an established global model," he added.

(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)

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