First Aequitas, now this.
Mere months after rival stock-exchange provider Aequitas Innovations Ltd. launched its new exchange in Canada, aiming to steal market share from the Toronto Stock Exchange, TMX Group Ltd., which operates the TSX, faces the threat of potentially taking on Nasdaq OMX Group Inc., too.
Earlier in May, reports came out that stock-market operator Chi-X Global Holdings, which operates a trading venue in Canada, is exploring a sale. At the time, numerous prospective bidders were mentioned, so it's hard to tell who would eventually win any auction, but the mere mention of Nasdaq as a potential suitor is catching Canadians' attention.
To be clear, Nasdaq would acquire Chi-X globally, so this wouldn't be a Canada-only deal. But the acquisition would have particularly serious implications here. Chi-X's Canadian trading platforms have roughly a 17-per-cent market share – the official figure pegs that share closer to 20 per cent, but this volume is arguably inflated – and its venues are widely viewed as being competitive with the much bigger TMX.
What Chi-X lacks, though, is a listing business. That's something TMX still has a near monopoly on, although Aequitas is trying to erode it. Not only does Aequitas offer a trading platform, it also features a new listing option for Canadian companies. Still, pretty much everyone agrees that building this business will take time.
Even if Aequitas offers better prices for clients, brand equity matters. The average Canadian investor is likely to be more trusting of a company that can say it's "TSX-listed." Changing that perception to add Aequitas into the mix is a tough task – which is why new exchanges have mostly catered to exchange-traded funds and structured products in their efforts to secure new listings.
Nasdaq already has a big brand, however. It's a name Canadians know well and likely still respect – despite some major hiccups of late, such as the disastrous Facebook Inc. initial public offering.
Clearly, TMX could still compete; battling a domestic incumbent would be no cakewalk for Nasdaq. But the likely scenario is that the Canadian exchange would lower its fees, affecting its revenue.
A Nasdaq invasion could also offer Canadian companies the potential for easier interlisting – meaning they could trade on both sides of the border, through the same parent company, for almost no additional cost.
Right now, Royal Bank of Canada trades on TMX in Canada and the New York Stock Exchange in the United States. If Nasdaq makes it much cheaper to trade on both of its North American exchanges, could that change?
Again, TMX could counter, possibly by signing a deal with the NYSE to offer supercheap interlisting. But the threat would at least force the Canadian leader to play defence.
Here's the kicker: Should Nasdaq start to operate here, it'd have some pretty serious insight into the Canadian market. Tom Kloet, TMX's former chief executive, joined its board of directors in March.