TMX Boss Defends Merger

by Mike Godfrey, Tax-News.com, Washington

08 March 2011

A select committee of the Ontario provincial legislature has begun its review of the proposed merger of the Toronto and London stock exchanges, with the CEOs of both operating groups giving evidence on the first day of public hearings.

The Select Committee on the proposed transaction of the TMX Group and the London Stock Exchange Group, set up on February 23, was appointed to "consider and report its observations and recommendations concerning the impact and net benefit to Canada, including Ontario, its economy and people, Toronto's financial services sector and Northern Ontario's mining industry". The committee was created in response to a wave of sustained criticism of the merger, particularly from Ontario's finance minister Dwight Duncan, who, at the beginning of February deemed the stock exchange to be a "strategic asset" to the country and stressed that "we have to take into account not just the shareholders of the TMX and the LSE, but we have to take into account the shareholders of Canada".

Thomas Kloet, CEO of the TMX Group, which operates the Toronto exchange, and Xavier Rolet, CEO of the London Stock Exchange (LSE) Group, spoke at the opening hearing on March 2. Kloet admitted that "there are clearly a number of questions which people want greater clarity on", perhaps a reference to various Canadian business and newspaper surveys of recent weeks which highlight the desires of many to secure more information on what the deal will mean for regulation, public companies and traders. Kloet went on to defend the merger by insisting that "at the heart of our deliberations, and during the entire course of our negotiations with LSE Group, the benefits of the merger would deliver to the Canadian economy have been a primary focus".

He argued that the partnership would make a great contribution to both nationwide and provincial success, and enhance the role TMX Group's exchanges would play on the international stage. He pointed out that five other exchange operator combinations are currently on the cards and that these moves were part of a push for exchanges to strengthen their collective positioning. As a result of TMX's merger, Kloet believes that the exchange's competitive position would be greatly enhanced, and would attract worldwide issuers through an extended European network, meaning that listed companies may expect "to see new financing opportunities, enriched access to capital and heightened interest from around the world". Rolet added that the deal would create an international group "with deep expertise, undeniable leadership in key sectors and the ability to compete effectively and win on the global stage".

Whilst listing the benefits listed companies would reap from the merger, both Kloet and Rolet were careful to highlight the ways in which the Toronto stock exchange would remain as Canadian as possible. The deal would not result in a merger of the way in which the exchange operates, and it would continue as a separately governed and Canadian regulated exchange. Kloet insisted that the listed companies and issuers would see no change in their status or regulatory and reporting requirements, thus imposing no additional costs upon them. He assured the hearing that "no foreign regulator will have jurisdiction over our Canadian regulated exchanges" and that the exchange "will operate for all intents and purposes as before". Rolet said that Kloet would serve as president, and Canadian residents would hold seven seats on a board headed by another Canadian, pledging that "a Canadian Chairman, Canadian directors and a powerful contingent of Canadian-based executives and leaders will be at the forefront of any future discussion".

The committee is due to sit from March 2 to March 10, and to present its final report by April 7.

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