TMX Group Third-Quarter Profit Rises on Derivatives Trading, Listings Fees

TMX Group Inc. (X), the Toronto Stock Exchange owner facing a takeover by Canadian banks and pension funds, said third-quarter profit gained 21 percent on fees from derivatives trading, clearing and listings.

Net income rose to C$67 million ($65.9 million), or 90 Canadian cents a share, from C$55.2 million, or 74 cents, a year earlier, Toronto-based TMX said today in a Canada NewsWire statement. Adjusted profit of 92 cents a share beat the 87-cent average estimate of four analysts surveyed by Bloomberg.

Record trading on its Montreal Exchange derivatives bourse and a 27 percent jump in equity financings on its exchanges, which fueled listings fees, helped TMX offset a slowdown in trading on its TSX Venture exchange. Canada’s benchmark Standard & Poor’s/TSX Composite Index fell 13 percent in the quarter, its biggest drop since 2008.

The exchange had $2.4 million of pretax costs related to its attempted takeover by London Stock Exchange Group Plc (LSE) and the Maple Group, who it’s now in negotiations with.

TMX agreed on Oct. 30 to support a C$3.73 billion takeover bid by Maple Group Acquisition Corp., whose 13 members include Toronto-Dominion Bank, Ontario Teachers’ Pension Plan and Manulife Financial Corp. Maple made an unsolicited bid to buy TMX on May 13, challenging a friendly agreement between the Toronto Stock Exchange owner and LSE. TMX and LSE scrapped their pact in June after failing to get enough shareholder support, leaving Maple the lone suitor.

Regulatory Approval

Maple plans to buy Alpha Group and Canadian securities clearinghouse CDS Inc., to integrate into TMX if its takeover succeeds. Canada’s Competition Bureau and provincial regulators need to approve the deal. Maple also needs to get 70 percent of TMX shares from investors to proceed. Alpha, whose owners include Canada’s six largest banks, had 20.1 percent of the market for Canadian stock trading by number of shares traded in September, according to monthly statistics from the Investment Industry Regulatory Organization of Canada.

“The Maple proposal is in the best interests of shareholders,” TMX Chief Executive Officer Thomas Kloet, 53, said in the statement today. “The approval process has been initiated and we are working in close collaboration with Maple investors towards obtaining approval of a transaction that enhances and strengthens Canadian capital markets and all of its participants.”

Today, TMX said it will delay a project to offer clearing for over-the-counter fixed-income repurchase agreements to the first quarter of 2012 from the fourth quarter this year.

“Canadian Derivatives Clearing Corporation continues to work with the dealer and user community to develop the infrastructure for central-counterparty services for the Canadian fixed income market,” Kloet told analysts on a call today. “Although CDCC is prepared to implement the facility supporting this service in the fourth quarter, the go-live date has been rescheduled to the first quarter of 2012 to allow for additional industry testing of the system and controls.”

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net Doug Alexander in Toronto at dalexander3@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net Andrew Rummer at arummer@bloomberg.net

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