Toronto Role Won’t Be Diminished in Exchange Mergers

Toronto’s role as the hub of Canadian capital markets won’t be diminished in any future takeovers by a merged TMX Group Inc. and London Stock Exchange Group Plc, LSE Chief Executive Officer Xavier Rolet told an Ontario parliamentary hearing.

“Regardless of the type of transaction that we, as a merged group, may entertain in the future, separate Canadian-based governance, management and regulatory oversight for Canadian exchanges will always remain in place,” Rolet said.

Rolet and TMX CEO Thomas Kloet answered questions on the C$3.2 billion ($3.29 billion) transaction during the committee hearing in Toronto. Lawmakers asked the CEOs about control of the combined company, regulatory issues, its operations, and economic impacts.

“Canadians and Ontarians are rightfully worried about what this is going to mean to Canada over the longer term,” said Gilles Bisson, a lawmaker from the opposition New Democratic Party.

Ontario Finance Minister Dwight Duncan of the ruling Liberal Party called the Toronto exchange a “strategic asset” and has questioned the impact of the deal on the province and country. TMX and LSE shareholder Thomas Caldwell, CEO of Caldwell Securities Ltd., has said there is a “50-50” chance the sale will be approved by Canadian lawmakers.

‘Best Interests’

“We have to be able to ensure that the stakeholders -- whether that be the issuers, the shareholders or the economies of Ontario and rest of Canada -- that whatever takes place here has to be in our best interests,” Progressive Conservative lawmaker Frank Klees said after the hearing.

The TMX-LSE transaction requires approval from the federal government and five Canadian provincial regulators including Ontario and Quebec, as well as the U.S. Securities and Exchange Commission.

“Any future transaction would serve to further expand Toronto’s role in global financial services, not diminish it,” Rolet said.

TMX Group CEO Thomas Kloet told lawmakers the transaction will create more job opportunities for lawyers, accountants, geologists and other professionals who work in the financial sector.

“As trading volumes and liquidity rise, so will the need for Canadian (mainly Toronto-based) market participating organizations to grow in parallel,” Kloet said today.

Separate Board

He added that the Toronto exchange will have a separate board from the combined holding company and that the Ontario Securities Commission will maintain its regulatory oversight of the bourse.

“The Toronto Stock Exchange will operate for all intents and purposes as before,” he said.

The LSE agreed Feb. 9 to buy the Toronto Stock Exchange owner in an all-stock transaction that would give shareholders of the London-based company 55 percent of the Canadian exchange owner, with the rest held by TMX investors.

Canadian Industry Minister Tony Clement has said he will review the TMX deal under the Investment Canada Act to determine if the transaction has a “net benefit” to the country.

Bisson said safeguards need to be in place to protect Canadian interests as the combined company merges with other exchange owners in the future. He suggested TMX should be the acquirer of the London exchange owner.

‘Buy Them Out’

“We should buy them out, and if we don’t buy them out we need to certainly safeguard,” Bisson said. “If we don’t have the safeguards this shouldn’t happen.”

Other speakers at the Ontario hearing included Frank Smeenk, president of Montreal-based minerals explorer KWG Resources Inc., Wellington Financial CEO Mark McQueen, and Alpha Group CEO Jos Schmitt, whose company operates an alternative trading system that competes with TMX.

Speakers scheduled tomorrow morning include Maude Barlow of the Council of Canadians, a non-government organization; and Roger Martin, dean of Rotman School of Management at the University of Toronto. Other hearings are scheduled for March 9 and March 10.

TMX Group fell 7 cents to C$40.49 at the 4 p.m. close of trading on the Toronto Stock Exchange. LSE fell 11 pence to 885 pence in London.

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