TMX’s Kloet Saw Global Ambitions Thwarted, Commodity Rout

Tom Kloet is retiring as head of Canada’s largest stock exchange almost three years after his plan to merge with the London bourse was foiled, leaving the exchange vulnerable to a commodities slump that sliced trading volumes and its share price.

Kloet, 55, will leave six years after taking his post as chief executive officer of TMX Group Ltd., owner of the Toronto Stock Exchange, Venture Exchange, Montreal Exchange, a clearinghouse, and alternative trading venue Alpha Group. His retirement is effective Aug. 31, according to a statement from the Toronto-based operator yesterday.

TMX Group has dropped 7.1 percent over the past 12 months, the third-worst performer among 16 exchange groups tracked by Bloomberg. Trading volumes sank 14 percent in 2013 amid a record 31 percent slump in raw-materials stocks.

Kloet’s plan to merge the former TMX with London Stock Exchange Group Plc and give it a global footing collapsed in June 2011 after it failed to get enough shareholder support, just as a global commodities downturn set in. A consortium of Canadian financial institutions, including Toronto-Dominion Bank and Canada Pension Plan Investment Board ultimately succeeded in taking control of the company amid a drive to keep the exchange in Canadian hands.

“Tom has done a solid job guiding the organization through a very tough period,” Paul Holden, a financial analyst at CIBC World Markets, said by phone today. He has a sector perform rating for TMX, the equivalent of a hold. “The selloff in resource sector hasn’t helped.” Natural resource stocks account for about 38 percent of the benchmark Standard & Poor’s/TSX Composite Index.

Alternative Assets

TMX added 1.1 percent to C$52.11 at 4 p.m in Toronto. The stock has increased 2.1 percent this year, compared with a 1.3 percent advance in the S&P/TSX Financials Index.

“They have to figure out their next step,” said Doug Clark, managing director at ITG Canada, a subsidiary of New York-based Investment Technology Group Inc. “They can’t wait for people to come back to Canadian stocks, they have to either venture out internationally or grow within Canada by adding products and services.”

The exchange could continue to run as a utility or set itself up for a move into fixed income and foreign exchange, Clark said. TMX is in a good position to expand into alternative assets as it owns Clearing and Depository Services Inc., a clearing house that facilitates securities trading, Clark said.

“Tom leaves behind a strong management team who will continue to execute on the organization’s growth strategy,” Chuck Winograd, chairman of TMX, said in the release.

Time Commitment

Kloet said he is leaving the exchange in a steady state.

“The ship is secure,” he said in a phone interview. “You need someone who is committed to being here for five to 10 years and I didn’t want to stay that much longer.”

Kloet will likely vacate his seat on the company board when he exits in August, he said. He declined to speculate on a successor.

“The biggest challenge for anyone coming in is the diversity of the business lines,” Kloet said. “We’re one of the biggest stock exchanges in the world, so you have to have a bit of a generalist capability. There are not a lot of people with the expertise that checks off all those boxes.”

TMX reported adjusted earnings of 96 Canadian cents a share in the fourth quarter compared with 95 Canadian cents a year ago while sales were little changed at C$180.7 million ($162.2 million). Earnings have topped analysts’ forecasts for the past three quarters.

“In the exchange space, it’s like Formula One -- there’s only a handful of top-notch guys,” said Thomas Caldwell, CEO of Caldwell Securities Ltd., which manages about C$1 billion. “I would suspect that Tom is not going to just be playing golf. This is not his swan song.”

Board Work

Before joining TMX, Kloet was chief operating officer at brokerage Fimat USA LLC and its successor, Newedge USA LLC. In 2000, he oversaw the initial public offering of Singapore Exchange Ltd. as CEO of the bourse.

“My base case now is to do some board work,” Kloet said. He plans to divide his time between homes in Chicago and Hilton Head, South Carolina.

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