The TSX Group has agreed to merge with the Montreal Exchange Inc. (MX) in a C$1.3 billion deal that will create an integrated, multi-asset class execution venue for equities and derivatives in Canada."I think the combined group will be a "technology powerhouse as well as a product powerhouse in view of its multi-asset class and multi-business lines capabilities, " comments Jackie Chung, president of Competitive Metrics, Inc., a strategic research and advisory firm in Toronto focusing on the Canadian financial industry.
The combined entity to be known as TMX Group will offer cash equity and derivatives trading under one roof, as well as bond trading as the TSX Group engages in an estimated 25 percent of Canada's bond trading through its holdings in entities such as CanDeal, an electronic bond trading system, says Chung.
In addition, MX offers trading in standard financial derivatives products on its proprietary technology platform both in Canada and abroad. Montreal is part owner of the BOX (Boston Options Exchange), which is known for its fast technology, notes Chung. "Now the TSX can lean on the Montreal Exchange," she says. "Of course in the last two years, the TSX has spent a lot of money on developing technology and making a lot of enhancements," says Chung alluding to the competition that TSX is facing from the proliferation of alternative trading systems (ATSs) in Canadian equities.
There were rumors about a potential merger over the past year, says Chung. Advanced Trading wrote a story about the potential acquisition in January of 2006.
The merger is happening a year before a memorandum of understanding is due to expire in March of 2009, which bars Toronto from entering the derivatives trading sector until that date. For ten years, the TSX and MX have had a joint agreement in place that made the TSX the country's central market for cash equities and let the Montreal Exchange trade derivatives. But when Toronto hired a derivatives specialist in January of 2006, with three years left on the agreement, this sparked speculation that the TSX was going to acquire the Montreal Exchange, according to Advanced Trading. Now with the expiration of that agreement, the two markets are merging together.
"This combination grows out of a common vision for the future of the Canadian capital markets," stated Richard Nesbitt, CEO of TSX Group in the release. "The new group will redefine the Canadian capital markets and strengthen its global positioning. TMX Group will list, trade, clear and offer market data for both cash and derivatives markets across multiple asset classes," stated Luc Bertrand, president and CEO of the Montreal Exchange in the release.
The decision to join forces also comes on the heels of competitors launching six alternative trading systems for Canadian equities over the past two years, notes Chung. While the Canadian equities markets are divided between the TSX and the brokers -and TSX still has 90 percent market share - the brokers are banding together to launch Project Alpha, an electronic block-trading platform sometime in 2008. Meanwhile, a host of other competitors, including Perimeter Group (BlockBook), which has launched a second ATS for trading retail-size orders and Instinet Chi-x Canada, is entering the market next year. Already, Liquidnet Canada, Investment Technology Group's TriAct Canada Marketplace with MATCH Now and Bloomberg TradeBook, are operating downstream electronic marketplaces, all of which pose threats to the TSX.
If the deal is closed as anticipated in Q1 of 2008, the combined TMX Group will enjoy both the Montreal Exchanges powerful derivative trading platform and the TSX's Quantum cash equity platform that is planned for launch imminently, says Chung. Toronto will also gain access to Montreal's clearing operations since Montreal owns a derivatives clearing corporation. The lack of clearing was as shortcoming for Toronto, says the analyst.The TSX Group has agreed to merge with the Montreal Exchange Inc. (MX) in a C$1.3 billion deal that will create an integrated, multi-asset class execution venue for equities and derivatives in Canada. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio