The TMX's Eventful 2011
For the TMX, 2011 has been non-stop. A multitude of negotiations paired with a reviving economy and a strong loonie has been just a few of the challenges the TSX, its main product, has dealt with this year. Pushing forward through thick and thin, the TSX, although hindered in its merger with the LSE, will continue to thrive throughout 2011.
TSX and the LSE
In pursuit of a proposed merger with the LSE that fell through on June 29th, the TSX spent most of its year in negotiations with stockholders. Announced in February, the TSX hoped the merger would create an international exchange leader. With plans to be co-headquartered in London and Toronto, the combined exchanges would have become the number one venue in the world by a number of listings as well as number one in global listings venue for natural resources, mining, energy and clean technology. Additionally, the merger, stating the exchanges, was supposed to create a market leader in high-performance, cost effective cash and derivatives trading technology. The Boards of both LSEG and TMX, the TSX’s holding company, approved and recommended the proposal. Believing the merger to be strategically compelling, the Boards hoped to create a more diversified business that included a greater scale, scope, reach and efficiencies that would generate substantial benefits for the stakeholders.
When asked about the potential merger Wayne Fox, Chairman of TMX Group said, “Two highly successful and profitable institutions are joining forces to create a more diversified and international company. This merger of equals will benefit shareholders, issuers, customers, employees and other stakeholders of both organisations. As important, it will have a positive impact on the business communities in Canada, the UK and Italy. I look forward to working with my fellow directors and the combined team to create one of the world’s leading exchange groups.”
What Went Wrong? The TSX and the LSE cancelled their plan to merge in late June stating that they did not have enough support from TMX shareholders to complete the deal. At the shareholder vote on June 28th, there was a majority of support for the proposed merger, but it did not reach the two-thirds threshold that was required.
What were critics’ concerns? Partly, the fact that the LSE shareholders would have a 55 per cent stake in the new entity and that potentially the TSX would cede to the LSE was a big criticism of the proposed merger. This could threaten many financial services jobs that survive on the TSX. Additionally, the diminishing amount of board seats held by Canadians, that would have started at seven of 15 and later would diminish to three or four after four years, was cause for concern. Some speculated that the TSX would eventually become nothing more than an LSE branch office.
These concerns and more influenced the shareholder vote. As part of their proposal agreement, the LSE received a $10.3 million termination fee.
The TMX isn’t anywhere near defeated and seems to be making progress despite the termination of the merger. Continuing on its plans for 2011, the TMX is launching TMX Select™. An alternative equities trading system, TMX Select™ is Canada’s newest ATS that will offer participants “additional execution and liquidity seeking opportunities through a differentiated marketplace and pricing model.” With eight trading symbols enabled for trading at the start in July, the TMX Select™ offered the remainder of the TSX and TSX Venture Exchange symbols over the course of the month.
“Bringing TMX Select™ to market and introducing an innovative pricing model both reinforce our commitment to being the leader in the Canadian marketplace,” said Kevan Cowan, President, TSX Markets and Group Head of Equities.