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Maple bid for TMX clears last regulatory hurdles

The screens at the TMX Broadcast Centre in Toronto show the closing numbers of the TSX at + 252.19 on Tuesday, July 3, 2012.

Matthew Sherwood

A dozen of the country's most powerful financial institutions are on the doorstep of success in their 14-month quest to buy the owner of the Toronto Stock Exchange and reshape the business of stock trading in Canada.

The so-called Maple Group, consisting of four big banks and eight other financial heavyweights such as pension plans, won the final regulatory approvals necessary to close the $3.6-billion purchase of the TMX Group Inc. Securities commissions in Alberta and British Columbia signed off Wednesday, dropping the last major hurdles.

From the beginning, it was clear that Maple's plan would be a tradeoff for Canada. The proposal would merge TMX with its biggest rival in stock trading, easing competitive pressures that had slowed profits. It would also add new earnings sources by turning some services that investors enjoyed on a non-profit basis into profit-generating engines.

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The result would be a much stronger exchange company, turning TMX into a company with more heft to expand beyond the country's borders. Indeed, there's talk that TMX is gearing up to buy one of the biggest market operators in the U.S., an electronic market known as Direct Edge.

"TMX Group will be a stronger organization, able to introduce new innovation and efficiency to the Canadian market, and to grow, compete and win more effectively on the global stage," TMX chief executive officer Tom Kloet said as the company announced the approvals.

The key question for investors is what will happen to the cost of trading, as the competition that TMX had been facing had driven down fees and created the ability for Canadians to trade much more cheaply.

With much of that competition disappearing under the Maple plan, regulators in Ottawa and four provinces focused on ensuring that Maple would not be able to drastically ramp up costs for investors. Regulators in the westernmost provinces, where many small resource producers are based, also sought and received assurances that junior companies would still be able to raise capital. For a time, until Maple made concessions, the federal Competition Bureau said it had "serious concerns" with the transaction.

However, the Competition Bureau finally gave its approval in recent weeks, as did the Ontario Securities Commission, the main regulator of the TSX.

It was concern that a key national financial asset was so weakened that it would slip away that led to the Maple Group's creation.

Pushed by financial powers such as Toronto-Dominion Bank, National Bank of Canada and the Canada Pension Plan Investment Board, the group came together in the spring of 2011 out of a desire to stop TMX's plan to merge with the owner of the stock exchange in London. The concern was that TMX was the junior partner in that merger, and eventually Canada might lose sovereignty over markets that are vital in enabling Canadian companies to raise money and grow.

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Initially, the group just voiced its concern. When it became clear that wouldn't be enough to stop the London plan, the Maple Group launched a hostile bid for TMX, pitting members of the country's financial establishment against one another in a public and at times testy battle.

After TMX and the London exchange gave up on their merger plan, TMX and Maple reached a friendly deal and have spent much of the past year dealing with regulators.

The final hurdle for Maple is to get enough TMX shareholders to agree to sell that the deal goes through, but that's not expected to be an issue. The plan is to have the deal completed by the end of the month.

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