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The Globe and Mail

Pension funds in Maple sought Alpha non-compete

TSX trader watches the action


A Maple Group source says the consortium's plan to shift trading flow away from Alpha Group if it can't combine the trading system with TMX Group Inc. isn't meant as a threat to force other Alpha owners to sell -- it's just a way to deal with a potential conflict of interest within Maple.

Maple wants to buy TMX Group Inc., operator of the country's biggest stock market, and merge it with Alpha Group.

Some of the 13 Maple backers, including National Bank Financial and Toronto-Dominion Bank, are also owners of Alpha. Other Alpha owners are not part of Maple. They are Royal Bank of Canada, Bank of Montreal and Canaccord Financial.

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Maple is confident it can get the Alpha-TMX deal done. But if it can't, the owners of Alpha who are also Maple members have agreed no longer to give preference to Alpha when they route buy and sell orders to stock markets.

That could be a big blow to Alpha, which owes much of its success in becoming Canada's second-largest stock market operator on orders routed to it by the banks that own it.

Streetwise wrote earlier Wednesday that the plan to change order routing looks like a warning to the three owners of Alpha who are not in Maple not to stand in the way of Maple's plan to merge TMX and Alpha. (Here's a link to the earlier post.)

It's not a threat, says a source close to Maple. It's simply a result of a non-compete agreement that the pension funds which are investing in Maple wanted.

The pension funds, with the exception of Canada Pension Plan Investment Board, have no stake in Alpha's success. They didn't want the Alpha members who are also Maple members sending orders to Alpha and building a stronger competitor to TMX.

That resulted in the agreement, which is described in the bid circular in this way as a promise not to "preference trading on the facilities of Alpha Group with respect to their trading volumes in securities listed or traded on such facilities" should Maple be unable to purchase Alpha after buying TMX . That of course, would be subject to regulatory rules demanding orders be sent wherever is best for clients, or to where clients demand.

"We had to come to a mechanism on how to satisfy their concerns without creating an issue from the competition point of view," the Maple source said.

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For that reason there's no requirement that the orders go to TMX to create greater market share for TMX, only that they not go first to Alpha, the source said. Maple has also asked the Competition Bureau to bless its plan to shift order preferencing away from Alpha.

The Maple source also disputed the notion that it would lead to a big impact at Alpha if the Alpha members in Maple sent orders elsewhere, because many orders would still continue to go to Alpha because of client preferences or best execution rules.

That's contentious. Maple members Toronto-Dominion Bank and National Bank in particular have been big supporters of Alpha and to lose them as active backers of Alpha would be a serious issue, say others familiar with the trading system's workings. Losing the support of all of the Maple members could significantly erode Alpha's market share.

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