TMX Group operates the Toronto Stock Exchange. Maple Group is expected to extend its offer for TMX today.Deborah Baic/The Globe and Mail
Royal Bank of Canada, the country's largest bank, is breaking its silence on the planned takeover of TMX Group Inc. by a consortium of investors and rival banks, saying that regulators have not gone far enough to ensure that the deal doesn't hurt other users of financial markets.
The Ontario Securities Commission last month published a draft set of rules governing how a TMX Group that's owned by the Maple consortium could operate. In comments filed with the OSC on Monday, RBC said that while the bank is "supportive largely of the transaction in the form that has been negotiated with the commission, " there are still concerns.
Chief among the concerns is that the result will be higher costs for users of TMX's services that provide trading and market data, RBC said in its submissions. ITG, another large trading house, echoed many of RBC's concerns in its own comments, which were also handed to the OSC on Monday.
Maple's plan is to buy TMX and combine it with the bank-backed Alpha trading system, the biggest rival to TMX's Toronto Stock Exchange, creating a dominant stock market. Maple also plans to fold in CDS, the country's system for clearing and settling stock trades, and turn it from a non-profit industry utility to a for-profit entity.
Because Maple's shareholders include four of the country's six biggest banks, which are among the biggest users of TMX and CDS services, the question all along has been how to ensure that Maple properly straddles the line between providing a profit for its owners and fair service for other users who are not part of Maple.
"RBC is not against this transaction, but we do see this transaction materially changing the nature of our industry in taking the clearance and settlement infrastructure from a cost recovery model to a for-profit model and removing the only true competitive alternative that the industry has in Alpha," said Greg Mills, RBC's global co-head of equity trading, who signed the submission.
RBC is the only one of the country's big six banks that has no affiliation to the Maple Group. Bank of Montreal is not a shareholder of Maple, but it is advising TMX Group on the takeover plan. Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada are all part of Maple, along with nine other financial firms.
RBC argues that the Maple proposal "will require a significantly different approach to the regulation of fees and fee models in Canada," and will require the OSC to bulk up to deal with the added workload.
"The commission should recognize the very substantial increase in its capacity and capability that will be required in order to make it an effective regulator of market structure and fees," RBC said.
One of RBC's suggestions is that Maple be forced to adopt Alpha's lower trading fees as a starting point for the new regulated pricing model, rather than using TMX's current fees. RBC also suggested that Maple be forced to include more non-Maple market users in the governance of the company.
ITG's suggestions were along the same lines, saying that "the structure proposed by the Maple acquisition is fraught with conflicts of interest across every facet of the trading, clearing and settlement infrastructure of this country" and those conflicts "have the potential to seriously affect the ability of other participants to compete effectively in our capital markets."