On July 4, the Competition Bureau approved the takeover by Maple Group, whose investors are the key financial institutions and institutional investors in Canada (including the Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, CIBC World Markets Inc., Scotia Capital Inc., Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec, among others) of Canada’s biggest stock exchange operator, which includes TMX Group, Alpha Group and Canadian Depository Services. The Maple Group’s bid followed the proposed merger between London Stock Exchange Group PLC and the TMX Group Inc. in the first half of 2011 which was defeated by shareholders last summer.
The stock exchange sector began consolidating in 1999, when the Vancouver, Alberta, Montréal and Toronto Stock Exchanges agreed to restructure the Canadian capital markets, with exchanges specializing in different types of securities (junior companies on an exchange headquartered in Calgary, and derivatives on the Montréal Exchange with larger companies on the Toronto Stock Exchange). The Competition Bureau concluded there were no grounds to challenge the proposed merger given the intention of the Canadian Securities Administrators to remove regulatory barriers allowing for Alternative Trading Systems (“ATS”). The creation of ATSs would promote competition by offering a wide variety of trading options not offered by a centralized exchange.
Further consolidation occurred in 2001 when the TSX Group (formerly TSE) acquired the Canadian Venture Exchange, and in 2007 when the TSX Group and the Montreal Exchange merged, creating a new entity, TMX Group Inc. This latter merger was also cleared by the Competition Bureau, one of the reasons being that Alpha Trading Systems, an ATS organized by nine of Canada’s leading financial institutions, was poised to enter the market in 2008 and would likely be a significant competitor to the TSX Group.
The Bureau and the Ontario Securities Commission (“OSC”)
The Commissioner of Competition had expressed serious concerns about Maple Group’s takeover as it would effectively combine the TMX Group and Alpha Group, the two competitors in the equities trading market that control approximately 85% of all stock trades in Canada, as well as the Canadian Depository Services clearing house.
However, after a lengthy review and in light of the OSC’s “recognition order”, also issued on July 4, which allows the proposed transaction to proceed on certain conditions, the Bureau concluded that it did not intend to make an application to the Competition Tribunal to challenge the proposed transactions. The Bureau stated in its press release that “while the Bureau conducted its own review of the proposed transactions, the measures contained in the OSC’s final recognition orders materially change the regulatory environment sufficient to substantially mitigate [its] competition concerns.” No competition remedies were imposed in this proposed transaction, and it will fall to the Canadian securities law regulators to monitor and regulate the proposed transaction.
The Bureau issued a “no action letter” to Maple Group, which means that the Bureau can still challenge the merger once completed for up to one year post‐closing.
The Bureau’s press release can be found here.