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Maple Approval Leaves Canada with Regulated Monopoly Stock Exchange

In a surprise move, the Competition Bureau cleared the Maple Group’s bid to acquire TMX Group, Alpha Group, and Canadian Depository Services on July 4, 2012. On the same day, the OSC issued a recognition order regulating the Maple Group.

These approvals leave Canada with one stock exchange that will operate as a regulated monopoly.

“Serious concerns” mitigated by new regulations

The Bureau’s approval came notwithstanding the “serious concerns” the Bureau expressed in November 2011 and the long history of consolidation in this sector.

In 1999, the Vancouver, Alberta, Montreal, and Toronto stock exchanges entered into a specialization agreement that meant they would no longer compete. Under this agreement, senior companies were consolidated on the TSE; the Montreal Exchange assumed responsibility for futures and options, and junior listings were consolidated on a merged Alberta and Vancouver exchanges, which became the Canadian Venture Exchange. The Bureau decided not to challenge this “restructuring” of Canadian stock exchanges, in part, because of new rules allowing the development of Alternative Trading Systems. (See press release.)

In 2001, the TSX Group (as the TSE was then known) acquired the Canadian Venture Exchange.

Then in December 2007, the TSX and the Montreal Exchange announced that they planned to merge. The Bureau allowed the merger, citing the lack of competitive overlap (which arose from the 1999 specialization agreement!) and the launch of Alpha Trading Systems. Alpha was owned by nine Canadian financial institutions that collectively represented a significant portion of the volume traded on the TSX and was thus likely to be a significant competitor to the TSX, the Bureau said. (See press release.)

By combining Alpha with the TMX, the Maple Group’s bid thus removes the competitor that allowed the Bureau to approve the TSX-MX merger in 2007. Nevertheless, the Bureau allowed the merger to proceed, on the basis that regulatory changes imposed by the Ontario Securities Commission in its order allowing the merger alleviated its competition concerns. (See press release.)

Enhanced oversight by OSC

The OSC also issued its “recognition order,” allowing the transaction to proceed, on July 4, 2012. The OSC imposed an “enhanced oversight program” because the Maple Group would “own the key market infrastructure entities in Canada”, thus concentrating risk. The Maple Group is owned by a number of financial institutions and institutional investors, including the Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan, CIBC World Markets, Scotia Capital Inc., and others.

The recognition order also gives the OSC powers to regulate the fees charged by Maple Group’s exchanges. (See the OSC’s press release.)


W. Michael G. Osborne
Affleck Greene McMurtry LLP

W. Michael G. Osborne

Michael Osborne is a former Partner of Affleck Greene McMurtry LLP

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