TSX, MX to Form New Canadian Exchange

"The rationale here is bringing together two complementary exchanges with virtually no revenue overlap," says Richard Nesbitt, CEO for TSX Group.

The bourse will list, trade, clear and offer market data for both cash and derivatives markets, giving the new venture four principal sources of revenue: trading, issuer services, market data and derivatives clearing, according to officials.

MX shareholders will vote for the merger on Feb. 13, 2008, while TSX Group shareholders will hold their vote during the exchange's general meeting in April, says a TSX spokesperson. The change to the TMX Group umbrella name is subject to the April vote, he adds.

Officials from each exchange cite cost synergies and future product development as two of the main benefits of the proposed deal. The expected annual cost synergies are CAN$25 million ($24.7 million), which will be achieved through optimizing technology platforms, rationalizing premises and datacenters and reducing corporate costs, say officials.

TMX Group plans to reduce the total number of datacenters the two exchanges have and to move over to one technology platform, according to Michael Ptasznik, CFO for TSX Group.

However, the two organizations remain undecided on their platform integration strategy at the moment. "There are a lot of potential opportunities out there. We have to step back and figure out what the best solution is," says a TSX Group spokesperson.

Although the decisions are difficult to predict, Adam Sussman, a senior analyst for industry research firm Tabb Group, estimates that they will make a decision on a best-of-breed approach possibly opting for the TSX's trade engine and MX's data components.

One thing that will not change will be continued rollout of TSX's new Quantum trading platform, which went live Friday, Dec. 14, with TSX's ticker symbol, says the TSX spokesperson.

Quantum is "planned and benchmarked to deliver increased throughput" with reduced latency to single-digit milliseconds, said Brenda Hoffman, CIO for TSX Group, at the time (DWT, Oct. 1). TSX Group will roll out 12 additional symbols in February or March 2008, she added.

Officials from the two bourses have been in merger talks since late October, which picked up more aggressively over the past two weeks, according to the TSX Group spokesman.

TSX Group's Nesbitt will be the CEO for the new venture, which will be headquartered in Toronto, and MX president and CEO Luc Bertrand will be the deputy CEO. As part of the deal, TSX Group will indirectly acquire all of MX's outstanding common shares for a total of 15.3 million TSX Group common shares and CAN$428 million ($419.3 million) in cash.

MX's head office and the derivatives trading and related products operation will remain in Montreal. MX will also continue to manage the Montreal Climate Exchange and the Autorité des marchés financiers (AMF) will continue to be the lead regulator for MX's operations, say officials.

The Canadian Derivatives Clearing Corp. (CDCC)-the issuer, clearinghouse, and guarantor of equity, index and interest rate financial derivative contracts traded on MX-will expand its clearing mandate and will remain in Montréal, add officials.

Officials from both bourses will also have to examine their respective relationships with other firms to decide whether to continue or terminate them, Nesbitt says.

In other exchange news, Nasdaq Stock Market shareholders approved the issuance of more than 60 million shares of Nasdaq common stock as part of the deal with Borse Dubai to acquire exchange operator and technology provider OMX in a special meeting last week (DWT, Sept. 24).

The shareholders also approved the name change to Nasdaq OMX Group upon the completion of the acquisition.