In the wake of the collapse of the $3.8-billion London/Toronto stock exchange merger, we now have Canada’s active policy on foreign ownership, the nation’s message to the rest of the world, our brave stance in the face of an increasingly globalized international economy: We can take over your companies, but you can’t take over ours.
That message was delivered explicitly the day before the Canadian bank-controlled Maple Group succeeded in gunning down the London/Toronto merger deal with a barrage of nationalist cant and national cash supplied by the banks and government pension operators. At a luncheon on Tuesday, the head of the bank group, Luc Bertrand, outlined a global strategy for his all-new Canadian Maple Stock Exchange.
“I am not saying that if we are successful we will be buying global exchanges — though we might,” he told a Toronto audience. “But I am saying if we are successful those are decisions we should be considering.” Then, teasing his audience with another idea, he asked a bizarre rhetorical question: “How can we continue to be a global financial centre if our stock market is merely a subsidiary?”
The implication of Mr. Bertrand’s analysis is that if a foreign entity owns a national stock exchange, that national exchange cannot be a global player. Furthermore, if in future the Canadian Maple Stock Exchange were to take over (as he suggested) an exchange in another country — in England, say, or Australia — that exchange would, by his logic, be rendered a non-global player.
That’s some curveball of a sales pitch should the Maple Group get to the stage where it makes a bid for a foreign exchange. It is, however, consistent for Canada, a country whose establishment is often driven by a nationalist paranoia that abhors the idea of working for a foreign entity, no matter how beneficial, but embraces Canadian ownership, even if it might be detrimental in terms of competition and economic welfare.
The London/Toronto merger may or may not have been a perfect fit or a guaranteed home run in the global capital market. But it did ring true – as many outside advisors concluded — as a merger that would draw together two stock market enterprises with complimentary expertise, market strengths, global coverage and immediate growth potential. As a merger, however, London/Toronto had no way of coming up with more cash to ward off the deep borrowing capacity of the Maple Group.
Killing the TMX shareholder vote is a short-term Maple victory, but it does not mean that the Canadian banks, in cahoots with government-backed pension giants, are going to be able to easily sail their Canadian Maple Stock Exchange through the regulatory seas. National protectionism requires a lot of political compromises, inside fixes, regulatory contortion and backroom horse-trading.
The Maple Group now also becomes the target of opposition forces, and there are lots of targets to shoot at. It will rightly be called monopolistic in terms of stock market listings, securities clearing systems and stock trading. The Maple Group’s financial structure is loaded with debt. Its prospective balance sheet remains a mystery and its corporate strategy has yet to be clearly explained. All we know is that it plans to take on undisclosed billions in debt to buy the TMX, the Alpha group and the Canadian Depository Services.
This could be a hard sell. As Canadians come to understand the Maple model, they may come around to the idea that maybe it is not such a great idea, consolidating all aspects of the Canadian capital markets under one corporate roof controlled by the most powerful financial institutions in the country.
The competition issues appear insurmountable, despite the Maple Group’s claims over the last few weeks. More than 90% of stock market trading would flow through the Canadian Maple Stock Exchange, a significant lessening of current competition. Additionally, Maple Group members account for the majority of the trading. The listing regime would be controlled by the group. And the clearing system, currently a non-profit operation controlled by the banks, would become part of the bank-pension conglomerate.
In the months to come, these competition and other regulatory issues will dominate the Maple Group/TMX takeover.
The potential for another challenge cannot be ruled out. If the global model envisaged by the LSE/TMX merger is a logical business plan, a new competing takeover proposal from another foreign group, or even a return of the London Stock Exchange Group, could put the TMX in play again.
The obstacles to a competitive challenge to the banks’ Maple Group seem large. The ownership rules are rigged. Nobody can own more than 10% of the TMX. But it’s an obvious regulatory anachronism. Since U.S.-based NASDAQ had been negotiating with TMX before London came along, somebody obviously believes the 10% rule can be be knocked down.
Perhaps the overriding question is whether any foreign stock exchange would now feel intimidated by the bank-pension cabal that has now circled their nationalist wagons around Canada’s stock markets. Stay away, we can buy you, but you can’t buy us.
National Post
tcorcoran@nationalpost.com
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