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Maple Group Acquisition Corporation ("Maple"), a corporation whose investors comprise 13 of Canada's leading financial institutions and pension funds, and TMX Group Inc. (“TMX Group”) (TSX:X) today noted that the Ontario Securities Commission (“OSC”), and the Autorité des marchés financiers ("AMF") have published draft and final recognition orders and notices of public comment with respect to Maple's proposed acquisition of TMX Group and related transactions.
The OSC is asking for public comment on whether or not the recognition orders and the terms and conditions proposed by the OSC in respect of Maple's proposed acquisition of TMX Group and The Canadian Depository for Securities Limited (“CDS”) constitute an appropriate basis on which to conclude that these acquisitions are in the public interest. The OSC's notice invites public comment for a 30-day period ending June 4, 2012.
The AMF's final orders reflect the terms and conditions which the AMF has determined address the main public interest issues referred to in the AMF's Notice of Public Consultation dated October 7, 2011. These orders give the AMF's approval to Maple's acquisition of TMX Group, and indirectly Montreal Exchange Inc. and the Canadian Derivatives Clearing Corporation, and, subject to final approval, Maple's acquisition of Alpha Trading Systems Inc. and Alpha Trading Limited Partnership (collectively, “Alpha”). In addition, the AMF has published a notice for public comment with respect to its proposed recognition order relating to Maple's proposed acquisition of CDS. The AMF's notice invites public comment for a 30-day period ending June 4, 2012.
These draft and final orders are the result of extensive consultation by the OSC and AMF with Maple, TMX Group, CDS, market participants, and other regulators – including the Bank of Canada and the Competition Bureau. If these orders are finalized as published, Maple will accept them.
The OSC's proposed recognition order for Maple also confirms and clarifies the OSC's extensive ongoing regulatory oversight of equities trading and clearing and settlement activities, including provisions with respect to equities trading fees. These provisions include prohibitions, obligations and approval requirements that are designed to ensure that the Canadian capital market remains open and competitive for all participants, and that the interests of all participants in Canada's capital markets are respected. As well, the AMF's recognition orders confirm and clarify the AMF's extensive ongoing regulatory oversight of derivatives trading and clearing and settlement activities.
The draft and final orders provide important changes in areas such as: independent governance of Maple (as successor parent to TMX Group) as well as fair, meaningful and diverse representation on the Board of Maple; restrictions designed to ensure competitive equities markets; independent governance of CDS; and access to and fees for CDS clearing and depository services. Maple believes the binding commitments to the structure of the transaction and the regulatory landscape, as reflected in the orders, represent substantial changes to the initial proposal in respect of which the Competition Bureau expressed serious concerns.
Maple understands that each of the Alberta Securities Commission (“ASC”) and British Columbia Securities Commission (“BCSC”) also intends to publish notices with respect to the Maple transaction.
Speaking on behalf of Maple, Luc Bertrand said, “The recognition orders set out a clear and binding framework that will ensure we maintain open and vibrant exchanges with strong governance, fair and reasonable clearing and depository fees and strong ongoing regulatory oversight. The publication of these orders marks the culmination of an extensive and detailed review process. We look forward to finalizing these matters and implementing our vision for an integrated and more globally competitive exchange in Canada.”
Tom Kloet, Chief Executive Officer, TMX Group said, “After much work and a stringent regulatory review process, we believe that the orders published today set out a balanced framework that ensures strong regulatory oversight and accountability following the Maple transaction. We look forward to making an even broader contribution to the growth and success of Canada's capital markets through new capabilities, enhanced offerings and increased efficiency.”
Strong Governance, Open Access and Fair and Reasonable Pricing for CDS
As detailed in the recognition orders, Maple has committed to maintain strong governance, open access for all market participants, fair and reasonable pricing, and strong regulatory oversight for CDS.
With respect to CDS fees, pursuant to the Maple proposal, the following fee model will be implemented for core CDS clearing, settlement and depository services:
- CDS will maintain the 29 percent fee reduction announced by CDS for 2012 and will not seek approval for an increase in those fees unless there is a significant change in current circumstances;
- Starting November 1, 2012 CDS will share any annual revenue increases on clearing and other core CDS services, as compared to revenues in fiscal year 2012, on a 50/50 basis with participants; and
- CDS will also rebate an additional amount to participants in respect of on-exchange clearing services each year, starting at $2.75 million in 2013 and growing to $4 million annually by 2016.
As a result, Maple expects that on-exchange clearing fees will be lower under Maple's proposed pricing model than they would be under the status quo, assuming clearing volumes are consistent with CDS management projections.
Under the draft OSC order for CDS and as indicated in the AMF notice, both the OSC and the AMF must also approve fees for any new CDS services and changes to fees for any existing services. Accordingly, both the OSC and AMF orders for CDS will ensure that CDS fees will remain fair and reasonable in the context of the Canadian capital markets and trends relating to comparable services offered by clearing houses worldwide.
Additional Information About the Recognition Orders and Maple's Commitments
Maple's proposed pricing model for clearing and depository services and other Maple commitments referenced in this press release are outlined in a briefing document that will be available at www.abetterexchange.com and www.tmx.com. The draft OSC and final AMF recognition orders, and the AMF's and OSC's notices and request for comments, are available on the respective OSC and AMF websites.
Recent Developments
As disclosed on April 27, 2012, Competition Bureau staff have provided an update to Maple and TMX Group regarding the status of the Competition Bureau's review of the Maple transaction. Staff advised Maple and TMX Group that, while the Competition Bureau has an independent mandate and will complete its own review, it has provided views and input to the OSC for its consideration relating to the potential impact of the Maple transaction on competition. In that context, Competition Bureau staff advised that it is possible that measures contained in the draft OSC recognition orders, if finalized and enforced, may materially change the regulatory environment such that the Competition Bureau's previously articulated serious concerns may be substantially mitigated. Staff of the Competition Bureau have emphasized that the Bureau would consider both the published draft orders and any finalized orders, and that a final decision would not be made until it had completed its process.
As previously disclosed, under the support agreement with TMX Group, Maple has agreed to use commercially reasonable efforts to obtain all required regulatory approvals, including from the securities regulatory authorities and the Commissioner of Competition, and to accept all conditions, commitments and undertakings necessary to do so, provided they do not result in a "Material Detriment" as defined in the support agreement. Although the draft and final recognition orders published by the OSC and the AMF are in a form that Maple will accept, it is possible that the OSC final orders may differ from the draft orders. In addition, Maple will continue to work to settle the terms and conditions of the additional required recognition orders, including the recognition orders required from the OSC to reflect the acquisition by Maple of Alpha and any exemptions from recognition that the AMF may require in respect of Maple as a result of that acquisition, the recognition order required from the AMF in respect of CDS and applicable recognition orders required from the ASC and BCSC, and to resolve outstanding issues and concerns raised by securities regulators and the Commissioner of Competition. However, there can be no assurance that the terms and conditions of such final recognition orders will not result in a Material Detriment or that remedies short of a Material Detriment will address the issues and concerns raised by securities regulators and the Commissioner of Competition. As a result, there can be no assurance that the required regulatory approvals will be obtained.
On April 30, 2012, Maple and TMX Group announced agreements for the acquisition by Maple of CDS and Alpha. These agreements include commitments from sufficient numbers of beneficial holders of securities of CDS, and outstanding equity interests in Alpha, to allow Maple to complete the proposed acquisitions of CDS and Alpha concurrently with or as soon as practicable following the completion of the Maple offer for TMX Group shares, subject to the satisfaction of customary terms and conditions, including the receipt of all necessary regulatory approvals, and, in the case of CDS, to CDS board approval of the amalgamation agreement and subsequent ratification of the CDS amalgamation agreement at a CDS shareholders' meeting.
As also announced on April 30, 2012, Maple's offer to acquire a minimum of 70% and a maximum of 80% of the shares of TMX Group for $50 in cash per share has been extended to 5:00p.m. (Eastern Time) on Thursday, May 31, 2012. Maple expects to have further information about the timing for receipt of potential final regulatory approvals by May 31, 2012, at which time it expects to further extend its offer to the date on which it expects to take up shares of TMX Group under the offer. Maple has agreed under its support agreement with TMX Group to continue to extend the expiry date of the offer until July 31, 2012 if necessary to obtain the required regulatory approvals. The offer is part of an integrated acquisition transaction, valued at approximately $3.8 billion, to acquire 100% of TMX Group shares. The TMX Group Board of Directors continues to unanimously recommend that TMX Group shareholders accept and tender their shares under the Maple offer.
Details of Maple's offer are available in its Offer and Circular dated June 10, 2011, as varied by the Notice of Variation dated June 24, 2011, the Notice of Change and Extension dated August 8, 2011, the Notice of Extension dated September 29, 2011, the Notice of Variation and Extension dated October 31, 2011, the Notice of Extension dated January 31, 2012, the Notice of Extension dated February 24, 2012, the Notice of Extension dated March 30, 2012, and a further Notice of Change and Extension to be filed by Maple on SEDAR and mailed to TMX Group's shareholders in respect of the extension of the offer announced April 30, 2012, and the developments announced today. These documents are, or in the case of the further extension of the offer announced April 30, 2012 will be, also available at www.abetterexchange.com.
