Thank you, Stewart for that kind introduction. Good afternoon, everyone.
I am delighted to see the turnout for today’s event. I am sure everyone here recognizes the significance of what is ahead this week. TMX shareholders are faced with two competing visions: to allow TMX to be absorbed into the London Stock Exchange, or to build a better, globally focused, Canadian-based exchange, which is the vision of Maple Group.
Our vision is for the TMX to become a more diversified, efficient and integrated exchange that will provide growth opportunities and also contribute to the growth of Canada’s capital markets. It is to take a leading international exchange and make it stronger.
Let’s remember that TMX is not just another company. It is a critical asset for the Canadian economy and Canadian businesses, meaning its success affects many others including
- thousands of listed companies and their investors
- and more than 200,000 jobs in Toronto’s financial services sector plus thousands more across the country
We believe in building on TMX’s strengths, not giving them away.
Maple is the coming together of 13 of the top financial institutions in Canada.
It is unprecedented. Allow me to name them.
- Alberta Investment Management Corporation
- Caisse de dépôt et placement du Québec
- Canada Pension Plan Investment Board
- CIBC World Markets
- Desjardins Financial Corporation
- Dundee Capital Markets
- Fonds de solidarité des travailleurs du Québec
- GMP Capital
- Manulife
- National Bank Financial
- Ontario Teachers’ Pension Plan Board
- Scotia Capital and
- TD Securities
Together, we have four of Canada’s largest pension funds, a leading labour sponsored fund, two leading independent investment dealers, Canada’s largest cooperative financial group, one of the largest Canadian-based global financial institutions and four Schedule A bank-owned investment dealers. We include investors from across Canada. These institutions hold a part of the investment portfolio of just about every Canadian.
The diversity of our group is its strength. It represents a broad consensus within Canada’s financial community.
We are offering an exchange focused on attracting global issuers and serving the needs of small and mid-sized businesses … an exchange that remains highly responsive to the distinctive needs of the Canadian capital markets … an exchange that will maintain headquarters, high-value jobs and regulatory oversight in Canada’s financial centres. Some of our critics have said we are
wrapping ourselves in the flag. That reflects a total misrepresentation of the fiduciary obligations of any financial institution, be it Canadian or not.
Given how our financial institutions fared in the credit crisis, I think putting together a group of 13 leading investors from this country makes the Maple case even stronger.
What is our proposal?
To create a single integrated group with trading and clearing platforms for exchange traded and over the counter financial instruments. In other words, create a financial infrastructure that will make us one of the most competitive exchanges in the world.
To achieve this, three transactions are required:
First, acquire TMX, which includes the Montreal Exchange and the Canadian Derivatives Clearing Corporation, or CDCC.
Second, acquire CDS Clearing and Depository Services ¡V which is where equities and bonds are cleared - and integrate it with CDCC.
Third, acquire Alpha and integrate its operations and technology with TMX.
Completing these three transactions will:
Make Canada¡¦s capital markets more stable
Result in innovative new product development
Increase the global competitiveness of Canada¡¦s capital markets and market participants
Put us in a stronger position to pursue international acquisitions and joint ventures
What we are proposing is a bold vision. It is a new type of exchange for Canada. In short, it includes the vertical integration of trading, clearing, settlement and depository operations under one umbrella. It also includes the horizontal integration of equities, fixed income and derivatives, whether exchange-traded or over the counter. This is a proven and robust model.
For example, we established a very successful precedent at the Montreal Exchange. Following the specialization of the Canadian capital markets in 2000, we combined the trading and clearing of derivatives. Clearing operations have been streamlined, costs have been reduced and a single IT infrastructure ¡V shared with the Montreal Exchange ¡V has been introduced. We have seen derivatives volume quadruple since 2001 and open interest has grown at a more than 15 per cent compounded annually over the last ten years.
The Deutsche Borse is another example of a successful integrated exchange, and here¡¦s what¡¦s interesting: Deutsche Borse¡¦s listed companies have a market cap of about $1.4 trillion, less than 10 per cent of the value of the NYSE/Euronext listed companies. And guess what? Deutsche Borse is taking over NYSE/Euronext.
Within a couple of weeks of the TMX Group asking its shareholders to sell out to the LSE, Deutsche Borse shareholders will be tendering to a deal that will make it the largest exchange and clearing group in the world. You can see the strength and reach of an integrated model.
I am not saying that if we are successful we will be buying global exchanges ¡V though we might - but I am saying if we are successful those are decisions we should be considering. I can also say that if we are not successful later this week, those decisions will never be made in Toronto.How can we continue to be a global financial centre if our stock market is merely a subsidiary?
Canada is one of the few remaining countries where such an integrated silo model can be constructed. So why wouldn’t the TMX Group accept our offer?
The TMX Board has decided the best way to meet its challenges is to be acquired by the London Stock Exchange. We believe this take-over does a lot more for the LSE than it does for TMX shareholders and stakeholders.
Look at what happened to Borsa Italiana after it was acquired by the London Stock Exchange in 2007.
- A 54% drop in the daily value of trades on the Borsa with a 16% drop in the daily number of contracts
- A 3% drop in the number of listed stocks and a 2% drop in the number of listed international stocks
- A 44% drop in IPOs
Let’s look at both offers.
Our offer is financially superior. We are offering $50 per share with as much as $40 in cash. London is offering no more than $45 per share, with $4 in cash. Last Friday, UBS Securities came out with an assessment of the LSE bid. It put the offer price at a more realistic $39, discounting takeover speculation. In other words, we are offering more cash than the LSE is offering in total, plus providing an opportunity to participate in the future potential growth of an integrated TMX.
Our offer also preserves the regulatory structure that has served our market so well. For example, we have developed a strong venture exchange. Canadian regulators have been able to accommodate the needs of smaller companies while providing comfort for investors. This has allowed a number of smaller Canadian companies to successfully raise capital.
London’s offer requires major policy changes, which could challenge our domestic regulatory control over our payment and clearing systems. This led, last week, to the Governor of the Bank of Canada expressing his concerns.
London also wants the OSC and its Quebec equivalent to waive its rule prohibiting ownership of more than 10% of an exchange. Maple favours no one shareholder being allowed to own more than 10%. This rule has served the TMX very well, and maintaining it is vital to the continued growth and stability of Canada’s capital markets. This rule was cited by the Ontario Finance Minister as something he considers very important.
Yet, our vision for a better exchange was rejected out of hand by the TMX Board. We were told the TMX had to link up with London because of global competitive pressures and we were not global.
Besides the fact that the members of Maple have about one trillion dollars invested in assets around the world, saying no to a bad deal is not saying no to the rest of the world. Au contraire.
As Stephen Jarislowsky said recently:
“With all due respect for our friends in London, Canada and its financial community do not need their assistance to ensure our development on the international scene.”
By any measure, TMX is a great international success story. We believe it can scale up by building on its strengths, rather than propping up what one columnist said would be tethered to an exchange on the down stroke. Some might say that’s a harsh assessment, but let’s remember.
- The TMX is already number one globally in mining, with 58 per cent of world’s public mining issuers
- It is number one globally in oil & gas, home to 44 per cent of world’s public energy companies.
- It’s also a leader in clean technology, with 128 listings.
In the competition for listings and relevance, TMX has clearly won the day. We have successfully helped build Canadian companies to become international leaders – companies like Research in Motion, Bombardier and Barrick. And we have welcomed international companies to our market – including many who have no assets or business in Canada, but recognize the significance of our capital markets.
So yes, we certainly do have an eye on international markets and opportunities which is why we want to build on our strengths rather than shore up weaknesses of others.
As a shareholder in the TMX, I am very excited at the prospect of holding shares in an integrated exchange company that could well become a global powerhouse.
It has been a short, but very intense road these last several weeks, but it’s a journey that has been well worthwhile. The shareholders we have met recognize our superior business model and appreciate our superior financial offer. A better idea and a better offer means that we will be on our way to building a better exchange later this week.
Thank you very much.