SpeechesOpening Statement by Eric C. Tripp, President, BMO Capital Markets to the Select Committee on the proposed transaction of the TMX Group and the London Stock Exchange Group
Toronto, ON, March 9, 2011
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Good afternoon, Mr. Chairman, and thank you for providing the opportunity to present my views today on behalf of BMO Financial Group and BMO Capital Markets. With more than 2,000 employees operating in 26 locations around the globe, BMO CM is a leader in several sectors that are important to Ontario’s economy, including metals and mining, and has the deep expertise to help advise both large and mid-market companies in their search for growth.
The proposed merger of the TMX Group and the LSE Group is an important transaction. I want to thank Minister Duncan for setting up this all-party committee to consider the merger’s benefits. The Minister has been a strong supporter of the financial services industry.
I am convinced this transaction will benefit our industry. The Financial Services Industry is not only one of the most important sectors in this province’s and this country’s economy but also for the Toronto region and for the Canadian capital markets industry at-large.
As you may be aware, BMO served as joint lead financial advisor to the TMX on this transaction. Beyond that, BMO is also a listed issuer on the Toronto Stock Exchange, a shareholder in one of TMX’s domestic competitors (Alpha Group) and one of the leading participants in Canada’s capital markets. BMO is deeply invested in the implications of this transaction on the long-term success and growth of Toronto’s economy and the Canadian capital markets industry.
I have been personally involved with the Toronto Stock Exchange (which I will refer to as the TMX) for many years. Before demutualization and throughout the process of demutualization, I served as a member of the board of directors of the TMX. The importance of the TMX to both Toronto and Canada is something of which I am acutely aware, and I, like you, take the potential implications of this transaction seriously.
The questions you are asking are important. We asked ourselves the same questions and satisfied ourselves that this merger is in the best interest not only of our client, the TMX, but also of their clients and the industry as a whole.
I believe that some of the current concerns prevailing in the public domain may stem from a misunderstanding of the merger. It is not the exchanges themselves that are merging; rather it is the holding companies that own and operate the exchanges. I believe that is an important distinction. The exchanges themselves will continue to operate independently of one another.
This segregation of operations is important; it ensures that Canada’s regulatory sovereignty will not be threatened by the merger. The Toronto Stock Exchange and the TSX Venture Exchange will continue to be regulated by Canadians through the Ontario Securities Commission, and this regulatory oversight will remain permanently in place.
From my own perspective, having been in the business for 28 years, this transaction will create benefits to Canada both from a capital formation and from a technology perspective – both critical to the success of a stock exchange.
With respect to capital formation, the combined entity would be the world’s leader in listings and the world’s pre-eminent venue for companies with fewer than 500 employees and revenues less than $50 million. Currently, TMX is number one in the world in serving these companies, and LSE is number two. This dominant position will allow the TMX-LSE to provide a global leading listing offer to this class of company.
Last year, the federal and provincial governments, in collaboration with the Toronto Financial Services Alliance, endorsed a plan to build Toronto’s status as a global financial hub. Central to that plan was a goal to cement Toronto’s place as a destination for global mining, energy and metals listings and achieve a 70% share of global listings – resulting in attracting more capital to create jobs. I believe that having a combined TMX-LSE will improve our chances of reaching this goal, which is endorsed by the Ontario government and by the financial services industry.
On the second point of technology, a stock exchange is a technology-mediated tool that allows firms like ours to exchange securities with other domestic/global institutions. (And if you haven’t seen how this works, I would be pleased to have the members of this committee visit our trading floor at King and Bay.)
There is nothing to stop someone or an entity from setting up a competing securities trading platform, and we’ve been seeing and supporting this activity around the world. This competition is good for all market participants.
The combined TMX-LSE will be able to invest more funds in technology and invest more efficiently. This will help the merged entity compete effectively while maintaining high performance on a stable technology platform.
The technological improvements that result from this transaction should lead to more efficient price discovery, faster trading and lower cost. This improvement in market efficiency will help spur growth in the market by making it easier to trade, attract listings and capital.
One of the questions before you is the impact of this transaction on Toronto as a financial services centre and the implications for local jobs. About 300,000 people in the GTA region work directly in the financial services industry. These are good, well paying jobs – and there are thousands more – lawyers, accountants, IT professionals – whose jobs exist solely to support this financial services cluster. The taxes paid and charitable donations made by this group contribute significantly to the quality of life that we enjoy here in Ontario.
Similarly, the expertise in derivatives that is clustered in Montreal, and the expertise in energy financing that is headquartered in Calgary, are vital components of the TMX and the industry and provide jobs in those centres. These experts will play leading roles in the new combined organization.
There is a direct link between the reputation of a country and the amount of foreign investment it attracts. I am convinced that this merger will raise Canada’s profile in the eyes of European and other foreign investors, and result in those investors deploying more of their capital in Canada. While the TMX and the Canadian securities industry market Canada directly into Europe, I believe that with the assistance of the team at the LSE, the story behind the Canadian element of the TMX-LSE merger will reach further into Europe than ever before. That is good for Ontario, and it’s good for Canada.
As policy makers, you understand that feeding Canada’s innovators and ensuring they have access to capital is what generates much of the job growth that our economy relies on.
These are all good reasons why the merger will be a benefit for Toronto and for the province – and, I submit, reason enough why you should be in favour of the merger. Perhaps the greatest argument in favour of the merger is that we would be at the forefront of the changes occurring in the exchange industry and be in a position to define future growth and opportunity.
Consolidation of the world’s stock exchanges operators or owners is already in progress with the announced combinations of Australia and Singapore, New York and Frankfurt, Toronto and London. There is more to come as exchanges seek greater scale and global reach, as well as access to the best technology.
Toronto is partnering with the leading exchange in Europe’s number one financial services centre, and on terms that are very favourable to Canada’s interests. It is Canada’s outperformance through the recent financial crisis that positioned the TMX to negotiate this deal.
I truly view this as a merger – the TMX will have a very strong position in the merged entity. Current TMX executives will maintain strong management roles in the new entity - the Chairman, President and CFO. The person responsible for global listings – the lifeblood of the exchange – will be based in Toronto as well. 7 of the 15 directors will be Canadians.
The TMX has a real opportunity to expand and grow, under favourable terms, and ensure that Canada’s exchanges won’t be sidelined. It is an opportunity to capitalize on our core competencies to both grow and create jobs in the resource-based and SME industries.
I am not suggesting that an independent TMX cannot handle the global competition, as it is a strong business. Rather, merging will allow it to stay strong and be on the offensive versus playing defence against ever larger competitors.
Ontario has done a good job branding itself to foreign investors as an attractive destination for investment. Support of this merger communicates that we continue to believe that Canada, specifically Ontario, is a place to do business and to invest.
Mr. Chairman, Ontario has demonstrated over many decades that we embrace opportunities in the bigger global market place; we have the skilled workers and innovators to succeed in markets beyond our borders; and we have the confidence in ourselves that we can compete and win – provided we have the access to global markets and that is exactly what this merger provides.
To sum up, one of the central issues, clearly, is jobs – jobs in one of Canada’s strongest sectors – the financial services industry and also jobs in mining, manufacturing and technology. Jobs created by Canada’s innovators who, as a result of this merger, will have access to more capital to invest.
Mr. Chairman, I would encourage you and your colleagues to recommend that this merger be approved.
Thank you. I would be happy to respond to any questions you may have.