UPDATE 2-Maple says TMX deal could give OSC a pricing role

Thu Dec 1, 2011 11:57pm GMT

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*Says CDS pricing could come under regulatory oversight

*Saus deal for Alpha, CDS to benefit all market players

*Says working with Competition Bureau (Adds details about IIROC committee in para 13)

By Jennifer Kwan and Pav Jordan

TORONTO, Dec 1 (Reuters) - The Canadian consortium seeking to buy TMX Group (X.TO), operator of the Toronto Stock Exchange, said on Thursday it could give regulators the right to supervise clearing and settlement prices in order to gain approval of the C$3.8 billion (C$3.76 billion) takeover deal.

Under its TMX takeover proposal, the Maple Group consortium of Canadian financial services companies wants to also buy Canadian Depository for Securities (CDS), which clears and settles trades in Canada. This aspect of the deal has spurred fears of an unfair monopoly, and Maple said it is ready to compromise to get the deal done.

"We will be announcing a model and a structure and so forth with regards to fees," Luc Bertrand, the public face of Maple and vice chairman of National Bank Financial, told a public hearing held by the Ontario Securities Commission (OSC).

"Our proposal would be that the model would be part of the recognition order, which, in our view, would give the commission the ... explicit responsibility on a go-forward basis to ... reject or approve fees."

Bertrand said Maple remains committed to a one-tier system that keeps fees accessible for all market participants.

Maple's offer to take over the TMX Group is contingent on it also getting regulatory approval to buy CDS as well as Alpha Group, TMX's top stock trading competitor.

"Our deal is based on getting regulatory approval for both. If we don't have Alpha or we don't have CDS there is no Maple transaction," Bertrand said in an oft-repeated pledge.

CDS handles all of the back-office processing of cash and securities after a trade is made, acting as a central counterparty for trades.

Opponents to the deal say that if Maple wants to integrate CDS, it should be forced to keep CDS's current cost-recovery model in place. CDS currently runs on a not-for-profit basis but Maple wants to make it a for-profit operation.

Handing oversight to regulators may allay concerns about Maple having monopoly control over pricing.

The concerns about fees were flagged earlier in the week by federal Competition Bureau Commissioner Melanie Aitken.

"Our work with the Competition Bureau continues and we will update the market on its progress at the appropriate time," Bertrand said.

In its submission to the OSC, a committee formed to advise the Investment Industry Regulatory Organization of Canada said CDS clearing and settlement costs, among the lowest globally, would rise under a for-profit model.

"We're concerned the conflicts of interests they have can be used to limit access to the non-Maple members and drive prices higher," said Jeffrey Kennedy, spokesman for the IIROC committee and chief financial officer at Cormark Securities.

"The three issues are access, pricing and governance. What we're concerned about is the conflicts of interest from the investor dealer affiliates of the Maple Group."

Maple, comprised of 13 of Canada's most powerful financial institutions, stressed to the OSC that its proposal would benefit all market players.

The hearing continues on Friday.

($1=$1.01 Canadian) (Editing by Peter Galloway)

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