MONTREAL (Reuters) - Quebec's securities regulator has approved the C$1.02 billion cash and stock takeover of the Montreal Exchange MXX.TO by TSX Group (X.TO: Quote, Profile, Research), owner of the Toronto Stock Exchange, saying it is satisfied the combination will produce benefits.

The regulator, the Autorite de marches financiers (AMF), said on Thursday that the Montreal Exchange's main activities -- including the derivatives exchange, its associated clearing corporation, and a new exchange for carbon emissions -- would remain in Montreal.

"It is important to stress that any material change in the ownership, structure or activities of Montreal Exchange would be subject to a review of the AMF's recognition decisions," the regulator said.

The news was first announced by the Caisse de depot et placement, the province's public pension manager, before financial markets had closed for the day.

The Caisse applauded the AMF's decision and said the regulator had stipulated that TSX could not relinquish control of the Montreal Exchange without the AMF's approval.

"The public consultation that took place helped to highlight the need for the right balance between more stringent conditions and greater flexibility for development of the Montreal Exchange," the regulator said.

The takeover would fold the Montreal Exchange, a specialist in derivatives trading since 1999, into TSX Group, the country's leading equities market operator, to create an enlarged company known as TMX Group.

TSX also runs the small-cap TSX Venture Exchange, and operates fixed-income and energy trading platforms.

TSX Group and Montreal Exchange said in a joint statement that the combination still needs approval from the Ontario Securities Commission.