TORONTO The Ontario Securities Commission will assess whether the London Stock Exchange's (LSE.L) proposed takeover of TMX Group (X.TO) is in "the public interest," a concept that even the head of the OSC says is hard to define.
OSC Chair Howard Wetston on Wednesday said he could not say what specific metrics the OSC would use to assess the merits of the deal, which would combine the operators of the Toronto and London stock exchanges into a $7 billion (4.3 billion pounds) trans-atlantic power.
"I can't define 'public interest' but I sure know it when I see it," Wetston said in a speech in Toronto.
Under provincial law, the public interest includes protecting investors from fraud, unfair practices and promoting integrity and confidence in the capital markets.
The proposed deal - one of three major exchange mergers under review globally - has met with growing opposition in Ontario, home province of the Toronto Stock Exchange.
Ontario Finance Minister Dwight Duncan and opposition parties in the legislature are questioning how the transaction would affect the province and the country.
Duncan has set up an all-party legislative committee to conduct its own review and issue a report by April 7.
"Will Canadian companies continue to have access to capital markets, how good will it be, how expensive will it be to list, will we maintain a critical mass of the support that goes into a stock market?" Duncan asked on Wednesday when speaking to reporters.
"These are all the sorts of things I'm looking forward to hearing from the legislative committee on as well as the OSC."
PROMOTING INTEGRITY AND CONFIDENCE
Wetston, who took the helm in October, said the OSC would take into consideration comments from the legislative committee as well as the public, but it would exercise independent judgement when making a final ruling.
As it stands, the LSE takeover would leave a single shareholder - Borse Dubai Ltd BRSDB.UL - with more than 10 percent ownership in the combined company, exceeding limits set out by the OSC.
"This share restriction will be considered in the OSC's review of the transaction," said Wetston, who as vice-chair was responsible for raising TMX ownership limit to 10 percent from 5 percent.
Borse Dubai, the operator of the Dubai stock exchange, may consider selling a part of its 20 percent stake in the LSE to facilitate the deal, a newspaper reported last week. A source later told Reuters the company had not been asked to reduce its holdings.
Ontario's oversight is not the only hurdle the deal faces. The federal government and at least three other provinces -- Quebec, Alberta and British Columbia -- will have a say. The fragmented regime means a decision on the transaction may not come until the end of the year.
On Wednesday, the director for global trading research at Instinet - whose Chi-X Canada competes against the Toronto Stock Exchange - said the takeover proposal may not pass regulatory muster.
Alison Crosthwait said the deal was not a merger of equals as it favors the LSE in terms of majority share ownership and board composition, while the LSE's Xavier Rolet would serve as chief executive of the combined company.
"Generally speaking, Canadian policy seeks to ensure Canada's 'ownership' of its culture," Crosthwait wrote in a report.
(Additional reporting by Claire Sibonney; Editing by Frank McGurty)