Canada's TMX Buys Stake in Bermuda Exchange

Synergy Debt Group

Canada's TMX Buys Stake in Bermuda Exchange

By BEN DUMMETT And JUDY MCKINNON

TORONTO—TMX Group Inc., operator of Canada's flagship Toronto Stock Exchange and the target of a 3.8 billion-Canadian-dollar bid by a group of Canada's biggest financial institutions, said Wednesday it has purchased a 16% stake in the Bermuda Stock Exchange.

A TMX representative said the transaction's value is "not material," but the investment underscores the exchange operator's increasing commitment to expand internationally, whether Maple Group Acquisition Corp.'s takeover bid succeeds or not.

Founded in 1971, BSX's electronic offshore securities market allows investors to trade equities, debt, hedge funds, derivative warrants and insurance-linked securities. The TMX investment in BSX is its second overseas transaction at a time when the exchange operator and Maple face significant regulatory hurdles in its proposed deal.

Last month, TMX agreed to acquire Australia's Razor Risk Technologies Ltd. for about C$10.2 million to expand its offering of software tools that exchanges can use to manage liquidity and credit risk across asset classes.

"This investment represents TMX Group's commitment to looking beyond Canada for opportunities," TMX Chief Executive Tom Kloet said in a statement Wednesday. As part of the deal, which makes TMX one of the Bermuda exchange's biggest shareholders, Mr. Kloet will join the BSX board.

TMX and Maple—comprising 13 financial institutions, including some of Canada's biggest banks and pension funds—say the financial heft of Maple's shareholders will give TMX the added muscle to accelerate its growth by expanding overseas to gain access to new products and listings.

But Mr. Kloet has also said TMX is confident it can grow even as a standalone entity. In the third-quarter, TMX increased profits by 21% on the back of higher revenue from its derivatives exchange and clearing operations, as well as from its listing and related services business.

TMX and Maple are seeking regulatory approval for their deal from Canada's Competition Bureau and the country's four biggest regional securities regulators. In addition to acquiring TMX, the proposed transaction also includes acquiring CDS Inc., Canada's equity and fixed-income clearing facility, and Alpha Group, the country's largest alternative trading platform.

The Competition Bureau hasn't ruled on the transaction, but it has said it is concerned the deal could give TMX too much power over pricing for stock trading and clearing. TMX and Maple have said competition from alternative-trading platforms in Canada other than Alpha as well as from U.S. exchanges will keep trading fees in check. TMX and Maple have also said pricing for clearing will be fair and apply equally to all customers.

The timing of TMX's investment is BSX is opportune, because it comes as business activity ramps up between Bermuda and Canada after a tax-information exchange agreement was signed between the two countries earlier this year, and after the BSX gained recognition as a designated stock exchange under Canada's Income Tax Act in October.

Write to Ben Dummett at Ben.Dummett@dowjones.com and Judy McKinnon atjudy.mckinnon@dowjones.com

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