UPDATE 1-Urbana buys portion of Canadian exchange operator CNSX

Mon Dec 17, 2012 4:20pm EST

* Investment company buys 20 pct stake in CNSX for C$1.6 mln

* Offers to buy up to 49 pct of CNSX

* Urbana headed by veteran exchanges investor Thomas Caldwell

* Caldwell eyes combining CNSX and Pure Trading ATS

* Exchange operator small player in Canada

By Solarina Ho

TORONTO, Dec 17 (Reuters) - Financial investment company Urbana Corp said on Monday it is seeking to acquire up to 49 percent of CNSX Markets Inc, in hopes of growing the operator of the Canadian National Stock Exchange and Pure Trading.

Urbana said it bought a 20 percent stake in CNSX for C$1.6 million ($1.63 million).

"There was an opportunity here that they could use some refinancing. Also we felt that we have some experience within the exchange space and it was something we felt we could offer them ... in terms of overall strategic direction," said Urbana's chairman, veteran exchanges investor Thomas Caldwell.

"We want to rebrand this company, develop its product range and really come at this with a pretty aggressive, enthusiastic palette of products," Caldwell told Reuters.

Toronto-based Urbana said that CNSX shareholders voted in favor of Urbana's offer to buy 4 million common CNSX shares for C$0.40 a share.

CNSX investors also approved a plan to issue an additional 4 million common shares to existing CNSX stakeholders for C$0.40 a share, with Urbana agreeing to buy any unpurchased shares.

Urbana, which owns stock in a number of stock exchanges around the world, will also buy an undetermined amount of CNSX stock from current shareholders for C$0.30 a share until Dec. 27.

The two transactions together will entitle Urbana to own up to 49 percent of privately held CNSX.

CNSX is an alternative stock exchange to TMX Group Ltd's TSX Venture Exchange and operates Pure Trading, an alternative trading system, or ATS. Together they make up a little over 3 percent of the Canadian marketplace, measured in value.

CNSX has struggled to expand its footprint in Canadian equities. TMX, which also operates the Toronto Stock Exchange and Alpha ATS, dominates with a market share of more than 80 percent.

"CNSX has never been a major competitor on the listing side. They haven't been able to gain any steam," said Paul Holden, an analyst at CIBC. "Certainly from a corporate issues viewpoint, I don't see the compelling reasons to list on an alternative exchange versus the TSX or the Venture."

Caldwell said on Monday he would like to combine Pure and CNSX into one exchange and provide an efficient alternative for small companies that want access to public markets.

"There's a little bit of brand confusion ... We want to simplify Pure, CNSX, put them all together as one and define this as an exciting alternative exchange," he said.