* Recommendations to be released mid-afternoon Tuesday
* Conditions seen focusing on Canadian board control
By Pav Jordan and Claire Sibonney
TORONTO, April 19 The London Stock Exchange's proposed C$3 billion takeover of TMX Group (X.TO), owner of the Toronto Stock Exchange, is likely to pass its first test on Tuesday with a panel of Ontario legislators set to support the bid with certain conditions.
The all-party committee of members of the provincial legislature will release its recommendations at mid-afternoon. While not legally binding, the report will set the tone for a complicated approval process to unfold over coming months that will involve provincial and federal regulators.
The committee's conditions will likely focus on protecting Canada's interests in the event of a subsequent exchange consolidation following the LSE-TMX deal. They will include demands about Canada's weighting on the board of directors of the new company.
As it stands, TMX will hold seven of the 15 positions on the LSE-TMX board, with the remaining eight positions going to the LSE, with board members coming from and Italy.
The committee -- which was set up by the government of Ontario, home to Canada's financial capital Toronto -- is also expected to demand more clarity on regulatory control of the new entity.
The takeover requires the approval of the Ontario Securities Commission and several other provincial regulators.
It must also must be shown to be of "net benefit" to Canada under the Investment Canada Act of 1985, a test that has seen two deals vetoed, both by the current government of Conservative Prime Minister Stephen Harper.
May 2 is federal election day in Canada and it is possible there will be a new government in place after that, although the Conservatives are leading in the polls.
"(The recommendations) will certainly be considered by the provincial regulators, by anyone that is presenting to the provincial regulators, by the politicians in the current election, and by the net benefit test that Industry Canada is going to do," said Alison Crosthwait, director of global trading strategy at Instinet.
The London Stock Exchange (LSE.L) officially launched its bid for TMX on Feb. 9, promising to create a giant transatlantic bourse trading C$4.1 trillion of stock a year.
The proposal sparked immediate concerns from politicians and some of Canada's largest banks, which worried it might see the country lose control of its capital markets to London.
"We sought the advice of the legislature and I'm looking forward to getting their report," Ontario Finance Minister Dwight Duncan, who expressed concerns about the deal after it was announced, said last week.
"We take the advice of the legislature very seriously and I'll look forward to seeing what the actual recommendations are."
The committee's recommendations will not be unanimous. The representative of the left-leaning New Democratic Party, who opposes the deal, has already said he will file a minority report.
($1=$0.97 Canadian) (Additional reporting by Solarina Ho; editing by Peter Galloway)