TORONTO TMX Group Ltd (X.TO) will look closely at any regulatory changes that the United States or other jurisdictions put into place as it sizes up acquisitions during and after the exchange industry's current rough patch, TMX's chief executive said on Wednesday.
"There could be significant regulatory changes in terms of how multi-marketplace environments continue to operate that could very much sway us one way or another as we look at other markets to operate exchanges in," said Tom Kloet, CEO of TMX, the Toronto Stock Exchange's parent.
The exchange operator, which controls more than 80 percent of Canadian stock trading after its C$3.8 billion ($3.81 billion) takeover by a financial consortium, has made no secret of wanting to expand globally. The takeover by the Maple Group took effect in September.
In an interview with Reuters, Kloet said the current slowdown in trading could make potential takeover targets more attractive.
"You can make an argument that because volumes are low, certain things might be cheaper today than they would be in other market environments," he said, adding that the industry was going through "a bit of a trough".
Trading volumes at exchanges around the world have been hurt by the European debt crisis and by anxiety over the "fiscal cliff" - automatic U.S. tax increases and spending cuts that will go into effect if Washington fails to reach a fiscal agreement. Economists fear that could trigger recession.
At the same time, the global securities industry is also in the middle of a massive regulatory overhaul, with governments drafting new laws that are changing the exchanges landscape.
"It's the biggest period of regulatory change that I've ever experienced," said Kloet, a 30-year veteran of the industry.
"I'm frankly a bit more mindful of the regulatory changes that are going on around the world and how regulation is impacting the business than I am looking at the vagaries of what volumes are doing."
TMX, DODD-FRANK AND JOBS ACTS
Kloet said regulatory clarity will be needed as it hunts for opportunities, noting the impact of the U.S.'s Dodd-Frank Act, considered the most comprehensive financial reform measure since the Great Depression. The international spillover effect could have enormous implications, he said.
The new rules will present both opportunities and threats to TMX, Kloet said. But he emphasized that the exchange operator remained focused on its post-merger integration and paying down the related C$1.5 billion ($1.5 billion) debt.
TMX could also benefit from President Barack Obama's American Jobs Act, which includes loosening rules for small businesses that want to raise capital.
"Maybe there would be a slightly different regulatory environment for early stage companies to go to public markets," said Kloet. "If so, then we think we have something to add to the U.S. markets. It could be -- and I emphasize could be -- a catalyst for us to try and think about something."
The global exchange industry has seen a flurry of attempted merger activity in the past two years, though many of the biggest deals were unsuccessful.
Regulators blocked an attempted merger between Deutsche Boerse and NYSE Euronext, as well as Nasdaq and Intercontinental Exchange's attempted takeover of NYSE.
Singapore Exchange Ltd's bid for Australia's ASX Ltd was scuttled by the Australian government. The London Stock Exchange's bid for TMX was halted by TMX shareholders, who leaned more toward the Maple transaction.
REGULATION AT HOME
On the domestic front, TMX could also see changes relating to regulation for market data fees. The Canadian Securities Administrators (CSA) was considering whether to regulate fees in a report issued last week.
RBC Capital Markets analyst Geoffrey Kwan said in a research note that TMX could see its revenue affected by any reforms.
The CSA report said fees for Canadian alternative trading systems (ATS) appeared to be high. TMX Select, the company's answer to ATS, does not charge for market data.
"You're always concerned about everything," said Kloet, but said the company's market data was a shrinking segment of its diversified information services line.
(Reporting by Solarina Ho; Editing by Tim Dobbyn and Leslie Gevirtz)