TMX Group CEO seeks to beef up equity derivatives

TORONTO, Aug 21 (Reuters) - The new boss of Canada’s main stock and derivatives markets wants to attract more traders to equity derivatives contracts and to develop an array of new products, including resource-based offerings.

Thomas Kloet, who took the reins as chief executive of Canadian market operator TMX Group X.TO in July, told reporters on Thursday that he was not "terribly surprised" at a drop in trading volume at TMX's derivatives-focused Montreal Exchange.

In May, TMX Group, which runs the Toronto Stock Exchange and the small-cap TSX Venture Exchange, took over the Montreal Exchange, where trading in interest-rate futures and options has tumbled 31.5 percent in the first seven months of 2008, according to exchange data.

In the same period, Montreal’s smaller equity derivatives business has seen trading volumes climb 17.2 percent.

The MX is “largely a fixed income market,” and fixed-income derivatives are not doing well around the world, Kloet said.

He acknowledged that the exchange’s equity options products could be doing better and said there’s an opportunity to increase activity in equity index derivatives as well.

Kloet’s background includes running the combined stock-and-derivates Singapore Exchange Ltd and managing derivatives businesses at international brokerages,

“The equities derivatives base can be bigger,” Kloet said, adding that he plans to meet clients as well as nonclient firms to find out why some are not participating in this market.

Kloet said his three priorities in the coming six months are: integrating the Toronto Stock Exchange and Montreal Exchange; defending the company’s “core” cash equities market from competitors including Alpha, an alternative trading system that plans to launch next month; and expanding the cash and derivatives product line.

For example, the company doesn’t have “a commodity presence” aside from its NGX natural gas trading business, Kloet noted.

With Canada’s extensive natural resources and hordes of resource companies, “there are some opportunities there that we need to explore,” he said. TMX Group would consider working with “a variety of partners” for new products, he added.

Although Kloet has not worked in Canada before, “I’m not a total novice in this market,” he said.

At Newedge Group, where he was Chicago-based chief operating officer of the American zone until leaving for TMX Group, Newedge Canada Inc reported to Kloet. It is one of the largest clearing members of the Montreal Exchange, he noted.

Kloet said he was drawn north by the challenge of combining the Canadian stock and derivatives exchanges. Had he received a job offer to run one or the other, “I probably wouldn’t have been interested,” he said.

But he thought integrating the two markets and further developing them would be “intellectually intriguing”. (Reporting by Lynne Olver; Editing by Peter Galloway)