By pursuing DirectEdge guess

By pursuing DirectEdge, TMX is clearly making a bet on electronic speed trading. Until 2010, DirectEdge was solely an electronic platform that catered to high-frequency traders. TMX has also announced the release of its new Quantum XA servers that will allow for trades to be executed in mere microseconds.

Exploring new avenues like these will be key because Maple’s concurrent purchase of Canadian Depository of Securities Ltd. may not be the saving grace many people hoped it would be. CDS “clears” trades, or settles them between buyers and sellers, and global stock exchanges that control their own clearing houses typically trade at higher valuations. Maple hoped owning CDS would give TMX a boost as well.

However, provincial regulators slapped strict restrictions on CDS clearing fees, forcing TMX to keep them at 2012 levels. This means that higher fees can’t be used to offset lower trading commissions, nor can they help to pay back the debt load that Maple is tacking on to the buy the company. RBC Dominion Securities analyst Geoffrey Kwan expects TMX’s net debt next year to be 3.3 times earnings before interest, taxes, depreciation and amortization.

Where TMX goes is still being shaped. But staying the course is not an option. “They certainly can’t create growth within the equity space,” ITG’s Mr. Clark said. “They can’t suddenly do something that’s going to make the asset managers and pension funds trade any more.”



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