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The latest chapter in the economic rivalry between Toronto and Montreal?
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TSX unveils market to challenge Montreal
New derivatives bourse
John Greenwood
Financial Post
Tuesday, March 06, 2007
The TSX Group Inc. yesterday launched a new volley in the fast-developing battle for the future of the derivatives trading in Canada, announcing plans to partner with the New York-based International Securities Exchange to launch a new exchange, a direct challenge to the Montreal Exchange's position as the top player in the market.
The bourse, to be called the DEX, will open in March, 2009, after the expiry of a non-compete deal between the TSX and the Montreal Exchange dating back to 1999.
"Our objective is to be the dominant [exchange] in the Canadian Market," said Richard Nesbitt, chief executive of the TSX, who for nearly a year has been talking publicly about his plan to expand the TSX's offerings to include lucrative futures and options trading.
Under the joint venture, the new exchange will be 52% owned by the TSX and 48% by the International Securities Exchange (ISE), an all-electronic bourse that has helped reshape the landscape of derivatives trading in the United States since its launch in the late 1990s.
The two partners will together invest about $26-million in the venture, which will focus on futures and options trading.
The announcement comes less than a month after the Montreal Exchange teamed up with the New York Mercantile Exchange to start a new energy futures market that will compete head-to-head with the TSX's Natural Gas Exchange. Since the non-compete deal between the two Canadian exchanges doesn't cover energy, that venture is expected to go into operation before the summer.
But Mr. Nesbitt dismissed suggestions that the DEX is merely a defensive tactic. "There is no relationship whatsoever" between yesterday's agreement and the MX's partnership with the Nymex, he told reporters yesterday.
Officials at the MX dismissed the move. "For us, it is not a big surprise," said Jean Charles Robillard, a spokesman for the MX. "Mr. Nesbitt has been telling the community he will be in the market in 2009 and now he has told us how he is going to do it. It's nice to know who your competitor is two years in advance."
What is not in dispute is the huge potential the exchanges are chasing. Over the past six years derivatives trading has taken off, increasing at about 18% a year globally, in the process transforming derivatives bourses from the equivalent of utilities with slow, predictable growth into some of the fastest growing companies around. For instance, the MX has seen annual volume increases of about 29% since 2000. Since exchanges make more money the more transactions they do, its earnings have soared as well, helping to push its the price of its shares, which trade on the over-the-counter market, from the equivalent of about $1 before it demutualized to nearly $90 today.
Analysts praised the joint venture with the ISE as a move in the right direction. Still, many analysts argue that by the time the dust clears in this fight, there will likely be only one Canadian derivatives exchange.
As the incumbent, the MX has a big advantage. The fact that it has had a virtual monopoly since 1999 thanks to its non-compete agreement has provided it with the time and cash to invest in new technology, to prepare for the inevitable arrival of competitors. Analysts say it now boasts one of the best trading platforms in the industry.
But the TSX has also made some wise decisions. As one of the first fully electronic bourses in the U.S, the ISE also has a reputation for its technology. Analysts said that by partnering with the ISE, the TSX may have found the best possible partner to for its foray into the derivatives business.
Link to article
TSX unveils market to challenge Montreal
New derivatives bourse
John Greenwood
Financial Post
Tuesday, March 06, 2007
The TSX Group Inc. yesterday launched a new volley in the fast-developing battle for the future of the derivatives trading in Canada, announcing plans to partner with the New York-based International Securities Exchange to launch a new exchange, a direct challenge to the Montreal Exchange's position as the top player in the market.
The bourse, to be called the DEX, will open in March, 2009, after the expiry of a non-compete deal between the TSX and the Montreal Exchange dating back to 1999.
"Our objective is to be the dominant [exchange] in the Canadian Market," said Richard Nesbitt, chief executive of the TSX, who for nearly a year has been talking publicly about his plan to expand the TSX's offerings to include lucrative futures and options trading.
Under the joint venture, the new exchange will be 52% owned by the TSX and 48% by the International Securities Exchange (ISE), an all-electronic bourse that has helped reshape the landscape of derivatives trading in the United States since its launch in the late 1990s.
The two partners will together invest about $26-million in the venture, which will focus on futures and options trading.
The announcement comes less than a month after the Montreal Exchange teamed up with the New York Mercantile Exchange to start a new energy futures market that will compete head-to-head with the TSX's Natural Gas Exchange. Since the non-compete deal between the two Canadian exchanges doesn't cover energy, that venture is expected to go into operation before the summer.
But Mr. Nesbitt dismissed suggestions that the DEX is merely a defensive tactic. "There is no relationship whatsoever" between yesterday's agreement and the MX's partnership with the Nymex, he told reporters yesterday.
Officials at the MX dismissed the move. "For us, it is not a big surprise," said Jean Charles Robillard, a spokesman for the MX. "Mr. Nesbitt has been telling the community he will be in the market in 2009 and now he has told us how he is going to do it. It's nice to know who your competitor is two years in advance."
What is not in dispute is the huge potential the exchanges are chasing. Over the past six years derivatives trading has taken off, increasing at about 18% a year globally, in the process transforming derivatives bourses from the equivalent of utilities with slow, predictable growth into some of the fastest growing companies around. For instance, the MX has seen annual volume increases of about 29% since 2000. Since exchanges make more money the more transactions they do, its earnings have soared as well, helping to push its the price of its shares, which trade on the over-the-counter market, from the equivalent of about $1 before it demutualized to nearly $90 today.
Analysts praised the joint venture with the ISE as a move in the right direction. Still, many analysts argue that by the time the dust clears in this fight, there will likely be only one Canadian derivatives exchange.
As the incumbent, the MX has a big advantage. The fact that it has had a virtual monopoly since 1999 thanks to its non-compete agreement has provided it with the time and cash to invest in new technology, to prepare for the inevitable arrival of competitors. Analysts say it now boasts one of the best trading platforms in the industry.
But the TSX has also made some wise decisions. As one of the first fully electronic bourses in the U.S, the ISE also has a reputation for its technology. Analysts said that by partnering with the ISE, the TSX may have found the best possible partner to for its foray into the derivatives business.