The threat to TMX Group Inc. (OTC:TMXGF) of losing market share to alternative trading platform, Alpha Trading Systems Ltd, has to date been an empty one, says Blackmont Capital analyst Richard McCormick.
While Alpha has accounted for 10% of TSX-listed volumes over the past six months, Mr. McCormick said the semi-annual volumes on the TSX are up 26% year-over-year, its highest growth rate in two years.
"It would appear that much of the volume on Alpha may be just increasing the size of the pie rather than stealing a slice from TSX," said the analyst in a note to clients.
Furthering this point, Mr. McCormick noted that 55% of Alpha's volumes are attributed to just 20 stocks. Alpha gained 25% market share from these 20 stocks, meanwhile, TSX monthly volumes in these stocks have typically been double their prior-year levels.
"In fact, volume growth on these stocks is often 2 - 4 times that of the aggregate TSX," he wrote.
"We believe [electronic liquidity providers] and other [algorithmic traders] are trading between Alpha and TSX, increasing the volumes on both."
If the TSX continues to grow its volumes, Mr. McCormick sees no reason why the company should not be able to maintain its current market data pricing, even if its market share erodes further.
He maintained his OUTPERFORM rating on the TMX shares and left his C$46 price target unchanged.