Vlad Khandros

TSX Group: An Undervalued Takeover Candidate

Regulatory restrictions on off exchange trading in Australia as of today give the ASX essentially a fixed near total market share. Such restrictions do not exist in the North America and European equity landscapes.

ATSs are not only run by investment banks. The top four independent ATSs (Liquidnet, ITG, NYFIX, and Pipeline Trading) account for about 400mln shares per day including DMA. ATSs in the US on an aggregate basis, where the equity markets are the most developed, have built up a near 20% market share. The liquidity residing in these systems will be the determinant of their future success. Whether or not an investment bank owns an ATS, the Chinese walls are required by wall no matter what. If you believe ownership negatively impacts the public’s confidence in the public markets, how can you also encourage the trading on stock exchanges that are now publicly listed and controlled by shareholders…many of which are the same firms? Publicly owned exchanges now have their stakes controlled by financial firms that can push them in certain directions as well. I am not saying this is reason for concern, but ownership does not necessarily translate into a loss of confidence. Best ex requirements require all to go wherever the best price is and a fund cannot be meeting their fiducial responsibilities if they are not accessing a significant amount of off exchange liquidity.

Exchanges themselves see the value is non displayed liquidity and are beginning to embrace this. The NYSE has formed a joint venture with a broker owned block trading ATS in the US dubbed BIDS and is launching an ATS in Europe as well dubbed SmartPool. Exchanges that do not follow will continue to lose substantial market share as is already happening.

TSX Group: An Undervalued Takeover Candidate

A number of the ATSs in Canada have already launched such as Liquidnet in 2006.

Block volume as a share of total volume will increase in Canada as it has in the US thanks to block trading ATSs that offer successful models. The market impact cost of trading blocks in a displayed market is too high for many names and many large orders. This is the only market that penalises customers for having wholesale supply/demand – retail sized order flow is all that can be given on the exchanges and institutions are forced to splice up their blocks into algos while simultaneously revealing their hand to the brokers. Again, ATSs are changing this.

In regards to the TSX having a lower valuation than the ASX - as of today there are certain regulatory restrictions in Australia that make the ASX's order flow more "sticky." Also the ASX is multi asset while as the TSX will not be until the MX merger is complete.

Merrill's Bloomberg, Blackrock Stakes Now Nearly a Third of Total Market Cap

The Bloomberg stake was value as $5 - $10 billion by a recent Wall Street Journal article. Some believe the stake could fetch as much as $15 billion due to extreme interest from other parties, the respective buyer would be the only holder of Bloomberg besides Bloomberg, and the fact that this globally recognized firm that has not sold a stake in itself in years.

Margin Debt Declines Sharply

Paul -

Margin accounts are required for those holding short positions. Margin debt rose as stocks were hitting new lows back in March of 2000 and also during this past summer. Substanital amounts of the record volatility and volume from a few months ago can be attributed to these accounts getting margin calls. The Wall Street Journal publishes these statistics regularly so perhaps that is why you have not seen much talk of this as of late - however there was a great deal of focus on this around July and August of this year.