Canadian COMPETITION LAW

On July 4, 2012, the Competition Bureau announced that it had issued a No Action Letter clearing the Maple/TMX transaction (see: Competition Bureau Completes Review of Proposed Maple-TMX Transaction).

In making the announcement, the Bureau said:

“Following an extensive review of Maple Group’s bid to acquire TMX Group, as well as Alpha Group and Canadian Depository Services (CDS), in light of the Ontario Securities Commission’s (OSC) recognition orders as finalized today, the Competition Bureau does not, at this time, intend to make an application to the Competition Tribunal to challenge the proposed transactions.

The Bureau previously communicated to Maple its serious concerns with the proposed transactions on November 29, 2011. At that time, the Bureau indicated that it had serious competition concerns, primarily in two areas: equities trading, and post-trade services, including clearing, settlement and depository services.

However, as has been communicated by the Bureau throughout its review, its views were subject to being affected by further information or developments.

Today, the OSC issued final recognition orders regarding the proposed transactions, following its own review. While the Bureau has an independent mandate to review mergers, the Bureau provided input and advice to the OSC for its consideration relating to the potential impact on competition that could result from the proposed transactions.

While the Bureau conducted its own review of the proposed transactions, the measures contained in the OSC’s final recognition orders materially change the regulatory environment sufficient to substantially mitigate the Bureau’s competition concerns. Accordingly, the Bureau is today issuing a No Action Letter (NAL) to Maple Group in respect to the proposed transactions.”

No Action Letters are one of several forms of clearance available to merging parties under the Competition Act, together with Advance Ruling Certificates.  The Bureau has the power to challenge completed mergers where a No Action Letters are issued for up to one year post-closing.

The proposed transaction, first announced in June, 2011, followed an earlier proposed friendly TMX/London Stock Exchange Group merger and followed also in the wake of a then recently abandoned joint bid by the NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. to acquire the NYSE Euronext (following a decision by the U.S. DoJ to block the transaction).

While the Bureau expressed “serious concerns” with the transaction last November (which remain opaque and undisclosed), and Maple’s bid was extended a number of times, the group of acquiring banks have now been victorious in negotiating satisfactory terms to complete the transaction with the Bureau and the OSC (some potential obstacles remain with BC and Alberta securities regulators).

Unlike the recently decided CCS landfill case decided by the Competition Tribunal, no competition remedies were imposed in this transaction.  Canadian securities law regulators will, however, be responsible for monitoring and regulating the transaction, which has in essence created a regulated monopoly for Canada’s stock exchange and clearing services.

With mounting public pressure to increase, not diminish, Canada’s global competitiveness, including increasing calls it seems to add genuine transparency to Canada’s foreign investment rules, particularly around the net benefit to Canada test for Investment Canada approval, it is somewhat puzzling why Canada needs a regulated monopoly for its securities trading and clearing markets.

At least the clearance will, presumably, create a new internal market of sorts within the OSC regulating the (soon to be) newly acquired exchange.

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