The TMX group (TSX), which controls the Toronto Stock Exchange, will combine with the London Stock Exchange (LSX), as long as the Canadian government agrees to the merger. The UK government appears to have no concerns. There are several ways that this will affect financial investors.
The first thing to consider is TMX as an investment itself. The company has been doing well, and the combination will not necessarily do better. Some sources claim that only about half of mergers tend to be successful. The most important questions to ask will be if the two business cultures will fit together with one another, and if their technologies will be compatible with one another.
According to the press release, the combination will result in more companies being listed in the database. This means that investors will have more options to choose from, and the change too build a more diverse portfolio. It also means that Canadian investors will be able to buy foreign securities and hold them in registered government plans. At the same time, the companies will still be listed separately since they must comply with different regulations. Whether or not most companies will be willing to register and comply with both regulatory agencies remains to be seen.
The merger might also mean more overall investors. If this is the case, it will increase liquidity and reduce the bid-ask spread. This would obviously prove beneficial for investors, but it is not a cut and dry case that this will necessarily happen as a result of the merger.
Another possible effect of the merger is the possibility that it could reduce trading fees for brokers and companies. Again, these changes could improve the total number of companies listed, as well as the liquidity of the investments. This could improve competition which, once again, is beneficial for investors.
The laws on trading in Canada are fairly weak, and don’t protect the investor nearly to the extent that most feel they should. Companies that choose to be listed in both the UK and Canada will have to comply with the stricter UK laws, leaving investors greater protected.
In conclusion, it is difficult to find any negative effects that the merger could have for investors. There are some who are concerned that it could shift some of the control out of Canada. There are several examples of other national stock markets that have merged or been bought out, such as the Borsa Italiana in Italy, with no negative outcomes.
For more information, read this great post on Canadian Financial DIY blog. He got his own opinion!
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Nicolas
