Montreal can kiss its exchange goodbye

Bourse - Québec inc. vs Toronto inc.

MONTREAL — What is it about exotic Asian locales that sends otherwise frigid Canadian exchange bosses into an embrace worthy of From Here to Eternity?
If you'd been at all noticing the language - both body and verbal - of Luc Bertrand and Richard Nesbitt in the past few years, you did not need a psychology degree to figure out that these two had a hate-on for each other. But after an October rendezvous at the Shangri-La hotel in Shanghai, they were inseparable.
On Monday, Mr. Bertrand, chief executive officer of the Montreal Exchange, and Mr. Nesbitt, his TSX Group counterpart, went public with their secret courtship as the TSX bellied up with a $1.3-billion offer for the Montreal bourse.
A decade ago, it was in Kuala Lumpur that Montreal's then-CEO, Gérald Lacoste, got together with Toronto's chief at the time, Rowland Fleming. The two exchanges had been engaged in a to-the-death rivalry that had been doing neither any good in a rapidly globalizing securities market.
Slipping away from the stuffy proceedings of the World Federation of Exchanges (WFE) in the Malaysian capital, the duo (along with Michael Johnson, then head of the Vancouver Stock Exchange) found a cozy alcove in a restaurant at the Regent Hotel and hammered out a deal. Each got a 10-year monopoly: Montreal in derivatives, Toronto in senior equities and Vancouver in juniors.
About two minutes later - sort of as a light dessert - Toronto swallowed Vancouver's successor entity, the Canadian Venture Exchange. And a few years after that, the TSX, under Mr. Nesbitt, dug up the hatchet buried in 1997 and vowed to bring it down on the MX's successful derivatives franchise once the monopoly expired in 2009.
Mr. Bertrand tried to find a foreign partner to beat back Toronto, but none could offer the premium Mr. Nesbitt's board was willing to pay to make the Ontario capital Canada's sole place boursière. And Mr. Nesbitt headed to this year's annual meeting of the WFE in Shanghai with strict instructions from his board to make it happen.
Toronto, of course, had by then already lined up the dream team it needed in case Mr. Nesbitt's irresistible, er, charm failed to work its magic on Mr. Bertrand in Shanghai.
The TSX had hired Jacques Ménard, Quebec's primary rainmaker and head of BMO Nesbitt Burns's operations in the province. Mr. Ménard is the next best thing to a seat at the table in Liberal Premier Jean Charest's cabinet, so deep are his connections there.
To add nationalist cred to its team, Toronto even hired Desjardins Securities, an arm of Quebec's dominant Mouvement Desjardins financial co-operative. Former Parti Québécois premier Lucien Bouchard, now a high-paid lawyer in the Montreal office of Davies Ward Phillips & Vineberg, played chief negotiator - a switch from his former role as chief separator.
With a team like that working its case, how could Toronto fail?
On Monday, Mouvement Desjardins put out a press release pronouncing itself "favourable" to the takeover. That was not quite as rich, though, as ex-premier Bernard Landry's rush to the mic to declare his support for the transaction.
Those who lived through the exchange specialization saga a decade ago remember it was Mr. Landry who did more than anyone else to stop it from happening. As finance minister in Mr. Bouchard's PQ government, he even threatened legislation to prevent it. Mr. Bouchard personally intervened to sideline his hot-headed minister.
Mr. Landry may now see exchange consolidation as an inevitability. But if he was so quick to go public with that insight, it's because he knew it would supremely embarrass his career-long nemesis and current PQ Leader Pauline Marois.
Ms. Marois, along with the suddenly Quebec-centric Henri-Paul Rousseau, have expressed the kind of reservations you might have otherwise expected from Mr. Landry and Desjardins. It's not just a nationalist reflex to ask, as Mr. Rousseau, CEO of the massive Caisse de dépôt et placement du Québec, did on Monday: "What are the [deal's] proponents' intentions regarding the development of operations in Montreal?"
Well, that's simple. Sure, Mr. Nesbitt, who will be CEO of the new TMX Group, will talk a good game. He may even pick up a few words of French along the way.
But within less than a decade, the Canadian derivatives expertise built up over two decades in Montreal will have shifted to Toronto. It's not the requirement that five of the TMX's 18 directors be Quebec residents that will change that. Directors have a legal responsibility to make decisions in the interests of shareholders - all of them - not cities, provinces or even countries, for that matter.
Mr. Nesbitt may have picked up the cheque for the meal at the Shangri-La. But it's Montreal that will pay the price.
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