Tech Focus Drives TMX Expansion
LSE deal one of many efforts, says CEO Kloet
March 16, 2009
TMX Group, as reflected by a derivatives platform deal with the London Stock Exchange (LSE), has been moving quickly on the technology front since it was formed last May by a merger of the Toronto Stock Exchange (TSX) and Montreal Exchange.
In a partnership announced last week, TMX licensed Sola--trading technology developed by the Montreal Exchange (MX)--to LSE for use in its EDX London derivatives exchange. The Canadian exchange operator says it is also in negotiations to acquire a stake in the London venture.
Sola is "at the forefront of derivatives matching," says Tom Kloet, TMX chief executive since July. The Boston Options Exchange (BOX), in which TMX owns a majority share, also uses the system. "When you are developing a state-of-the-art technology, the more users you have that give you input, the better your application is going to be," adds Kloet. EDX expects to migrate to the system in November.
But Sola, which is in the process of getting a new clearing system, is only one of a host of technology initiatives TMX has been working on, according to Kloet, a five-year COO of Fimat USA and its successor firm, Newedge USA. In an interview with Securities Industry News last week, Kloet, former CEO of the Singapore Exchange, discussed the company's data center consolidation, matching engine technology and the story behind the one-day shutdown of the Toronto Stock Exchange and TSX Venture Exchange in December.
Kloet was joined by Luc Bertrand, deputy chief executive of TMX since the merger. Bertrand, who has headed the Montreal Exchange since 2000, announced earlier this month that he will step down at the end of June.
What were the main drivers behind the partnership with LSE?
Bertrand: We've been having discussions with London for quite some time. They came to the conclusion that the Sola technology would fit and work really well with where they want to take their derivatives market.
The BOX and the MX have market models that have proven features. In BOX, we were the first to introduce a market model where there are competitive market makers rather than specialists. From that we went into price improvement and pennies and so forth. I think our colleagues in London were interested in the fact that we could do all this and provide the technology to back it all up.
How does this compare with TMX's relationship with BOX?
Bertrand: With BOX, we are the technical operators of the exchange. In the case of our arrangement with London, we are simply licensing the technology, setting it up, getting it going, and then they will operate the exchange themselves. But we will stay quite involved in EDX and the derivatives business. We see this in a very positive way because it allows us to expand our footprint.
What technological benefits have emerged from the merger of the Toronto and Montreal exchanges?
Kloet: In November, we announced a series of initiatives we were working on. Some of them are revenue synergies, some are expense synergies and some are product synergies. This year is the execution year. One of the things I'm most excited about on the list is the combination of our data centers. For our market participants and our clearing firms, they'll be able to access both matching engines in the same data center. A company like my old employer, Newedge, can get access to both applications rather than doing it separately. I think that makes TMX Group as a whole much more price competitive.
