Canada's largest bank said in a Monday filing with the Ontario Securities Commission — which has asked for public feedback on its terms for allowing the $3.8-billion takeover of the operator of the Toronto and Montreal exchanges — that it largely supports the transaction but has some concerns.
It fears costs will escalate when Maple Group Acquisition Corp., a consortium of 13 banks and pension plans, buys the TMX and combines it with the Alpha trading system and CDS, Canada's system for clearing and settling stock trades.
"Our key concern is that the Maple transaction will require a significantly different approach to the regulation of fees and fee models in Canada in order to compensate for the removal of effective competition for trading venues and the transformation of CDS into a profit-making venture," RBC's global co-head of equity trading Greg Mills wrote in a 21-page comment.
In one of several submissions to the Ontario regulator from various stakeholders, RBC (TSX:RY) suggests that Maple should be forced to use Alpha's lower trading fees as the basis for regulated pricing instead of TMX's current fees.
It also says the commission must increase its capacity to be an effective regulator of the market structure and fees.
Royal, which advised former takeover bidder LSE Group before its offer was rejected last year, is the only large Canadian bank with no affiliation to the Maple Group.
National Bank of Canada (TSX:NA), Toronto-Dominion Bank (TSX:TD), Bank of Nova Scotia (TSX:BNS) and Canadian Imperial Bank of Commerce (TSX:CM) are all Maple shareholders along with nine financial firms. Bank of Montreal (TSX:BMO) doesn't own a stake in Maple but is advising the TMX Group.
Maple has extended its almost $4-billion bid for the TMX Group (TSX:X), operator of Canada's major stock markets, until the end of July.
The consortium is awaiting regulatory approval from various provincial regulators as well as the federal Competition Bureau. Royal's requests were made during a public comment period held by the OSC seeking feedback on its draft recognition order.
Global brokerage firm ITG Canada said it supports terms outlined by the OSC but called for even stronger safeguards to protect the public interest and strengthen the governance and oversight model.
"The structure proposed by the Maple acquisition is fraught with conflicts of interest across every facet of the trading, clearing and settlement infrastructure of this country," it wrote in a lengthy submission.
"These conflicts of interest have the potential to seriously affect the ability of other participants to compete effectively in our capital markets."
William Woods, CEO of WWWoods & Co., said the OSC's proposed orders will create a regulated monopoly that may be able to deal with all conflicts of interest raised by Maple's ownership.
"However, the commission has not explained why a regulated monopoly, rather than free and open competition, is in the best interests of the public in Canada," he wrote.
Maple seeks to acquire a minimum of 70 per cent and a maximum of 80 per cent of the shares of TMX Group, as part of an integrated transaction valued at about $3.8 billion.
Under the deal, Maple investors would end up holding 60 per cent of the TMX Group's stock and current TMX shareholders 40 per cent.
Besides banks, Maple is comprised of the Alberta Investment Management Corporation, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Desjardins Financial Group, Dundee Capital Markets Inc., Fonds de solidarite des travailleurs du Quebec (F.T.Q.), GMP Capital Inc., Ontario Teachers' Pension Plan and The Manufacturers Life Insurance Company.