It was busy outside the Queen Elizabeth Hotel one autumn evening in 2007 as golfers from the prestigious President's Cup golf tournament returned from their daily rounds at the Royal Montreal club.
Also arriving at the Queen E that night was Finance Minister Jim Flaherty to address a derivatives conference organized by the Montreal Exchange (MX).
It was a critical speech at a critical time as the delicate courting dance between the Toronto and Montreal Stock Exchanges was under way. The TSX was seeking to be the groom in a wedding with its intended bride, the MX. It was a major initiative to create a global-class entity and bring together Canada's biggest exchanges and the global trading of equities and derivatives.
Within moments of beginning his speech, it became very clear that Flaherty and the Harper government were in favour of the deal. While Flaherty was still speaking, a note was passed across the table between two observers that read: "They want it done! It's classic Canadian policy."
What did that note mean? History is the answer.
The history of Canadian policy making and economic necessity mandated that the federal government needed at least one strong Canadian player, a flag-bearer, in the fast emerging global capital market.
Our geographic size permits us the economy and resources to be a world player, but our small population and mid-sized economy will only allow us one international flag bearer as a technology or industry starts to take off in global importance and impact.
The Canadian track record is consistent on this globalization issue, with two examples being 19th century telephone technology (Bell Canada) and 20th century early airline (Air Canada).
Another pattern that has proven true throughout history is that once our global flag-bearer is established, Ottawa will typically and quietly encourage other players to expand into the domestic game: The goal being to learn skills and expand the same technology or industry that has gone global, but at the same time, to foster some other homegrown domestic competition in that same arena.
Examples of this are numerous.
In telecom, the early startup competitors to Bell are now such major players as Rogers or Telus. The same holds true for airlines. That dual policy was also evident with the TMX merger by allowing the rapid growth of Alternative Trading Systems (ATSs) like Alpha for example.
In short, it's a two-level strategy: first, have a monopoly-like global player abroad but, secondly, still have some domestic growth and competition at home (a subtle prodding to keep them sharp and attentive.)
These are all forms of infrastructure. From Canada's earliest days -- from early canal building, the railway era and the National Dream, later the roads and highways, followed by the telegraph and telephone and finally into high-tech, the pattern is consistent. Canadian infrastructure policy has been crucial to our national sovereignty, our nation-building and economic survival and growth.
And, for all its volume and complexity of digital data at lightning-fast speed and global reach, an equity or derivatives exchange is, in essence, still an "infrastructure." It's a complex and sexy one, but still an infrastructure.
So, as the high-speed computers replaced the floor traders around the world's stock markets -and as equities became overshadowed by the complexities of derivatives -- and as trading became not only integrated but global in reach -- exchanges started to merge. Initially, in some cases mergers were continent-wide, in most cases since, trans-national and cross-continental. Hence the necessity of the TSX-MX wedding.
So, back to that autumn Montreal night in 2007, Flaherty made it quite clear that Ottawa wanted the deal done to have a Canadian flag-bearer in that fast-consolidating global capital market.
So in 2007-08, the TSX had to convince the Quebec government and the people of Montreal and Quebec that not only would no harm come to their beloved MX from this merger, it would prosper and grow and the MX family would benefit. Thus the TMX group was created.
Today, TMX is the bride and LSE the groom. Now LSE has to convince the complex parenthood of the TMX -- not only the Harper government, but the Ontario, Alberta and Quebec governments as well -- that the newly created exchange will prosper and grow and rise to new challenges.
The TMX feels the marriage is necessary because of shrinking market share at home from ATSs that are not on the same regulatory playing field.
Will this marriage work? Will the union be permitted by the Harper government? Is potentially losing control of Canadian economic infrastructure in an effort to create a pipeline into the global capital markets worth it?
Or, is the union a necessary precondition for simply staying in the global game?
History is a little murky on this one and the ball is firmly in the court of Harper, Flaherty and provincial regulators.
