TSX head still aiming for global growth

It's been nearly five years since Tom Kloet arrived in Canada to head the country's largest stock exchange.

In that time, the chief executive of the TMX Group (TSX:X), has faced a weakened economic landscape and a challenging time for those in the stock market business.

But, he has remained focused on his goals to grow the Toronto Stock Exchange into a global brand and diversify its core business.

"We've changed this institution," he said in an interview from a fourth-floor boardroom at TSX's King Street headquarters.

"The vision I tried to create is a financial institution service provider for the capital markets here in Canada, and we're clearly achieving that."

Some had initially been surprised Kloet, an American, was tapped to take the reins at the exchange, which five years ago merged with the Montreal Exchange.

Early on, Luc Bertrand, who formerly headed the Montreal Exchange, had been a strong contender for the job.

But Kloet brought with him a wealth of international experience and in 2011 put the TMX on the global stage by attempting a $3.46-billion merger with the company that runs the London Stock Exchange.

His plans were thwarted though after the Maple Group, a consortium of Canadian banks and pension funds, acquired the TMX Group after a prolonged takeover battle.

However, despite the turmoil, Kloet survived and remained chief executive.

International listings doubled

Since his arrival, the TSX has more than doubled its number of listed international companies from 150 to 360. It's opened offices in China and the U.K. in an effort to drum up more business, and Kloet regularly travels abroad to spread the TSX gospel, recently visiting Brazil, Colombia and Mexico.

"I'm happy with our international growth but I don't think we've reached full maturity there by any stretch of the imagination," he said, showing signs of a mid-western U.S. accent.

Under Kloet's tenure, the TSX has seemingly move away from being mainly based in the equities and listings business to having those areas now only account for about 20 to 25 per cent of the company's revenues.

In the process, it's concentrated more heavily on futures and options, trade clearing and settlement of depository-elgible securities.

Sharp drop in new listings, trade volumes

In its last quarter, TMX Group reported a sharp drop in new listings and trade volumes. The stock exchange operator said it had 40 new listings in the first quarter, compared with 86 in the same period a year earlier. It also saw an overall drop in total volumes on its exchanges, down 22 per cent from the same year-earlier period.

But Kloet defended the results, saying that everyone in the stock exchange business has been hit hard.

"We are in a period where the IPO (initial public offering) market globally and the financial market globally has slowed down," he said.

"That's no secret. (But) we're starting to see some pick-up. We are in a cycle where that (equities) business is not going to grow quite as much... The economic cycles have ups and downs, and certainly that's a little about what's going on here."

Earlier this month, the exchange lost trendy retailer Lululemon which decided to delist due to "minimal trading volume of its shares." The Vancouver-based clothier, most known for his yoga gear, continues to trade on the Nasdaq.

Kloet said Lululemon's high-profile departure had little to do with their satisfaction with the TMX Group, but rather their business decision to focus more on luring investors and capital from the U.S.

'We fight for every listing we can get'

"We fight for every listing we can get," he said, adding that he wouldn't be surprised if they eventually returned.

Earlier this week, several major financial services companies, including Royal Bank (TSX:RY), announced that they were planning to set up a new Canadian stock market.

The backers include CI Investments Inc. (TSX:CIX), IGM Financial Inc. (TSX:IGM), Canadian pension fund PSP Investments, and brokerages ITG and U.K.-based Barclays.

The venture, to be called Aequitas, would be a rival to the TSX and other markets owned by the TMX Group. The plan, which still needs to pass regulatory approval, could be up and running by late 2014, at the earliest.

Aequitas Innovations Inc. says the new market would be meaningful competition to the TSX by putting constraints on high-frequency trading and offer services for a lower cost.

Kloet said competitors come and go.

"Often people will think they have an idea, they'll bring to market, some are innovative and some are not," he said. "This institution has been an innovator for a long time."

Tom Caldwell, chairman of Caldwell Securities Inc., said it's unclear if Aequitas business model and prices will be enough to not only encourage unlisted companies to list, but also lure clients away from the TMX Group.

"Tom is no slouch either. If someone is eating his lunch, he's a very nice guy but don't kid yourself for one nanosecond, he's a competitor and they will react to it," Caldwell said. "It's a tough business."

Shares in the TMX Group closed ahead $1.55 to $46.08 on Friday on the Toronto Stock Exchange

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