TSX sets sights on derivatives market

(March 31, 2005) The TSX plans to get back into derivatives, chief executive Richard Nesbitt announced in a speech on Thursday.

The exchange can’t get into the business until 2009 when its non-compete agreement runs out. The deal was signed in 1999 when the Montreal Exchange (ME) took over the derivatives trading business and transferred its stock trading to Toronto.

Nesbitt, in his first major speech as TSX chief executive, says derivatives are the fastest growing market in the world. “There are great new product possibilities and we really need to be there,” he told reporters at the presentation. “I’m not a politician, I didn’t get into politics. Montreal is doing a great job but we [Canada] only trade 27 cents in derivatives for every dollar in equities.”

Relative to other countries trading in the options and stock futures space, Nesbitt says Canada is fifth-last among countries on a list compiled by the World Federation of Exchanges (WFE). “The average market in the WFE trades $1.55 in derivatives for every dollar in equities. Some trade more, like the Germans who trade $5.23 in derivatives for every dollar in equities, and some trade less.” He says the U.S. trades around $1.40 and Australia trades $1.20 worth of derivatives for every dollar in cash.

“The most successful global markets like Deutsche Boerse (Germany) and Euronext, its main European competitor, combine cash and derivatives trading under the same roof. There are compelling reasons for this,” he argues. “Customers in the cash and derivative markets are the same people. They want to be able to trade derivative and cash products side by side. That is what we intend to provide for them, once we are free to do so in 2009.”

At his presentation Nesbitt also discussed the group’s plans to attract more listings to Canada, sell more data products and move into other asset classes, namely the bond market, starting with the launch of the S&P/TSX Canadian Bond Index.

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com