Canadian stock exchange operator TMX Group Inc. (X.TO, TSX_X.TO) is in talks to acquire U.S. exchange group Direct Edge Holdings LLC, the Wall Street Journal reported Wednesday, citing people familiar with the matter. TMX is the operator of the Toronto Stock Exchange.
However, the report noted that talks are not likely to progress until TMX clears all the remaining obstacles related to its own recent deal to be acquired by a consortium of Canadian banks and pension funds. The deal received approval from the last two Canadian provincial regulators late Wednesday, but still requires shareholders' approval.
TMX Group said Wednesday that the British Columbia Securities Commission and Alberta Securities Commission approved its final recognition orders related to Maple's proposed acquisition of TMX Group and TSX Venture Exchange.
Closely-held Direct Edge handles about 10 percent of U.S. equity trading volume daily and is the fourth largest equities exchange in the world by notional value.
In 2008, the company sold a 31.5 percent stake in itself to International Securities Exchange. At that time, the company was valued at about $390 million.
However, regulators are currently said to be probing Direct Edge and other exchanges for their ties with high-frequency traders. The Securities and Exchange Commission is looking into whether these exchanges provided high-speed firms special advantages that give the firms an advantage over less sophisticated trading companies.
Jersey City, New Jersey-based Direct Edge operates two separate platforms, EDGA Exchange and EDGX Exchange. The company began in 1998 as Attain ECN. It was purchased by Knight Capital Group Inc. as an electronic-trading firm.
Direct Edge was spun off in 2007, bringing in Chicago-based hedge fund Citadel LLC, and Goldman Sachs Group Inc. as investors. The company converted into a full exchange in 2010.
In January 2012, Direct Edge said it was exploring capital market alternatives, including an initial public offering.
A merger between TMX and Direct Edge would help the companies bolster their revenue and provide new territory for product lines. The deal would enable TMX to expand its operations into the U.S. and profit from dealing in stocks listed on both Toronto and New York stock exchanges.
In 2011, TMX agreed to be acquired by Maple Group Acquisition Corp. for around C$3.8 billion. Maple's investors include five of Canada's largest pension funds and four Canadian bank-owned investment dealers, who are significant customers of TMX.
An earlier bid by London Stock Exchange Group plc (LSE.L) to acquire TMX for C$3.2 billion did not come through.
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