CANADIAN ATS'S CAPTURE 25.2 % OF MARKET SHARE

The TMX Group Inc. caught market analysts and investors by surprise. Earnings for year-end were $104.7-million on revenues of $556.3-million. As for the TMX Group's fourth quarter, the results were not as uplifting. The company posted a fourth quarter loss of $26.8-million, marking the first quarter the TMX Group posted a loss as a public company. The loss should be a blip because, as chief executive officer Thomas Kloet pointed out, the company took a one-time goodwill impairment charge of $77.2-million due to its majority stake in the Boston Options Exchange. Trading on BOX declined 58 per cent in the fourth quarter. Excluding the one-time losses, earnings were 82 cents per share, beating estimates by analysts by about 33 per cent. Two analysts caught off guard were Gabriel Dechaine at Genuity Capital Markets and Robert Sedran at National Bank Financial. The financials were good enough to send the stock up 64 cents to $29.15 on 661,000 shares.

Brokerage firms that once owned the TMX's various predecessor exchanges, and ran them as non-profit enterprises, see where much of the public company's profits come from when they look in the mirror.

The effect Canada's ATSs are having on the TMX Group can be seen in its fourth quarter trading and related fees revenue, which, when compared with the fourth quarter of the previous year, fell 12 per cent to $60.8-million. The revenues fell 12 per cent while the number of shares changing hands on the TSX and the TSX-V only fell 3.2 per cent to 42.4 billion in the period. This is partly because in August, 2009, in response to Alpha cutting its trading fees, the TMX Group lowered its fees for stocks under $1 to between 0.05 of a cent per share and 0.06 of a cent per share on the active side. Before then it charged the active side between 0.06 of a cent and 0.08 of a cent, depending on the dealer's overall volume. (Earlier, competition from the ATSs caused the TMX to lower is fees on stocks over $1.)

The price cutting war continued earlier this month when Alpha dropped its fees for trading stocks under $1 to 0.04 of a cent per share to the active side (the buyer). It also rebates the passive side (the seller) 0.02 of a cent per share. The TMX Group responded by stating that on March 1, 2010, it will, once again, reduce its fees for stocks under $1. This time it will bill the active side 0.03 of a cent per share and rebate the passive side 0.01 of a cent per share, implying revenues will likely decline further next quarter.

by Stockwatch Business Reporter