TMX CEO says BSX should aim high
Bermuda has all the ingredients necessary to be an offshore leader in capital markets and should aim high for the future.
That is the view of the Bermuda Stock Exchange’s newest board member, Thomas Kloet, the chief executive officer of the TMX Group.
Mr Kloet attended his first board meeting on Monday, following TMX’s purchase of a 16 percent stake in the BSX, a deal announced last December.
TMX Group, a $3.3 billion Canadian listed company, which recorded revenue of $673 million last year, owns and operates the Toronto Stock Exchange, the seventh large exchange in the world. It also has a majority interest in Boston Options Exchange (BOX) and owns Natural Gas Exchange (NGX) a leading North American exchange for the trading and clearing of natural gas and electricity contracts.
In an interview with
The Royal Gazette, Mr Kloet said the Island stood out among offshore financial centre and that was a key reason why his company had jumped at the opportunity to invest in the BSX.
“Bermuda has a regulatory brand that is superior to many of the offshore destinations, if you compare it to Barbados, Cayman or the BVI, for example,” Mr Kloet said. “This could be the leading offshore capital market and we should set very high goals.
“When the opportunity to invest in the BSX came up, we saw it as a very interesting. Greg (Wojciechowski) and the team here have built a foundation to further develop and we’re hoping that we can help that happen.
“You have the foundations with a regulatory identity, an excellent rule of law, a legal and accounting structure in terms of advisers around capital market activity that are very good. You have a regulator in the BMA, who understands capital markets and what they can do to help build the country.
“The BSX has a technological infrastructure that’s built to scale up. I think we have some work to do in terms of getting trading communities from outside Bermuda connected to the BSX and we hope to provide some help with that.”
Generating more business through the BSX will help the domestic company as well as the Exchange’s profits, Mr Kloet said.
“We’re here to marry people that need capital and who want to build their businesses with capital that’s either here or elsewhere,” he said. “We are the plumbing in the capital market.”
The TMX’s investment came at the end of a year of increased financial activity between Canada and Bermuda. This included the signing of a tax information exchange agreement (TIEA) in July and Bermuda gaining recognition as a Designated Stock Exchange under Canada’s Income Tax Act, which went into effect in late October.
A significant advantage of the designation for the BSX is that it opens the door for Canadians to invest some of their tax-deferred retirement plans and other investments in BSX-listed securities, which could translate into greater liquidity of BSX-listed stocks.
Mr Kloet believes that one of the keys to developing the BSX is improving connectivity with brokerages in Canada and elsewhere in the world. TMX, with offices in several Canadian cities, as well as Houston, Boston and Chicago in the US, London and Beijing, has the global presence to spread the word.
“When we announced the investment, it got a lot of attention,” Mr Kloet said. “I took some calls from brokers asking how they could access this market. The whole thing is about getting trades down here to meet the capital needs of the listed companies here.
“We want to improve connectivity with large brokerage firms who route orders around the world, so they have access to this exchange with as little cost or friction as possible. So if investors see a product listed here they are interested in, they will think this is an easy place to route the order to and a safe regulatory environment. From my point of view, you check the box on the regulatory environment.”
After his first board meeting, Mr Kloet said he was impressed with his fellow directors and the team at the BSX, led by CEO Greg Wojciechowski. While he did not rule out increasing TMX’s stake in the BSX, he said he saw no immediate need for doing that.
“We have a long-range vision, not merely how we can make a short-term profit,” he said. “I’m interested in a long-term, stable investment here as a strategic investor.
“There’s a stable group of investors that are integral to the institution’s success. I walk away from the meeting with the impression that if we have new ideas, giving access to the broad range of services we provide, then we’ll earn our return on investment.”
New products are one area in which TMX could help the BSX to progress. The group has a history of innovation and was the first exchange to trade an exchange-traded fund (ETF).
The BSX can point to insurance-linked securities, which have gone from zero to $3.5 billion on the BSX in two-and-a-half years. The next stage, according to Mr Kloet, is to see ILS being traded.
Mr Wojciechowski said: “Anything we develop with TMX will only serve to develop Bermuda’s domestic capital market and to accelerate its maturity curve. Healthy capital markets are the fundamental basis of economic health.”