The announcement earlier this week of the merger—some say takeover—between TMX Group, operator of the Toronto Stock Exchange, and the London Stock Exchange (LSE) took the industry by surprise. The impact it will have on pension funds is highly dependent on how the deal shakes out. The deal could have a promising outcome for pension funds.
“The potential here is the issue,” says Bill Maclean, senior vice-president and practice leader in Aon Hewitt’s investment consulting group. “The potential is that when you have a lot more activity by combining the two, you will increase the liquidity of the system. Now we don’t know this will happen until we actually see it.
“You’d have more participants and therefore you will potentially get better transparency on transactions, lower costs—and that’s just not commissions but the bid/offer spread on transactions. It will be a little more competitive, hopefully. Potentially, that makes it better for pension plans for interacting and transacting on exchanges.”
Jonathan Jacob, managing director of Forethought Risk, says he doesn’t see this merger having much of an impact on pension funds. The larger funds already have global mandates but there is, he says, “the potential for the cost of global mandates to decrease.” However, he adds that what often happens in Canada is when the cost for providers goes down it’s not always passed on to the consumer in the short term.