For most of its 157 years, the TSX has enjoyed near monopoly status as the place to buy and sell stocks in Canada. A strong position in the mining sector helped make the exchange the sixth-largest in the world by market capitalization — far larger than it probably should be, given Canada's domestic economy.

But that dominance has been eroding of late, as the venerable bourse is being attacked on all sides by new rivals for its core business.

The exchange's parent company, TMX Group Inc., essentially has three businesses:

• The trading business, where brokerages pay fees to buy and sell securities on the exchange itself.
• A market data arm, where clients pay subscription fees for access to trading data and historical market activity.
• The listings business, where companies that wish to have access to TSX-savvy investors pay TMX fees to have their companies listed on the exchange.

TMX Group has always nominally competed with new entrants across each of its business units, but recently the upstarts have actually started to make a dent.

A trader watches the numbers as he works on the floor of the New York Stock Exchange last year. After a tough 2009, stock exchanges listings are growing rapidly in 2010. (Richard Drew/Associated Press)

So-called "alternative trading systems" such as Omega, MATCH Now, Pure Trading, Instinet, Chi-X and most recently Alpha Group have popped up, with varying degrees of success. In some individual stocks, new players now make up more than 40 per cent of all Canadian trading activity.

Alpha Group is proving to be the TSX's biggest threat. In February, the TSX's market share of all trading activity in Canada declined to 71.9 per cent. That sounds like a healthy margin, but the same time last year the figure stood at 93.1 per cent. Alpha has seen its share increase to 21 per cent from 3.3 per cent over that same period.

'I'm not sure it's a likely positive for consumers'—Ilana Singer, FAIR Canada

Alpha — formed in 2007 by the major Canadian banks and other large financial institutions — has been able to gobble up market share largely by slashing the fees it charges, something TMX belatedly followed suit with last month. The company estimates the customer-friendly move will cost it $15 million a year, but some say that's akin to closing the stable door after the horses have bolted.

At this point, Alpha has very little interaction with individual consumers. When a retail investor buys or sells a Canadian stock, the brokerage he or she uses makes the transaction and pays a fee to the trading firm responsible. That could be Alpha, TMX, or one of the other players. The fee is theoretically passed on, but there's no direct link to individual investors.

On the listings side, after a tough year, a PricewaterhouseCoopers report found recently that money is returning to capital markets. Led by the $1.35-billion IPO of Athabasca Oil Sands, the total value of new issues in 2010 has already eclipsed 2009's recessionary total.

Which is why it could be bad news for TMX that Alpha is moving into the real golden goose, its listings business.

On April 22, Alpha filed papers with the Ontario Securities Commission to become a listing exchange — in effect, a full competitor to the TSX on every level.

CEO of Alpha Group Jos Schmitt moved to make the company a full stock exchange last week. (Mark Blinch/Reuters)

"We want to make a true level playing field," Alpha CEO Jos Schmitt says. "Then competition will be fair between both parties."

If all goes well, Alpha hopes to end the near-monopoly status the TSX has enjoyed since it gobbled up smaller exchanges in Montreal, Winnipeg, Calgary and Vancouver to become Canada's only fully functional stock exchange. Major companies trade on the main market — reflected in the S&P/TSX composite index — while smaller start-ups are typically listed on the TSX Venture Exchange, which TMX also owns.

Having multiple stock exchanges would move Canada closer to the U.S. system, where as many as seven separate stock markets are available for listings, but the two New York-based titans, the Nasdaq and New York Stock Exchange, dominate.

The TSX is doing anything but shy away from competition, to hear chief executive Tom Kloet tell it.

"We've faced competition before — we already compete with major U.S. and international exchanges," he says. "The world is our marketplace. I think the multi-marketplace model is here to stay in this market and everywhere."

Still, that doesn't mean TMX Group is going to give up its virtual stranglehold without a fight.

Conflicts of interest?

Alpha is owned in part by the investment arms of Canada's six largest banks, plus Canaccord Capital. Some say that having banks that do business on the exchanges — and whose shares are traded on them — owning an actual exchange presents an inherent conflict of interest.

Alpha's Schmitt brushes off those concerns, noting that the individual banks' ownership in Alpha is too small to have a material impact. Nor would they have any incentive to flout the rules, given how dependent their core businesses are on having healthy equity markets.

Indeed, the same conflict-of-interest concerns have been lobbed back at TMX. As Ilana Singer, associate director of the Foundation for the Advancement of Investor Rights, says: "We think the rules in place today are fine, but FAIR has always had issues with the TSX being a listed company on its own exchange."

Having banks "own" the exchange is nothing new, since up until world stock exchanges began to go public themselves in the 2000s, they were typically member-owned entities, as is Alpha's current structure. TMX itself went public in 2000. When that happened, "you have a big organization that is a monopoly, and then it becomes a for-profit organization," Schmitt counters, "and that's a combination of two words that don't go well together."

FAIR supports the idea of a legitimate alternative to the TSX, but its main concerns are that the Ontario Securities Commission is clear about its motivations and requirements while judging Alpha's application, Singer says.

TMX Corp says it already faces competition from the New York Stock Exchange. NYSE traders are shown working the exchange on April 16. (Brendan McDermid/Reuters)

"We want to make sure that it's a transparent process," she says. "This is a pretty big deal for investors and shareholders, so we want to make sure the requirements are robust — if there are concerns, or any requirements that are less, we want a chance to comment."

"Competition is generally a good thing, but it's bad if it's a race to the bottom," Singer says.

It's a sentiment that TMX Group echoes.

"When regulators designed the system for alternative trading systems, they held us to a different standard," Kevan Cowan, TMX's head of equities, told Bloomberg this month. "They are absolutely not subject to the same scrutiny we are."

For its part, Alpha says it doesn't foresee any roadblocks as it works with the OSC to ensure compliance. It's targeting a launch within this year, but even if it's successful, total competition between listings exchanges is unlikely to trickle down into savings for individual investors any time soon, Singer says.

"That certainly hasn't been the pitch, so I'm not sure it's a likely positive for consumers," she says.

"We have a 157-year history of delivering valuable listings to the marketplace," Kloet says, pouring cold water on the idea of some sort of price war if multiple exchanges became the norm in Canada.

"Our investors trust us, so I'm very confident we'll continue to play the major role in Canada, and I'm very confident we can maintain our margins," he says.