Hearings Postponed; IDA/Reuters Accord In The Offing?

A hearing scheduled for last week to allow Reuters to appeal the Investment Dealers Association of Canada's rejection of its plan to become a recognized market transparency organization (RMTO) was postponed; no official reason for the delay was provided. The hearings were due to be held before the Ontario Securities Commission, which said they would likely be rescheduled for early August.

In applying for RMTO status, Reuters has been seeking to protect its exclusive agreement with Cantor Fitzgerald for the interdealer-broker's Canadian government bond prices (IMD, October 21, 1996). If Reuters had RMTO status, that would allow Cantor to continue contributing its prices to Reuters exclusively rather than to Canpx, a consolidated bond pricing service designed to make the Canadian government bond market more transparent.

Reuters' problem with Canpx is that the vendor signed an exclusive deal four years ago with Cantor for the IDB's non-US Treasury data (IMD, February 1, 1993). The 10-year contract is said by sources to be worth between $10 million and $12 million a year. If Reuters is not granted RMTO status, under a new rule approved by the OSC (IMD, May 20, 1996), Cantor would be required to contribute its data to Canpx. Reuters would lose its exclusive, and Cantor would be in default of its deal with the vendor.

Officials and spokespersons for the OSC, IDA and Reuters either decline to comment on the postponement of the hearings or did not return calls for comment. However, a source close to Canpx says that settlement discussions between Reuters and the IDA are occurring outside of the OSC forum. The two parties had discussions about coming to a settlement prior to the hearing date, this source says. Presumably, they were not able to reach one before the hearings were scheduled.

In the past, the IDA has made it clear that the only way it would grant Reuters RMTO status would be if the vendor agreed to provide its data to Canpx. "Unless Reuters would agree to that, I can't foresee them coming to a settlement," the source says. Since Canpx was designed to provide unattributed data, Reuters would be obligated to provide its Cantor and other data on that basis. But Reuters has said that providing its data to Canpx, even on an unattributed basis, would water down the value of its contract with Cantor, the source says.

Under this settlement scenario, both Canpx and Reuters--acting as an RMTO--would have the same data. Vendors would be at liberty to offer attributed data in addition to the Canpx data, including historical pricing and analysis of the data, the source says.

Meanwhile, sources say that about two weeks prior to the hearing, which was scheduled for June 9 and 10, Cantor said it wanted to bring former Securities and Exchange Commission chairman Richard Breeden forward as an expert witness to discuss the role of electronic pricing and transparency. Breeden did not return a call for comment. It's not clear whether Breeden's role was to be a weapon in Reuters' arsenal or a bargaining chip to force the IDA to the table.

This is the second time the Reuters/IDA hearings have been postponed. After the IDA rejected Reuters' application (IMD, January 13), Reuters appealed the decision to the OSC (IMD, February 24), and hearings were set for April 14 and 15 (IMD, April 7). Those hearings were postponed and rescheduled when Cantor objected to the standing it would have at the hearings (IMD, May 5). The OSC denied Cantor's request to have the same standing and rights as Reuters and the IDA; Cantor then appealed to the Ontario Court General Division, which denied its request.

The road to approval of the Canpx proposal has been a long one. Cantor filed suit seeking a court injunction against Canpx in August 1993, citing its exclusive relationship with Reuters (IMD, September 27, 1993). The IDA asked for OSC approval in the autumn of 1995 and got the go-ahead several months later. At the time, Ian Russell, vice president, capital markets at the IDA, said, "We did underestimate how long this would take. It's a complex policy issue to begin with and it has been more complicated by the fact that there has been some strong opposition to the idea."

The eight IDBs that have been expected to provide Canpx with prices are Cantor, Euro Brokers Canada, Freedom Bond Brokers, Garvin Bond Brokers (Canada), NW Marshall Canada, Prebon Canada, Shorcan International Brokers and Tullett & Tokyo Securities (Canada).