Political, fiscal, and regulatory uncertainty in the United States is hampering capital investment in the country and beyond, Tom Kloet, chief executive of TMX Group , Canada's biggest exchange operator, said on Thursday.
Kloet, a Chicago native who guided TMX through its recent C$3.8 billion ($3.84 billion) takeover by Maple Group, a consortium that includes some of Canada's biggest banks, pension funds, and insurers, said the lack of compromise in Washington on the "fiscal cliff" is frustrating and stifles business.
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"As a business owner that represents 4,000 listed issuers on the stock exchange of the biggest trading partner the United States has, I've got to say that the uncertainty is really hurting the appetite for capital expenditures and capital investment right now," he said.
With less than a month left to confront the steep budget cuts and tax increases that will begin taking effect in January and could send the economy back into recession, Democrats and Republicans have yet to find common ground on some key issues, preventing a deal.
Kloet said that aside from reaching an agreement on the fiscal cliff, politicians could help restore confidence in the market by being proactive about initiating comprehensive tax reform in a bipartisan way with government and industry input.
"This idea of solving things with a gun to your head all of the time just doesn't seem like the right path," he said.
The Toronto Stock Exchange parent's main focus is on paying down its large debt load related to the Maple deal and integrating former rival Alpha, as well as clearinghouse Canadian Depository for Securities Ltd (CDS).
But it is also eying global expansion and is looking to the United States with interest, said Kloet, who once ran the Singapore Exchange. But while valuations of potential acquisition targets are relatively cheap due to a slump in trading volumes, deals are less likely while the economic environment remains so uncertain, he said.
The Toronto-based exchange operator, which celebrated its 160th anniversary in October, was in talks earlier this year to buy U.S. stock market operator Direct Edge Holdings LLC, the No. 4 U.S. stock exchange by volume.
Kloet would not comment on Direct Edge specifically. He did say that TMX would have liked to have bought the London Metal Exchange, which Hong Kong Exchanges and Clearing Ltd <0388.HK> acquired for $2.2 billion in June, but the premium was too high.
TMX had 344 international listings on the Toronto Stock Exchange and the small-cap focused Toronto Venture Exchange, as of October 31. Of those, 178 were U.S.-based.
Kloet said that TMX would be interested in starting a U.S. listings business, focusing on taking small-cap companies public, if the regulatory environment was right.
He said a set of rules around the Jumpstart our Business Startups, or JOBS, Act, which aims to reduce the regulatory burden for small business start-ups by relaxing various securities regulations, would make that more likely.
"If the JOBS Act came into fruition as real rules you could use, then we'd be interested. In absence of that, we would not." ($1 = 0.9894 Canadian dollars)
(Reporting By John McCrank; Editing by Bernard Orr)