OTTAWA—The blockbuster deal to merge the Toronto Stock Exchange with its London counterpart was left up in the air amid widespread worries that the TSX could be overwhelmed in a marriage with the financially powerful London Stock Exchange.

Ontario Finance Minister Dwight Duncan and the Quebec government called for public hearings to vet the proposed $6.9 billion deal and federal Industry Minister Tony Clement said Ottawa has begun a preliminary investigation of the merger.

“This is a significant development that affects our capital markets, our country, our place in the world,” Duncan told reporters Wednesday after TSX parent TMX Group revealed it was in advanced negotiations with the London Stock Exchange Group.

While the merger is being characterized as a merger of equals, Duncan expressed concerns that decision-making concerning Canada’s pre-eminent financial markets would shift to the LSE board in Britain. LSE shareholders would control just over 50 per cent of the combined company.

“I do believe the control will rest with the other side,” he said and added these are the kinds of questions that need to be explained in greater detail.

Duncan said he spoke with his counterparts in Ottawa and Montreal and was briefed by representatives of the TSX and the London exchange earlier this week. “We don’t understand the whole deal, we need a better understanding of it.”

Duncan wants to know how the entity would interact with other markets, how it compares to other capital markets and what the impact will be on Toronto.

“There are questions about the role of a stock exchange that is not controlled here, regulatory concerns,” he said.

It’s unclear whether a merged British-Canadian exchange would downsize what already exists in Canada.

“What I did hear is they are looking for efficiencies. Would they continue to support four exchanges in Canada? I haven’t heard an answer to that. What does that mean?”

Regarding the Ontario Securities Commission, Duncan said it is uncertain if that role would be taken over by the British.

“It has been suggested this new exchange could fall under the auspices of the British regulator,” he said. “These are the sorts of issues we need to come to terms with before we can have a complete discussion about the proposal.”

In Ottawa, the huge merger re-ignited urgent questions about whether Canada is letting its strategic economic assets slip into foreign hands.

“We are talking here about a takeover, not a merger, despite the spin,” NDP Leader Jack Layton said in the House of Commons. He demanded that the Conservative government ensure that “this is in fact a merger of equals, and not a takeover, that there is access for smaller firms, and that regional interests are respected.”

Prime Minister Stephen Harper wouldn’t discuss details of the TSX-LSE deal but said the federal government and the provinces will follow existing rules for probing a large transaction of this kind.

Earlier, Industry Minister Tony Clement said he would conduct a preliminary inquiry to see whether Investment Canada Act rules apply to the planned merger. The rules essentially require that large corporate consolidations provide a net benefit to Canada.

“The first stage in these types of transactions is to determine whether the provisions of the Investment Canada Act actually apply to the transaction and if the answer is yes, then obviously myself and my officials will review the transaction within the 45-day period,” Clement told reporters on Parliament Hill.

Clement said he was “many moons away” from answering the “net benefit” question.

“This is not a political decision,” Clement added. “This is not based on political calculations. This is based on my legislative responsibility under the act to make a determination. That’s what I will do. That’s what I did in the potash case.”

While few corporate takeovers have been blocked in recent years by Ottawa, the Harper government set a precedent last year when it rejected a hostile takeover of Saskatchewan’s fertilizer producer PotashCorp by Anglo-Australian miner BHP Billiton. Ottawa ruled the $39-billion (U.S.) deal was not a net benefit to Canadians.

Federal Liberal industry critic Marc Garneau said the decision on the merger is vital to Canada’s financial and economic interests.

“Commodities are extremely important,” he told the media. “Natural resources are extremely important. Canada has a lot of these resources. So we have to weigh that into the balance in deciding whether we want to have exclusive control of our exchange, in this case, in Toronto.”

But Louis Gagnon of Queen’s University’s school of business said there’s no reason why the merger shouldn’t proceed.

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“There’s no downside from the perspective of Canadian firms that I can think of,” he said in an interview. “This would probably entice more international firms to list in Toronto. So there would be further opportunities for cross-listings because of the value of listing with a much bigger entity that has a trading platform not only in Toronto but also in London.”

Gagnon said it was inevitable that the TSX would look at a merger of this kind because the financial world is being swept by a wave of stock market consolidations.

“The last thing you want in a consolidating environment is to be the last person to be asked to dance,” he said.

Clement was asked why a review would not be automatic in a large transaction like this.

“I can’t just wake up in the morning and decide whether something is reviewable. That gives too much to a minister quite frankly. There has to be a defensible process that is led by officials to review the transaction and the applicability of the act,” Clement said.

At Queen's Park, NDP Leader Andrea Horwath said the stock exchange merger between London and Toronto would essentially make the Canadian exchange a subsidiary of the British.

“We are quite concerned there are a lot of questions and no answers here,” she told reporters at Queen’s Park. “We basically become a branch plant. We become a branch plant of the London stock exchange and I’m not sure if that is in the best interests of Ontario or Canada.”

The NDP wants a public hearing over the potential merger.

“Let’s face it, this has significant implications around jobs for Ontario and control over our natural resources,” she said. “This needs significant scrutiny by all parties so that is why we are calling on a full, public process. We don’t want these decisions made by a few parties behind closed doors.”

Ontario joins Quebec in the call for public consultations on the topic, Duncan said.

“I think those processes exist through the Ontario Securities Commission, we want to look at that,” he added. “There absolutely has to be an opportunity for public involvement.”

These mergers have happened elsewhere and they have been met with “enormous controversy,” Duncan said, adding that New Zealand rejected a similar merger proposal.

“This is a significant development that affects our capital markets, our country, our place in the world,” he said.

Meanwhile, the Quebec government has directed its provincial securities regulator to hold public hearings on the merger.

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