Montréal Exchange (MX): What It Is, How It Works

What Is the Montréal Exchange (MX)?

The Montréal Exchange (MX) is a Canadian, fully electronic derivatives exchange. The MX currently lists equity derivatives, currency options (options on the U.S. dollar), index derivatives, and interest rate derivatives (bond and money markets). It is Canada's oldest exchange and Quebec's main financial derivative market.

Previously known as the Montréal Stock Exchange, the MX is part of TMX Group, which also includes the Toronto Stock Exchange (TSX) and the TSX Venture Exchange. TMX Group is based in Toronto, with derivatives trading in Montréal.

The liquidity of the MX continues to rise mainly because of trading from different countries; there are more than 64 approved participants from London, New York, Chicago, and Montréal connected directly to the MX electronic trading system.

Understanding the Montréal Exchange (MX)

The equity options trading on the MX covers most of the larger Canada-traded companies, but it is not as broad as the U.S. options markets. The interest rate derivatives cover short-term banker's acceptances—ranging from the overnight rate to the three-month rate and two- and 10-year Canadian Government Bonds. The index futures and options cover the S&P Canada 60 index and several S&P/TSX sector indexes.

MX clearinghouse, the Canadian Derivatives Clearing Corporation (CDCC), provides all clearinghouse services for exchange participants. The CDCC manages the exchange's risk exposures while upholding a top investment rating and a strong reputation. The CDCC also offers risk management services to partners in the OTC market.

Trading Hours

The regular trading hours for the MX are between 9:30 a.m. and 5:30 a.m. ET. Each option class opens for trading when a trade occurs on its underlying issue on a recognized Canadian exchange. If no such trade has yet occurred, the option class will open for trading at 9:35 a.m. ET.

Automation Process

The exchange hit a milestone in 2001 when it became the first traditional exchange in North America to complete the automation process. Three years later, the Montréal Exchange became the first foreign exchange to provide an American exchange—the Boston Options Exchange (BOX)—with electronic trading systems and support. TMX also owns a stake in the Boston Options Exchange.

History of the Montréal Exchange

The Montréal Stock Exchange was founded in 1874. In 1974, it merged with the Canadian Stock Exchange. One year later, it became the first Canadian exchange to offer stock options.

In 1982, the Montréal Stock Exchange shortened its name to the Montréal Exchange. The name was changed to reflect the variety of financial instruments (in addition to stocks) that were available at the time, including options and futures trading.

The Canadian securities market was reorganized in 1999. The Toronto Stock Exchange became the only place to trade the stocks of major companies. The Montréal Exchange handled the trading of derivatives and the Canadian Venture Exchange (CDNX)was created through the merger of the Vancouver and Alberta stock exchanges, focusing on junior equities trading.

Later, the Canadian Dealing Network, the Winnipeg Stock Exchange, and the Montréal Exchange's equities component all merged with CDNX. In 2001, the Toronto Stock Exchange acquired the CDNX and renamed it TSX Venture Exchange (TSXV).

The Montréal Exchange was acquired by the TSX Group on Dec. 10, 2007, but the acquisition wasn't completed until May 2008. The total price for the merger was recorded as CAD 1.31 billion. The resulting merger led to a new name for the group: TMX Group. This acquisition effectively combined Canada's equity and derivatives exchanges. Other countries, such as Australia, have also combined stock and derivatives trading on a single exchange.

The Bottom Line

Canada's oldest exchange, the Montréal Exchange, is where derivatives are traded, including equity derivatives, index derivatives, interest rate derivatives, and more. It is one of the most active and prominent stock exchanges in the country.