March 25, 2023

DealBook: Regulator Raises ‘Serious Concerns’ About Toronto Exchange Deal

The group seeking control of the Toronto Stock Exchange is dominated by large Canadian banks.Norm Betts/Bloomberg NewsThe group seeking control of the Toronto Stock Exchange is dominated by large Canadian banks.

Canada’s competition regulator has “serious concerns” about a plan by 13 financial institutions to purchase the Toronto Stock Exchange’s parent company for 3.8 billion Canadian dollars, the acquirers said on Wednesday.

There was widespread anticipation that the Maple Group’s proposal to buy the TMX Group would run into problems under Canada’s competition laws, which have been recently strengthened. The acquisition group is dominated by three of Canada’s five largest banks and includes several major pension funds and insurance companies. Smaller players in the financial community have been concerned that they will not have equal access to markets if the takeover of the TMX Group is approved.

The Maple Group said Melanie L. Aitken, the commissioner of competition, raised her concerns in a private meeting on Tuesday. While the group said she was still open to talks, her office has been studying the proposal for some time, suggesting that the outstanding problems might be difficult to resolve.

The setback comes almost a year after the TMX Group announced a merger with the London Stock Exchange, which was ultimately shelved in favor of the current deal. The Maple Group was formed in part to provide an alternative that would keep the Toronto Exchange in Canadian hands.

The statement from the Maple Group did not offer any specifics. But smaller financial industry players have raised two broad issues.

Some are concerned about access to the exchange under the Maple Group’s control. If its acquisition is successful, the Toronto Stock Exchange will be combined with the Alpha Group, an alternative trading system controlled by the large banks, and it will handle about 85 percent of Canadian equities trading.

Smaller members of the financial community are also worried that the Maple Group’s plan to also acquire Canadian Depository for Securities, the settlement and clearing service for the Toronto exchange, will push costs higher. At the moment, that service runs on a cost recovery basis. The Maple Group will not commit to keeping its fees as low as possible.

While approval from the Competition Bureau headed by Ms. Aitken is crucial to a successful deal, the transaction must also be approved by four provincial securities regulators. There has been some public opposition to the plan in Quebec.

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European Court Rejects Call for I.S.P.’s to Curb Illegal File Sharing

PARIS — The highest court in the European Union said on Thursday that Internet service providers could not be required to monitor their customers’ online activity to filter out the illegal sharing of music and other copyrighted material.

The ruling, by the European Court of Justice in Luxembourg, is a setback for a Belgian group representing music copyright owners, which had sought tougher measures to crack down on online file sharing. The organization, Sabam, had sued a Belgian Internet provider, Scarlet Extended, saying its customers were illegally sharing music files.

Sabam had won a ruling in a Belgian court, which said Scarlet should have to install a system to filter out any unauthorized exchanges of songs on its own, not just in response to complaints from copyright holders.

The high court in Luxembourg said such a requirement would be disproportionate, adding that it would violate “the freedom to conduct business, the right to protection of personal data and the freedom to receive or impart information.”

“E.U. law precludes an injunction made against an Internet service provider requiring it to install a system for filtering all electronic communications passing via its services, which applies indiscriminately to all its customers, as a preventive measure, exclusively at its expense, and for an unlimited period,” the court wrote.

Lobbying groups for Internet service providers and for consumers hailed the decision.

“This judgment sends a crystal-clear signal,” said Monique Goyens, director general of B.E.U.C., a Brussels group that lobbies for consumer rights. “Internet providers cannot be asked to police consumers’ use of the Web.”

Malcolm Hutty, president of EuroISPA, a service providers’ lobbying group, added, “This ruling is of fundamental importance for the future of the Internet and the development of a strong digital single market.”

The music industry shrugged off the implications of the decision. Other measures to curb illegal file sharing, including the blocking of Web sites that enable piracy and the cutoff of persistent file-sharers’ Internet connections, will not be affected, the industry’s international lobbying group said.

“In this particular case, the court rejected the content-filtering measure presented by the Belgian court as too broad,” Frances Moore, chief executive of the International Federation of the Phonographic Industry, said in a statement. “However, this does not affect the forms of I.S.P. cooperation that I.F.P.I. advocates.”

Indeed, a recent court ruling in Britain required an Internet provider, BT, to block access to a Web site called Newzbin2, which was found to have made pirated content available to customers.

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Durable Goods Orders Fall, and Jobless Claims Rise

While much of the weakness in durable goods orders came from a big drop in demand for commercial aircraft, a critical category that tracks business investment spending fell by the largest amount since January.

In other economic reports Wednesday, the government said that initial claims for unemployment benefits rose to 393,000 last week, slightly more than economists had expected.

In addition, consumer spending increased 0.1 percent last month, below expectations and the weakest gain in four months. Incomes, however, were up 0.4 percent, which was slightly better than expected.

The overall decline in orders for durable goods was 0.7 percent, following a September decline of 1.5 percent. Orders for core capital goods, considered a good proxy for business investment spending, dropped 1.8 percent, the biggest decline since a 4.8 percent fall in January.

Manufacturing has been one of the strongest sectors in the economy in this subpar recovery, but the sector slowed this year as consumer demand faltered and auto factories had trouble getting parts after the natural disasters in Japan last March.

The October drop in core capital goods — nonmilitary products excluding aircraft — was expected to be a temporary setback. This category has been surging this year, spurred by tax breaks that are allowing companies to write off their investments all in one year as long as the purchases are made before the end of 2011. That has provoked a rush by companies to take advantage of this tax break, which Congress passed in an effort to spur the economy.

For October, orders for transportation products fell 4.8 percent, reflecting a 16.4 percent drop in demand for commercial planes. Orders for autos showed a solid 6.2 percent increase, reflecting solid sales gains in recent months.

Excluding transportation, durable goods orders posted a 0.7 percent increase. This gain reflected increases in areas like primary metals such as steel and heavy machinery.

The small increase in initial claims for unemployment insurance — up 2,000 from the previous week — came after two months of steady declines. The four-week average of applications, which smooths week-to-week fluctuations, fell to its lowest level since April, the Labor Department said.

The downward trend suggested companies are laying off fewer workers.

In the report on consumer spending, the Commerce Department said purchases of durable goods like autos showed a solid increase. But spending on nondurable goods, like food and clothing, fell.

The 0.4 percent increase in incomes in October was the best showing since March. Private wages and salaries drove the gain. The solid increase followed five consecutive months of weak income gains. And subtracting taxes and adjusting for inflation, income rose 0.3 percent in October.

Many Americans chose to save the extra money. The savings rate ticked up to 3.5 percent of after-tax incomes, up from 3.3 percent in September — the lowest level since December 2007, the month the recession started.

The Institute for Supply Management’s manufacturing index grew more slowly in October than September but still remained at a level indicating manufacturing was continuing to expand. Manufacturing, one of the first sectors to start growing after the recession officially ended in June 2009, has posted growth for 27 consecutive months, according to the ISM index.

Also, the Thomson Reuters/University of Michigan consumer sentiment index fell to 64.1 from 64.2 in the preliminary November report, according to a report released on Wednesday. Economists in a Reuters survey expected a final November sentiment index reading of 64.5.

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A Web Edge for Makers of Real Stuff

Like, actual stuff.

This can be risky territory, since making a physical product often requires a big upfront investment, and the smallest setback can wipe out profits. But inventors are getting around the hurdles — in part by using the Web to find backers and buyers.

They are also thinking small, as in smaller products and accessories that require less capital and are relatively easy to make and distribute.

Dave Petrillo and David Jackson, for example, friends and mechanical engineers from Pennington, N.J., had an idea for bean-shaped steel shells that go into a cup of coffee and quickly cool it to a drinkable temperature, then keep it warm longer. The shells contain a heat-absorbing gel.

The two men spent nine months fine-tuning the design for the beans, which they called Coffee Joulies. Then they scraped together $3,000 and built 100 prototypes by hand in Mr. Petrillo’s parents’ basement.

Making the first batch “was harder than we originally thought,” Mr. Petrillo said, so they began hunting for a way to speed the process. They found one in an unlikely place: a video clip on YouTube featuring a silverware factory in upstate New York. Making the handles of knives turned out to be similar to making Joulies.

Then, like a growing number of other inventors and designers in need of capital, the men turned to Kickstarter, a start-up in New York that lets people present a sales pitch for a creative project and ask others to put cash behind it. This allowed them to gauge the appeal of the project before sinking a lot of time and money into it.

“We thought about investors and design competitions, but when we saw Kickstarter we decided to go for it,” Mr. Petrillo said. They created a three-minute video to demonstrate their product and said that anyone who gave them $40 would get five Coffee Joulies. They hoped to raise $9,500, but within a few weeks they have raised $177,000, and the total is still rising.

Yancey Strickler, one of the founders of Kickstarter, said the company originally thought the site would attract more one-time projects and experiments, like plans to record an album or make a documentary film. But he said Kickstarter had been pleasantly surprised to see homespun gadgets and inventions bubble up in popularity.

“We didn’t realize we would move in this direction, but these projects are ingenious and clever and we want all of them to work,” he said.

Mr. Strickler pointed to one of the first gadget-focused projects on Kickstarter to gain significant momentum, the TikTok, which turns an iPod Nano into a wristwatch. Its creators raised nearly $1 million.

“I think people really value having a good story to tell about how they got that watch,” he said.

Tom Gerhardt and Dan Provost, designers living in New York, came up with an accessory for the iPhone 4 called the Glif, which acts as a kind of kickstand or mount for the phone. The project was so successful on Kickstarter — more than 5,000 people placed an order — that the two decided to form a company and use the site to start a second project, the Cosmonaut, a marker-shaped stylus for the iPad. That project has attracted more than 3,000 backers.

“We didn’t have any experience with bringing a commercial product to market,” Mr. Provost said. “But we are approaching a new method of product development.”

Technology specialists say the interest in projects like these is part of a cultural shift, in which shoppers are increasingly looking for a more intimate connection to the creators and the sources of the things they buy, reflected in the surging interest in farmers’ markets and local clothing designers.

“People are becoming more cognizant about where their things are made and are starting to expect the same information transparency about where everything they buy is from,” said Rachel Botsman, co-author of the book “What’s Mine Is Yours: The Rise of Collaborative Consumption.”

“They are looking for smaller suppliers they trust,” she added.

The makers of the Coffee Joulies and the Cosmonaut had another selling point: they could boast that their products were made in the United States. They found recession-battered American factories that were willing to work with newer producers and make products in smaller runs.

The Coffee Joulies are made at Sherrill Manufacturing in Sherrill, N.Y., whose work force has dwindled to 15 from a peak of 160 in the 1990s, according to its president, Matthew Roberts. It stopped making silverware last summer and now rents space to small industrial businesses.

Mr. Roberts said his company had agreed to cover half the cost — about $10,000 — of the custom stamping tools to produce the Joulies, with the understanding that the product’s creators would pay the money back once their company was off the ground.

“We haven’t had a lot of experience with things like this,” he said. “But we’re looking for business. We’re fighting to turn around.”

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