A group of Canadian banks and pension funds are hoping their C$3.6 billion ($3.7 billion) offer for TMX Group will keep the nation's largest stock market from falling into foreign hands, but questions remained on Sunday whether that is reason enough to succeed.

The C$48 per share offer for TMX from a consortium calling itself the Maple Group Acquisition Corp topped a $3 billion friendly bid for the exchange operator from the London Stock Exchange.

Maple Group includes banks that have opposed the LSE deal, arguing it would put control of TMX into foreign hands and threaten Toronto's growing status as a world financial center.

But experts said the Maple Group's bid appeared to have the sole purpose of blocking the LSE deal from going through and questions remained about the rationale of such a move.

The onus is on them to show us why they are doing this, said Alison Crosthwait, director of global trading strategy at Instinet. They are going to have to make a case for doing this other than just blocking the LSE bid.

Maple said it plans to combine TMX with alternative trading system Alpha Group and clearing hub Clearing and Depository Services Inc to broaden the exchange operator's business, create growth opportunities and generate cost savings.

It said a deal would create an integrated trading and clearing exchange for equities, bonds, energy products and derivatives in exchange-traded and over-the-counter markets, following a model used by others such as Germany's Deutsche Boerse.

In some respects the offer goes counter to attempts by other exchange operators to diversify internationally through consolidation. Deutsche Boerse has a deal to buy NYSE Euronext, although that's being challenged by Nasdaq OMX and IntercontinentalExchange.

LSE and TMX had also touted their deal, announced in February, as creating a more diversified and international company.

Still, the Maple offer puts LSE in a tight spot, forcing it to fend off the rival bid as it seeks to rejuvenate its centuries-old business.

If LSE boss Xavier Rolet were to better his terms, it would undermine claims the LSE and TMX are equal merger partners in their deal, something Rolet has stressed in the past to soothe nationalist nerves in Canada.

Ontario-based TMX has said its board is analyzing the Maple proposal but it is continuing to pursue the regulatory permits required for the LSE deal. Besides the Toronto Stock Exchange, TMX also owns TSX Venture Exchange for small-cap stocks and the Montreal Exchange for derivatives trading.

'MADE IN CANADA' SOLUTION

The all-Canadian bid is seen facing fewer regulatory hurdles than the one from London, which must pass regulatory muster at federal and provincial levels and which has come under fire from the banks, mining companies and politicians.

The Maple proposal would have to be approved by the Canadian Competition Bureau, but would not face review under the net benefit to Canada test that foreign acquirers face.

I expect the worse that could happen here is that they would demand certain conditions be put in place, said a lawyer from one of Canada's largest corporate law firms who has been watching the situation. He asked to remain anonymous because it was against his company's policy to comment on such matters.

I would expect this 'made in Canada' solution to be approved.

Neither the acquisition of TMX Group, nor a subsequent combination of Alpha or CDS, requires approval under the Investment Canada Act.

Instinet's Crosthwait said there would be an issue with banks buying the exchange operator.

The same people who are advising and structuring securities will now also own the exchange where they are listed, Crosthwait said. But this is not insurmountable.

MAPLE BID

Banks in the Maple group include CIBC World Markets, National Bank Financial, Scotia Capital and TD Securities Inc. The same banks are advising on the deal.

Maple also consists of five pension funds -- including Alberta Investment Management Corporation, Caisse de depot et placement du Quebec, Canada Pension Plan Investment Board, Fonds de solidarite des travailleurs du Quebec (F.T.Q.) and Ontario Teachers' Pension Plan Board.

Under the terms of its proposal, Maple Group would acquire all shares of TMX for C$48 in cash per TMX share or one common share of Maple per TMX share, in each case subject to proration.

The maximum cash payable under the proposal is C$2.5 billion and the maximum number of Maple shares issuable is 22.5 million.

On a prorated basis, Maple said each TMX Group share would be exchanged for C$33.52 in cash plus 0.3016 of a Maple share. It said the proposal represented a 24 percent premium to the implied value of the LSE's offer.

On completion of the transaction, shareholders of TMX would own about 40 percent of Maple's outstanding shares. Pension fund investors would own about 35 percent and the bank-owned investment dealers would own 25 percent.

No shareholder of Maple would own more than 10 percent of Maple's total shares outstanding, Maple said.

(Reporting by Pav Jordan in Toronto; Editing by Richard Chang and Paritosh Bansal)

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