Trawling the bottom in Europe
Is there life beyond the P/E ratio?
Caledonian collaboration
As securities trading becomes more globalized, stock exchanges can no longer rely on domestic investors to keep them afloat. The problem has been recognized in Canada, where the four exchanges are taking positive action to avoid being sidelined, forming a strong and competitive alliance and trying to appeal to a broader base of investors.
From November, each Canadian exchange is adopting a speciality, with the Toronto Stock Exchange handling all trading of senior equities. It is hoped that this renewed focus will help the TSE to fight off competition from the New York Stock Exchange. Futures and derivatives business will be centralized at the Montreal Stock Exchange in a bid to win back business from the Chicago exchanges, which have captured 70% of Canada's derivatives market.
The widespread restructuring began in March with the announcement of a merger between the stock exchanges in Calgary and Vancouver. These exchanges had long specialized in trading junior equities from the mining, oil and gas industries, and will now be the site of Canada's market for start-up companies.
Michael Johnson, president and CEO of the Vancouver Stock Exchange (VSE), hopes the merger will boost start-up activity and create one of the world's leading venture capital markets.
As well as undertaking increased specialization, the four Canadian exchanges are starting to pool their expertise and resources in pursuit of synergies and cost-savings. Uniform regulations are being adopted throughout, to encourage a better regulated marketplace with improved access to information. Listed companies will benefit from the elimination of overlapping fees and will find it easier to trade on several exchanges. Brokers have been encouraged by the plans to adopt common technology platforms and trading systems.
The junior market is widening its scope in a bid to attract a more diverse range of companies. "The VSE is branching out of mining into technology and industry, and we are taking companies much earlier in their development," says Johnson. "The technology industry in Canada has found it hard to get funding, the securities market has not done a good job of serving it. This is why the new equities market needed to be restructured to create a harmonized system."
The VSE has set up a website to provide extensive real-time information on its listed companies, encouraging corporate transparency. Johnson thinks that with more efficient access to finance there will be a steady stream of new companies graduating from the junior market to the senior market, which should boost volumes on the TSE. The high degree of alignment between the junior and senior exchanges is expected to increase the numbers of companies listed and investors trading on Canadian markets.
European investors already play a large role in the Canadian securities market - for example, on average 16% of VSE's investors are from Europe - but all four exchanges aim to attract more European participation. At the end of September, Johnson accompanied three new, VSE-listed companies around five European cities to spread the word. "We want to bring international investors up to date with the restructuring in Canada," says Johnson. Rebecca Bream