viewCanadian Securities Exchange (CSE)

Simplified CSE offers faster and cheaper approach to listing in Canada

After a recent rebranding and trading system consolidation, The Canadian Securities Exchange (CSE) is set for a raring start this year with a new simplified trading platform and lower issuing costs offering competitive advantages to other stock exchange alternatives in Canada. 


After a recent rebranding and trading system consolidation, The Canadian Securities Exchange (CSE) is set for a raring start this year with a new simplified trading platform and lower issuing costs offering competitive advantages to other stock exchange alternatives in Canada. 

Indeed, the proof is in the pudding. The CSE, formerly the Canadian National Stock Exchange, estimates that it accounted for 17% of the new issuers entering the Canadian public markets last year, up from 11% in 2012. 

These numbers are only expected to increase with the upstart exchange’s recent move toward simplification. All Canadian-listed instruments are now offered on a single trading system, providing a continuous auction market service, where bids and offers are displayed and incoming marketable orders are traded on a price, broker and time algorithm.

Previously, the company operated with two brands, the Canadian National Stock Exchange, the listing facility, and Pure Trading, a venue that traded TSX and TSX-Venture-listed stocks. “We operated distinct trading platforms for each venue. This wasn’t cost effective for the organization and our dealer and vendor customers,” said CEO Richard Carleton in an interview with Proactive Investors last week. 

“With the recent combination of Pure and CNSX into a single technical platform, it made sense to also present a single brand to reduce confusion.” The change will reduce costs for both dealers and vendors and increase visibility and investor access for CSE issuers. 

Carleton explains that the move was instigated on the back of growing concerns from the investor community in Canada on the complexity of the country’s current market structure. “It’s a legitimate concern that the industry does really need to address,” the chief executive says.

“Think about the number of different platforms trading TSX stocks at this point.”

Case in point: the TMX, simply on its own, operates the TSX and TSX Venture Exchange, as well as TMX Select and Alpha.  Two books trading TSX-listed stocks are also each on offer from Omega and Chi-X Canada, in addition to several dark pools operating in Canada. 

Carleton says the consolidation and rebranding might be “contrarian” compared to other exchanges, but the company wanted to introduce further simplicity. “We wanted to give a clearer idea of what’s going on and who we are.”

And the new single platform is anticipated to draw in even more issuers, with the CSE listing a record percentage of companies from those coming into the Canadian public markets last year. The exchange recorded a total of 37 issuers for 2013, with close to 20% of new companies coming into the market in the fourth quarter choosing CSE as their listing venue, says Carleton. 

“More and more, people are cost conscious and concerned with the amount of bureaucracy and length of time it takes to get on an exchange in Canada. [The CSE] provides a very attractive model for a public company, as although there is a heavier continuous disclosure burden, it does mean companies can get listed much more quickly than alternatives.”

Despite pretty standard regulatory and disclosure requirements across the Canadian landscape, the chief executive explains that the difference between CSE and others is the “business oversight at the exchange level”, believing that the broader investment community is better suited to value a given company. The CSE requires a monthly update from each issuer, which is not required on other exchanges, making up for the fact that upfront business diligence is not conducted by the CSE, dramatically reducing the time frame from application to listing as well as advisory and legal fees.

“We’re not second guessing management, but rather leaving decisions to be made in the public capital markets, where we believe they should be made.”

“We rely on the broader market to assess the business risk. From a regulatory perspective, it’s the same level of scrutiny.”

Going into 2014, Carleton is expecting an absolute increase in the number of companies and share capital being raised from public markets. He is also hoping for an increase in the amount of trading, with trading levels down quite substantially across the board in Canada from the peak in March 2011. 

“We hope to see a renewal of activity in this regard,” says the chief executive.

Although the CSE has seen an increase in its market share over the last year, this comes amid a backdrop where the total number of companies coming into the market has fallen quite dramatically from the peak due to declining commodity prices -- in particular, gold. The TSX welcomed 108 new issuers in 2013, down from 132 in 2012, while the TSX Venture listed 76 companies last year, far below the 161 in 2012.

“Against this, we’re very pleased with the increasing market share we are seeing. The feedback we get from issuers is that they’re very happy with the approach we take. It’s a faster and lower-cost trip to public markets.”

An overarching trend in 2013 was that a growing percentage of overall listings hailed from the tech sector, given the weak environment for miners. Carleton gives the examples of CSE-listed RESAAS (CSE:RSS) and Gener8 (CSE:GNR), which both listed last year and have had incredibly strong runs. RESAAS, a social networking platform designed for real estate professionals, saw its stock rise more than 620% in the past 12 months. Shares of Gener8, which provides 3D conversion services for the entertainment industry and has worked on such films as The Amazing Spider-Man, more than quadrupled in value. 

“We think the success of these companies is going to encourage a lot of other entrepreneurs.”

The CSE is also backed by some high profile names in the industry, which is sure to lure potential issuers and has given the exchange “tremendous credibility with the independent dealer community”, according to Carleton. Indeed, last September, the company got a boost from Dundee Corp chief executive Ned Goodman, who acquired one third of the then CNSX Markets and joined the board as deputy chairman. Goodman has long expressed his belief that the major exchanges are failing entrepreneurs. Tom Caldwell, chairman of Caldwell Securities, owns another third of the CSE and is the chairman of the organization, while the remaining third is owned by a mix of individual shareholders, dealers and institutions.

“Goodman is an extraordinarily important figure in his own right in financing a number of companies in mining, tech and clean tech. He’s been able to assist with a number of introductions and referrals and opened several doors with the dealer community,” says Carleton.

He adds that the independent dealer community in Canada, which provides the bulk of corporate finance advisory and trading services for early-stage companies, has a “strong attachment” to the CSE and what it represents. Meanwhile, the TMX Group is owned by a consortium of large banks and other financial institutions, which Carleton says doesn’t necessarily have “the interests of early-stage markets at the forefront.”

The CSE chief is looking forward to an active year in 2014, which will include the launch of a formal “market-making” program for CSE-listed stocks that will include technology features, such as the automated execution of odd-lot orders. An odd-lot is an order amount for a security that is less than the normal unit of trading for that particular asset. 

“We will continue to enhance services for companies to tell their stories to a crowded market, and will look to improve dealer relations by offering a lower cost of capital for Canadian issuers.”

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