Toronto Exchange Operator Eyes New Venue for Fledgling Firms

Geoffrey Morgan, Bloomberg News

A pedestrian passes in front of the Toronto Stock Exchange in the financial district of Toronto, Ontario, Canada, on Thursday, Sept 16, 2021. Oil jumped to the highest in six weeks amid signs of a rapidly tightening market after a U.S. government report showed a bigger-than-expected decline in crude stockpiles. , Bloomberg

(Bloomberg) -- The operator of the Toronto Stock Exchange is developing plans for a new trading platform targeting early-stage companies and alternative asset classes in an effort to spur activity as competition mounts.

The plan includes a “new, highly differentiated exchange” targeting growth companies, TMX Group, which operates the TSX and TSX Venture exchanges said in a white paper released Wednesday. The company hasn’t settled on exactly which asset classes will trade on the new exchange but is considering cryptocurrencies, NFTs, securitized real estate and stakes in private companies, according to Venture’s chief Tim Babcock.

While TMX Group is still the country’s largest stock exchange operator, it faces competition from Cboe Global Markets Inc., which bought the NEO Exchange a year ago and now operates as Cboe Canada. The Cboe unit claims about a 15% share of all volume traded in Canadian-listed securities and specifically markets to growth-stage companies as well as exchange-traded funds and special-purpose acquisition companies (SPACs).

The new exchange “won’t be just an extension of what we do today — it won’t be a Venture-lite,” Babcock said in an interview. Impetus for the move came in part from the growth of new industries — like cannabis and blockchain companies — as well as new exchanges. “It’s about change as a whole, changes to capital markets,” he said, adding that work on the launch will probably extend into 2024.

Also under consideration is a “passport” process on the Venture exchange for companies that have a minimum valuation of C$50 million and will pursue a concurrent arm’s length financing of C$10 million. Further details on this accelerated listing process will be finalized this year.

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Plans for a new exchange and fast-track listing on the Venture exchange follow a pronounced slowdown in IPOs and overall financing activity this year. Companies going public on the TSX-Venture have raised just C$7.8 million through the end of May, compared with C$116.5 million in the same period a year ago.

Still, TMX is confident that equity financings will bounce back later this year, especially as rising interest rates has made debt financing relatively more expensive.

“Demand is going to continue to build because there hasn’t been a lot of financing activity,” TMX Group CEO John McKenzie said in a recent interview. “We won’t see it in the summer but we could see it in the fall.”

--With assistance from Bailey Lipschultz.