Imagine a prototypical issuer. Call him Issuer XYZ.
Issuer XYZ runs a small TSX-V junior resources company that, like so many in recent years, is barely scraping by. He’s worked an angle on a modest deal, pays the exchange the four-figure fee it charges to review proposed transactions and is told the deal constitutes a change of business. To proceed, he’ll need to meet a long list of requirements—hold a shareholders meeting, get an audit and so on. The cost of that runs well into six figures.
XYZ opts for Door No. 2: looking at other options. He checks out the Canadian Securities Exchange. When the CSE determines it sees no change of business in the deal, XYZ cancels its TSX-V listing and files for a new one on the CSE.
“I just got so fed up and pissed off,” says XYZ, a real-life issuer who agreed to speak with Listed provided he or his company not be identified. He says his re-listing had nothing to do with the health of his venture and everything to do with reducing fees and getting rid of the “hassles” of working with the TSX-V. “I said forget it, I’m out of here.”
Now imagine you’re either Nick Thadaney, president and CEO of Global Equity Capital Markets at TMX Group Ltd. (TSX:X), or John McCoach, president of the TSX Venture Exchange, taking the stage in one of four town-hall meetings the two led this January in Montreal, Toronto, Calgary and Vancouver. The rooms were full, with active audience participants eager to hear about and discuss the TSX Venture’s long list of proposals for changing and improving the way it does business. But as much as Thadaney and McCoach were engaging with those assembled, they also had to be thinking about the constituencies who weren’t there—disgruntled issuers like XYZ no longer in the fold, and others who’ve just walked on by.
After all, amid the resource sector’s fall, it’s the latter’s absence—reflected in a steady drop in listings, financings and issuer value—that is the ultimate source of concern. Which also means the only way the TSX-V’s revamp effort will be successful is if it reaches and wins over these people as well. And to its credit—and because it really has no choice—it’s chosen to be upfront in admitting it.
“We’ve heard you loud and clear,” says Thadaney, kicking off the Toronto session in a downtown hotel.
In the room, there are several hundred advisers to TSX-V companies, TSX-V company staff, brokerage employees, IR people, small investors and miscellaneous others. (These town-hall sessions follow interviews the exchange did in 2015 with 130 clients and stakeholders that helped shape the proposals now at hand.) Thadaney, who only joined the TMX last September from ITG Canada, briefly sets the scene, tells the audience most of the time is reserved for their questions, and then throws it to McCoach. McCoach, a TSX veteran, welcomes everyone by telling them that his new year’s resolution is to “make 2016 a better year for clients than 2015.”
The TSX-V’s revitalization plan is grouped under three main goals: reducing costs without compromising investor confidence; expanding the investor base and enhancing liquidity; and diversifying and growing the stock list. Details were laid out in an eight-page whitepaper and McCoach used his time in the town hall to summarize these and delve into a few examples.
A headline item to reduce costs is a proposal to eliminate the existing sponsorship and shareholder approval requirements for inactive companies completing arm’s length transactions. The process as it stands takes several months and costs $50,000 to $100,000. While not a concern for every issuer, the exchange’s willingness to cut something like this gets people’s attention.
The TSX-V’s “new” customer-centric messaging is also embodied in a proposed “rewards” program for “active and proven directors and officers of TSX-V-listed companies.” This falls more into the “less hassles” part of the new offerings. As does a plan to extend the intervals that personal information filings have to be updated to five from three years.
In an interview with Listed several days before the Toronto town hall, McCoach explained that the sponsorship changes are important not only because they are quantifiable but also because they represent the sort of changes that are entirely within the TSX-V’s control. “We’re literally drafting those revised policies now and we expect to have them filed with securities commissions in the next few weeks,” he says.
Thadaney, speaking in the same interview, echoed McCoach’s comments. “Anything that gums up the wheels of progress, as seen by the stakeholder, whether it’s a cost or a complication, it’s just yet another barrier that creates less velocity of capital through the system,” he says. “So what we’re trying to do is isolate all those situations that we have in our control and say, ‘OK, what can we do to make things better?’”
To meet their second goal of expanding the investor base and boosting liquidity, the TSX-V plans a number of initiatives to support the health of the independent dealer community, boost awareness of the market and to showcase TSX-V-listed companies.
On stage, McCoach admits that when it comes to talking up individual success stories, “we’re a bit tentative about it.” But no longer, he says. Money has been committed to efforts that will “showcase” more than 200 companies in 2016. “We’re going to do that by getting these companies out in front of retail investors, investment advisers, fund managers, analysts and investment bankers,” he says.
Under this same goal of expanding the investor base, the TSX-V has also said it will mobilize a team of industry experts to remove barriers that currently make it difficult for U.S. investors to buy Canadian stocks. McCoach says this will be one of the “most difficult” tasks, if only because it’s well beyond the TSX-V’s control and relies on a lot of different agencies getting aligned. “We’re going to try,” says McCoach.
For a mining and resources audience, the TSX-V’s third goal, to diversify and growing the stock list, might sound like a setback. Right now, resource companies make up 71% of all TSX-V listings. But in the town hall, while displaying what he calls an “aspirational” pie chart on the screen, McCoach points out that while it shows resource and non-resource firms split 50/50, both sides have grown. “The last thing we want is to expand at the expense of our natural resources companies.”
When the white paper was released, overall reaction was mostly positive. However, many also expressed concern that these actions are essentially too little and coming too late. In his monthly newsletter, Ian Russell, president of the Investment Industry Association of Canada, described the TSX-V as being “close to drawing its last breath.” The new plan is an “effective one,” he wrote, “but should have been launched much sooner.”
Asked about these comments in the interview with Listed prior to the Toronto town hall, Thadaney said he and McCoach were very much aligned with Russell’s overall view, if not his specific prognosis: “You know, if we’re honest with ourselves, maybe it is a little late for us. But we’re doing it now and we’re excited about the results and I think the community is starting to get excited too.”
One way or another, the results will unfold in plain sight.
Photography: Jessica Darmanin