Canada's Venture Exchange Targets Americans for Growth

It’s a Canadian stock market, but the TSX Venture Exchange wants Americans to help fuel its growth.

Traditionally known as a place where Canadians can buy shares of local junior miners, the exchange is branching out to other industries including technology. That’s an obvious fit for the head of the business, Brady Fletcher, who ran a tech startup before joining TSX last year.

But the dealers who facilitated trading have dwindled, as have the risk-hungry retail investors who bought and sold shares. Fletcher’s mission is to find new pools of capital among younger investors, including millennials, and in new markets like the U.S. There’s currently no American exchange focused on smaller companies -- a so-called venture exchange -- and part of Fletcher’s mission is to educate American retail investors about the opportunities to be found on the TSXV.

During the year that ended March 31, average daily trading volume at the TSXV jumped 84 percent from the prior one-year period, and the value of shares changing hands soared 212 percent, according to data compiled by parent company TMX Group Ltd., which also owns the far larger Toronto Stock Exchange. The TSXV has returned 1.7 percent in 2017.

Rebounding commodities prices helped drive the gains, but so did trading by foreigners, Fletcher said. “We’ve definitely seen increased participation by U.S. funds,” he said. “We’re actively working to attract U.S. retail.”

The volume recovery comes in the midst of a revitalization campaign the exchange launched in December 2015 with the goal of expanding its investor base, diversifying its listings and reducing the administrative burden on its issuers.

“The independent dealers that used to support venture issuers have been faced with a decade of depressed commodity prices,” Fletcher said in an interview at the TMX offices in Toronto. “Where we used to have 200 of them we’ve now got 50, and a number of those investors who used to play the junior resource game have since shifted into wealth preservation and ETFs.”

He’s also working to diversify the TSXV’s listing base with a particular focus on technology startups. The exchange is still very heavily weighted towards junior miners, with 48 percent of its market value and 60 percent of its listed issuers coming from that sector as of March 31. That’s up from a year earlier, when 42 percent of its market value came from the mining sector -- the result of rising commodity prices.

This has made it difficult to attract new listings from other industries, which sometimes don’t consider the TSXV an option because of the perception that it’s a market just for natural-resources companies, according a 2015 report on the exchange.

This is part of why Fletcher was brought on board. Prior to joining the TSXV, he founded a tech startup called Blackbook Technologies Inc. that went bust because the private venture capitalist it had lined up backed out of the deal.

This experience made Fletcher realize that the public markets can provide a more reliable source of funding for tech entrepreneurs, and his team has been holding road shows across the U.S. to make that case to startups and investors.

“We just had road shows in Santa Monica and San Francisco, and those were the best-attended ones that we’ve ever had,” Fletcher said, adding that he’s planning two more in Seattle and Phoenix.

Expanding the TSXV beyond the resource sector and beyond the Canadian border appears to be the right strategy, although it “will take time to materially impact the revenue mix,” said National Bank analyst Jaeme Gloyn.

This “will accomplish the dual objective of a) softening TMX’s sensitivity to commodity cycles and the broader equity index (as it is composed today), and b) strengthen TMX’s leadership position in Canada," Gloyn wrote in a note.

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