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August 31, 2003

A New Northern Market

By Editorial Staff

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Canada has a new stock market. The Canadian Trading and Quotation System (CNQ) became Canada's third stock market in June when it launched with three listings and nine members. The electronic micro-cap market was created to fill a void left by the demise of the Canadian Dealing Network three years ago.

Essentially a quotation service for over-the-counter dealers, the CDN had a reputation for shady dealings in fly-by-night companies. The nine-year old system was shut down by its owners, the Toronto Stock Exchange, or TSX, as part of a major reorganization of Canada's securities markets.

In contrast, the CNQ is a hybrid auction/dealer marketplace supported by sophisticated trading and reporting software from Australia's Computershare. Known as Horizon, the software is operational in some 50 up-and-coming markets around the world. CNQ is regulated by Market Regulation Services, the spun-off regulatory arm of the TSX.

Hundreds of small Canadian companies now trade largely in the dark without even the benefit of a Pink Sheets-type quote reporting service. All trading is done by telephone. Regulations do require dealers to report their trades to the so-called Canadian Unlisted Board, but the prices are not made public.

CNQ plans to build its roster of listings out of this underground market as well as from the ranks of companies listed on the TSX Venture Exchange. To coax issuers away from Canada's No. 2 exchange, CNQ is promising better liquidity and a streamlined regulatory process.

CNQ got off to a worse-than-expected start. Three listings and nine members are a far cry from the 50 issuers and 25 brokers it expected. Only two firms - Canaccord Capital and W.D. Latimer - have agreed to make markets.

Despite the meager showing, hopes are high for CNQ's success in some Canadian financial circles. Financiers say Canada must have a trading center for tiny companies if it wants to encourage venture capitalists to risk their money on new ideas.

At the helm of CNQ is Rob Cook, a 19-year veteran with the Toronto Stock Exchange. Cook spent his last six years with the TSX as director of market surveillance. In 2001, he became vice president of Market Regulation Services.

Cook recently talked to Traders Magazine's Peter Chapman about CNQ. (All monetary figures are in Canadian dollars.)

Traders: Are you disappointed by the weak launch?

Cook: We are not disappointed. We're actually quite pleased with the response so far. It is a smaller number of issuers than we expected. But there are a lot of companies that have told us they are planning to come to CNQ over the next few months. We have over a dozen companies that have applied.

Traders: Your goal is to fill the void left by the closure of the CDN?

Cook: We have two goals actually. First, to fill that void for companies that qualify. We are not going to replace the CDN entirely. We're not going to trade just any OTC stock. We are for qualified active companies.

Traders: And your second goal?

Cook: We want to provide an alternative for companies already listed on the [TSX] Venture Exchange. We're a different kind of a marketplace.

Traders: Why would you be better than TSX Venture?