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September 1, 2012

Seeking an Edge

Canadian Exchange TMX Looks to Enter U.S. Market

By John D'Antona Jr.

A marriage made in Jersey City, N.J.?

Perhaps. TMX Group, owner of the Canada-based Toronto Stock Exchange, is said to be eyeing the U.S. exchange market business and reportedly has Direct Edge, a New Jersey-based exchange, in its crosshairs. The driver of the deal would be TMX's ability to bring emerging companies to the U.S. market through Direct Edge. TMX's Venture Exchange specializes in taking small and emerging companies public, and the strategy would be to dual-list these companies.

The delay in TMX's southern expansion stems from a change of control of its own. A consortium of Canadian banks and pension funds beat the London Stock Exchange to the punch to acquire TMX. The $3.7 billion deal is expected to close in the fourth quarter. Such a deal would also pump up the revenues of Maple, the buying consortium.

Thomas Caldwell, Caldwell Securities

 

Thomas Caldwell, chairman and chief executive officer of Caldwell Securities and a TMX shareholder, said looking to expand in the U.S. to give emerging companies greater exposure to the global capital markets is a smart move. And the TMX's Venture Exchange is a strong vehicle to do this.

The Venture Exchange began in November 1999 as the Canadian Venture Exchange and was purchased by TMX in 2001. It was established as a separate exchange from the main Toronto and trades only small and emerging growth companies. Its only competitor in this space is CNSX.

According to market data, Venture captures 25 percent of all trading in Canada, while its bigger brother the Toronto trades 60 percent of the market. Average daily trading volumes on Venture average between 120 million and 140 million shares. In comparison, CNSX trades an average of between 6 million and 8 million shares per day. Venture is the 800-pound gorilla.

 

Exporting Into the U.S.

Caldwell noted that Direct Edge has no listings business but has stated it wants to open one-making it a suitable place for TMX to gain access into the U.S. Also, he pointed to the recently passed U.S. JOBS Act, which is designed to promote investment, growth and trading of emerging growth companies-Venture's specialty.

"I think Venture is the premier venture capital environment in North America and would be a great advocate and asset to the U.S. market," Caldwell said. "America is killing its strongest asset-its ability to innovate and help small companies gain access to capital. There are just too many rules and regulations in the U.S. and costs small companies simply cannot bear at the present."

By exporting its exchange model, Caldwell said, Venture can take its strong management team, technical know-how and financial resources to America and help both Direct Edge and emerging companies get access to the capital markets and generate more trading.