As big Canadian listings slip, TSX turns to U.S.

OTTAWA — Richard Nesbitt, chief executive of TSX Group Inc., is touring 10 U.S. cities to try to drum up new listings for the Toronto Stock Exchange. Not that business is bad for TSX, which operates the exchange, the TSX Venture Exchange Inc., and Shorcan Brokers Ltd., all based in Toronto, as well as the Calgary, Alberta-based Natural Gas Exchange Inc. TSX Group posted a 15% increase in first-quarter revenue and a 5% gain in net income for the first quarter. There are 1,600 companies listed on the exchange, up from 1,300 four years ago.But there are signs of trouble. Since the beginning of last year, 11 of the top 60 members of the exchange either have left because of a merger or buyout or they have confirmed that they are on the selling block. Replacing them with more international listings is a priority, Mr. Nesbitt told an audience at his first stopover in New York on April 11. “At the end of last year, we had 205 [international listings], of which 55% — or 113 — came from the United States,” he said. “As far as we can tell, we have more U.S.-based listings than any exchange group in the world outside of America.” Last year, about 40% of trading on the TSX came from the United States. That could be just the start. Late last month, TSX’s Natural Gas Exchange struck an alliance with Atlanta’s Intercontinental Exchange Inc. that will see NGX’s natural-gas and electricity contracts on ICE’s electronic trading platform. A few weeks earlier, TSX announced plans to partner with the New York-based International Securities Exchange Holdings Inc. to launch a new exchange. That exchange, to be called the DEX, will open for business in March 2009. In announcing that deal, TSX served notice that it intends in 2009 to enter the Canadian derivatives market now monopolized by the Montreal Exchange. “Don’t think other exchanges won’t look into Canada and come and compete here [for derivatives activity],” Mr. Nesbitt said. Ironically, May 1, Deutsche Borse AG, a Frankfurt, Germany-based stock exchange, said that it will buy ICE for $2.8 billion. Regulatory concerns But Mr. Nesbitt changed his tune from boastful in New York to rueful in Montreal, where the company held its annual shareholder meeting April 25. “What we’re all concerned about in this market is whether we have rigorous-enough enforcement,” he said after the meeting. The U.S. Securities and Exchange Commission and major investors “will sometimes raise that issue,” Mr. Nesbitt said. He said that there isn’t much TSX can do to push regulators to faster enforcement. “The best thing we can do is tell them what we’re seeing in the marketplace and what the perceptions are,” Mr. Nesbitt said. The Ontario Securities Commission in Toronto, which oversees the TSX, said that it plans to make enforcement a priority. On April 25, the OSC issued a statement saying that it is seeking comment on its priorities for the coming year. Those priorities include beefing up enforcement and efforts to provide more protection to retail investors. “We are focused on conducting effective compliance programs, delivering vigilant enforcement and strengthening investor protection, as well as providing greater organizational accountability,” OSC chairman David Wilson said in that statement. TSX, for its part, isn’t saying much about the OSC’s priorities. “We have never commented on the OSC priorities, and I don’t see why we would do this now,” said Steve Kee, director of media and marketing at TSX. “They are our regulator.” High-tech competition The exchange also is going to war with high-tech competitors. It is transforming itself into a “multiasset-class operator of electronic marketplaces,” Mr. Nesbitt said. TSX spent $5.9 million (U.S.) on information and trading systems during the first quarter, up 29% from the first quarter of 2006. That money was spent on providing listed companies with TSXconnect, which delivers market data and other information.