TMX Group mulls creating new stock exchange for ‘new categories’ of early-stage companies

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Canada’s largest stock exchange operator is mulling whether to launch an entirely new stock exchange as TMX Group Ltd. X-T seeks to defend its market dominance from rising competition.

In a report scheduled to be published Wednesday, Toronto-based TMX commits to “evaluating the need and appetite for a new, highly differentiated exchange” to complement the TSX Venture Exchange. The initiative follows a year-long consultation process on how to improve public market access for smaller companies as rivals such as the Canadian Securities Exchange and Cboe Canada (formerly the NEO Exchange) have recently boosted their own capabilities to challenge TMX.

“When you think about our continuum, where we have our two-tiered market with [the Toronto Stock Exchange] and [the TSX Venture Exchange], you can envision something that is even earlier than Venture where you would see a different class of investors and different asset classes potentially trading on that market,” Loui Anastasopoulos, chief executive officer of the TSX and global head of capital formation for TMX, explained in an interview.

The idea “came up a lot” in discussions with more than 600 issuers, investors and other stakeholders over the past year, Mr. Anastasopoulos said. “We kept hearing that there may be an opportunity for something different.”

It will take another six to 12 months before TMX decides whether to move ahead with the new exchange, which, according to the report, would cater to “new categories of early-stage companies [and] alternative asset classes.”

“Securitization of real estate assets, as an example: Is there an opportunity there and where do those assets potentially get listed and traded? That is just an example of an alternative asset class that might make sense on a platform like this,” Mr. Anastasopoulos said.

The Canadian Securities Exchange has spent decades cultivating a reputation as the preferred home of public companies that are generally too small to list on the TSX-V and, just a few months ago, the CSE launched a senior tier to accommodate larger companies. While the new exchange being considered by TMX would similarly target smaller companies, Mr. Anastasopoulos said the industries targeted would be different.

“We are talking about asset classes like tokenization, alternative assets [and] crypto,” he said. “There is a whole variety of things out there that don’t necessarily fit in the traditional exchange world.”

Appealing to companies beyond the traditional exchange world was precisely the mission of the NEO Exchange when it launched in 2015, which accelerated when it was acquired by Cboe Global Markets Inc. in 2021 and rebranded as Cboe Canada earlier this year. However, the TMX report also commits to another new initiative for TSX-V designed specifically to make it more attractive to companies in emerging industries.

Dubbed “sandbox,” the initiative will provide TSX-V with more discretion in deciding whether or not a company would be allowed to list on the exchange. It will mirror an identical feature rolled out by the TSX in 2019, by providing waivers or exemptions in exchange for certain conditions.

Cryptocurrency miner Hut 8 Mining Corp. HUT-T, for example, started trading on the TSX in 2019 through the sandbox program, having been granted a waiver for the requirement to have raised at least $10-million through a public prospectus. Under the conditions that Hut 8 would appoint a corporate secretary with TSX public company experience and have no significant compliance issues for 12 months, it exited the sandbox in October, 2020, to become a full-fledged TSX corporate issuer.

“When we start seeing novel opportunities and novel businesses that are new and unique in up-and-coming industries that don’t necessarily fit into our predefined framework, the sandbox gives us an opportunity to be a bit more creative and a bit more innovative around how we look at listing these companies,” Mr. Anastasopoulos said.

“The important part of this is a very different investor base. If you think about what we saw a couple years ago with meme stocks and who was in the market, that is a very different segment of the investor base that we don’t usually see in traditional markets,” he said. “So there is an opportunity in that space.”