Bank buildings tower over the corner of Bay Street and Adelaide streets in Toronto.Gloria Nieto/The Globe and Mail
Canada is losing another small brokerage firm, as Byron Capital Markets is winding down amid slow markets that have depressed revenue.
The firm will submit its resignation letter to the securities industry watchdog on Wednesday, said chief executive officer Campbell Becher. He said the reason was "an inability to become profitable."
Byron Capital is a boutique focused on small-capitalization stocks, which has been a tough market segment over the past couple years in Canada. The volume of financings and trading has tumbled, especially for smaller, more speculative stocks. Already in the past year, a handful of firms have disappeared. Stifel Nicolaus, for example, closed its Canadian operations abruptly and Stonecap Securities merged with another firm.
The traditional business model of smaller dealers has broken down. The idea for years was to use revenue from trading to cover day-to-day expenses. Investment banking fees were pure profit.
However, trading revenue has shrunk because the per-trade charge for each transaction has been compressed, Mr. Becher said. In addition, big funds are cutting down the number of firms they want to trade with, he said.
In that environment, many firms are not profitable, industry figures show.
"There are probably still a couple more firms to close," Mr. Becher said.
Three years ago, Byron employed 60 people. The firm has since shrunk to 15 people, Mr. Becher said. While costs fall with such cuts, it also makes it hard to stay in business because a firm that is shrinking has to reduce its product offerings, Mr. Becher said. At that point, the situation begins to become a "self-fulfilling prophecy."
Mr. Becher said that the closure was unrelated to a pending matter with regulators. The firm and the CEO are in the midst of attempting to settle with the securities industry's self-regulatory body over allegations that the firm did not adequately supervise disclosures in research reports, and that the CEO did not adequately supervise a research analyst.
"It [the decision to close] had nothing to do with that," he said.