Canada Equity Market

Overview

• Introduction (~5 minutes)• History• Today

• Participants (~4 minutes)• Rules and Regulations (~7 minutes)• Structure (~8 minutes)• Differences between Canada and USA (~4 minutes)• Conclusion/Questions (~2 mins)

History

• Started 1832• Traded in coffee house in Montreal

• 1874 – Montreal stock exchange• 1878 – Toronto stock exchange• 1980’s – Canadian Banks and trust companies can

now have ownership

History Continued

• 1999 – CDNX created• Natural resources

• CDNX was bought by the Toronto stock exchange.• TSX was bought by TMX Group Inc.• CDNX Toronto Venture Exchange.

Today

• 3 main marketplaces:• S&P/TSX• Toronto Venture Exchange• Montreal Exchange

• Other market places:• CSE• Alpha exchange• Bloomberg Tradebook• Chi-X Canada• CX2 Canada ATS• …(6 more)

• Assets traded:• Cash and financial derivatives as well as fixed income,

energy, natural gas, technology, natural resources• Derivatives• Fixed income securities• Energy• Natural gas

• Market cap of over 889 billion USD.

Participants

Participants

• As of 2014, there are 187 firms – 17 are foreign owned.• 6 largest participants (owners followed by the firm):

• BMO• BMO Nesbitt Burns

• Canadian Imperial Bank of Commerce• CIBC World Markets

• National Bank of Canada• National Bank Financial

• Royal Bank of Canada• RBC Dominion Securities ltd

• The Bank of Nova Scotia• scotia capital

• TD Bank Financial Group• TD Securities

73%6 largest firms

15%Retail firms

12%Institutional firms

Participants

Regulation

• Federal and provincial regulation• Federal CSA:• Investment Industry Regulatory Organization of Canada

(IIROC)• Mutual Funds Dealers Association (MFDA)

• Provincial (3 largest)• Ontario Securities Commission• British Columbia Securities Commission• Autorité des marchés financiers

RegulationCSA

IIROC

Provincial

Provincial

MFDA

Provincial

*Total of 13 regulators including Revenue Canada

Regulation

• Canadian Securities Association• Create uniform rules and regulations• Manages approval process• In charge of developing IT (nationally)• Enforces rules

• Passport System (except Ontario)• Easy • Fast• Cheap

Regulation

• IIROC• Self-regulatory • CSA• Standards• Protect investors

• Help prevent fraud• Canadian Investor Protection Fund

Regulation

• MFDA• Self-regulatory• Not licensed under Quebec regulator

• Cooperative agreement• CSA• IIROC• Investor Protection

• Regulates mutual fund distribution

Regulation Problems

• Difficult coordination• Slow• Increased risk

• International Issues• Small resistance in collaboration• Inefficient• Costly

Current Trend

• 80% of share traded on TMX Group• 3% trades in dark pools• Banking , mining and energy• Heavy dependency on commodities

StructureToronto Stock Exchange • Exempt issuers• Non-exempt issuersTSX Venture Exchange• Tier 1 • Tier 2 • NEXCanadian National Security Exchange

Stock Exchange---Four Primary Methods

• IPO• REVERSE TAKE-OVER• QUALIFYING TRANSACTION• DRICTLY LISTING

The Difference between Canada and US Stock Market

Financials

Energy

Materials

Industrials

Consumer Discretionary

Telecommunication Services

Consumer Staples

Health Care

Information Technology

Utilities

0 5 10 15 20 25 30 35 40

S&P Total Market Index (US) S&P/TSX Composite (Canada)

Sector weights for Canadian and US markets

The Difference between Canada and US Stock Market

Smaller market sizeSmaller market capitalizationsConcentrated sectorsLess dark poor trading

References• (n.d.). Retrieved March 17, 2015, from http://

iiac.ca/wp-content/uploads/HFTs-and-the-Structural-Differences-Between-Canadian-and-U-S-Equity-Markets1.pdf

• Canadian Investor Protection Fund - Home. (n.d.). Retrieved March 17, 2015, from http://www.cipf.ca

• Commissoin des valeurs mobilières du Manitoba. (n.d.). Retrieved March 17, 2015, from http://www.msc.gov.mb.ca

• Department of Finance Canada * Ministère des Finances Canada. (n.d.). Retrieved March 17, 2015, from http://www.fin.gc.ca

• Home. (n.d.). Retrieved March 17, 2015, from http://www.bankofcanada.ca/

• Investment Industry Regulatory Organization of Canada (IIROC). (n.d.). Retrieved March 17, 2015, from http://www.iiroc.ca

• Investment Industry Regulatory Organization of Canada (IIROC). (n.d.). Retrieved March 17, 2015, from http://www.iiroc.ca

• OSC-IIROC Market Structure Conference. (n.d.). Retrieved March 17, 2015, from http://www.osc.gov.on.ca/en/NewsEvents_osc-iiroc-msc_index.htm

• Task Force to Modernize Securities Legislation in Canada. (n.d.). Retrieved March 17, 2015, from http://www.tfmsl.ca/