TMX Group

INTERVIEW: TMX CEO Lou Eccleston – Commentary on Shorting Canada Stocks

11:06 AM, May 10, 2017 — Lou Eccleston, the head of TMX Group (X.TO), was on Canada’s BNN TV on Wednesday talking up the outlook for business on the key stock markets that it operates — Canada’s main market, the Toronto Stock Exchange (TSX), and the smaller TSX Venture Exchange (TSXV).

TMX – which has key subsidiaries that operate cash and derivative markets and clearinghouses for multiple asset classes including equities, fixed income and energy – at last look was down near 7% today, despite reporting what it itself called “strong” Q1 earnings and increasing its dividend to $0.50 per common share. Eccleston told BNN TV the fundamentals with his company were strong.

But BNN, for its part, noted there has been some market concerns about an apparent lack of Canadian initial public offerings — at least high profile ones — and some concerns around the fact that the TSX has underperformed its U.S. counterparts of late. In response, Eccleston noted a jump of 20% in initial public offerings (IPOs) on the TSX in Q1 versus the year earlier period and a jump of 75% in IPOs on the TSXV in Q1 compared to a year ago.

Eccleston was also asked by BNN TV about a belief in the market that Canadian stocks are easier to short, as per recent events surrounding embattled Home Capital Group (HCG.TO) and previously with Valeant (VRX.TO) and Concordia (CXR.TO), with these companies seeing huge losses on short selling, largely from the United States.
Eccleston said it has not been a hindrance in attracting companies to list in Canada so far. “We have a very unique system here where companies can come in and raise capital….the average financing is about $8 million. So we are a home for a small company that can grow.”

Eccleston in looking at the plus signs for being involved with his company noted about 20% of current TSX companies graduated up from the TSX Venture Exchange, which MT Newswires Canada covers extensively. He noted there have been 600 graduates from the TSXV to the TSX and also noted there are 280 innovation companies today on the TSXV, and 75% of them have closed financings in the last two years, with 60 of them going public.

Eccleston said he sees a positive long term trend around financings and growing companies, not just going public. “We sit right in the middle of an integration of three things that I think is the future. One is, what has been the public market. What has been the Venture market. And what is this growing peer to peer market, ie crowd funding. And we actually touch all those as a way for companies to grow, not just go public.”

Eccleston said the fact that private equity, pension funds are moving in to keep some firms private is not a threat, but is actually complementary to what the TMX is doing. He said: “We need to be in the conversation and as people change from this idea, well, am I either private or am I public….the idea of public venture is really starting to take hold. And it is an exit strategy, where you can get a higher multiple for a Venture company, you don’t just have to sell out.” He added: “There is no panacea for every company. It is not right for every company, it’s not wrong for every company. But more and more, as we start to educate the market place out there, more Venture companies are looking to that public market as a way to keep growing the company. And there are a lot of examples.”

BNN TV noted the successful IPO involving Shopify (SHOP.TO, SHOP) helped the TMX last year. But it also noted this year the TSX is underperforming the benchmarks in the United States — while acknowledging that there are a lot of tech companies with heavy weightings in the US compared to Canada’s focus on Energy, Metals and Bank stocks. Eccleston said Canada in Q1 again was number one in terms of international listings, with 30% of money invested coming from outside of Canada. “We are a Canadian business, with a global franchise,” he said.

 

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