When the formal announcement finally came, it was no great surprise. It had been rumoured in securities circles for some time that Quebec’s open dissatisfaction with the recent reorganization of Canada’s stock exchanges would translate into action. And last week, the course became clear: Premier Lucien Bouchard and Finance Minister Bernard Landry proudly revealed they had cut a deal with New York City’s Nasdaq exchange, allowing it to establish a northern beachhead in Montreal. “The move wasn’t much of a shock,” says Bill Hess, president of the Calgary-based Canadian Venture Exchange, or CDNX. “Nor was the lack of consultation—you don’t consult your competitors.”
But Montreal was not supposed to be a competitor—for the CDNX or any other domestic stock market. In fact, a greater degree of co-operation among the exchanges was intended to streamline Canada’s securities business, making it more efficient and reducing overheads. To that end, the CDNX was created by a merger of the Alberta and
Vancouver stock exchanges in November, Toronto became the “big board” for large capitalization stocks, and Montreal turned into the home for derivatives and options trading. Grudgingly, it transferred all of its major listings to Toronto.
Quebec officials—in particular Landry and the powerful $80-billion public-sector pension fund, the Caisse de dépôt et placement du Québec—were clearly rankled by what they perceived to be a demotion in status, and a slap at the prospects of economic sovereignty. The caisse, for example, has long had a practice of forcing all trades for its account through the Montreal exchange. “The deal with the Nasdaq has to be politically driven—because it sure isn’t driven by any business considerations,” says Duncan Stewart, a portfolio manager with Toronto-based Tera Capital Corp.
According to Hess, the eventual shape and impact of Nasdaq North is still murky—although it won’t have a major effect on Canadian investors, who already have access to the exchange. Hess notes that Canadian securities regulators have just completed draft regulations for new exchanges entering Canada.
And he points out that the matter of clearing and settling stock trades is also yet to be resolved. In fact, Nasdaq is not expected to be operating in Montreal until late this year or early next.
In that period, it’s generally accepted that the Toronto Stock Exchange will be scrambling—because it’s the most likely to suffer at the hands of the American competitor. But its reaction to the news was, typically, scattered. A TSE spokesman insisted the exchange could still cut its own deal with Nasdaq. And TSE chairman Dan Sullivan publicly hinted that a partnership with the New York Stock Exchange might be in the works. “There’s no question this is a real concern for the TSE,” says Fred Ketchen, head of equity trading at Scotia Capital Inc. and a former TSE chairman. Although Ketchen insists the TSE has had an overly negative rap for its computer problems, he concedes that the frequent, disruptive crashes have “contributed to a widespread perception of weakness and ineptitude.”
Certainly, the TSE stands to lose the most from Nasdaq because it is at the top of the domestic securities food chain. Start-up companies initially list on the CDNX, then set their sights on listings in Toronto or on the Nasdaq as they grow. But the Nasdaq looks increasingly attractive to Canadian companies. The Montreal branch will eventually offer easier access to the deep pools of liquid capital in the United States. And Nasdaq offers global reach, having begun an expansion into Asia and Europe with big plans for roundthe-clock international trading.
Hess insists he’s not worried about the impact of the Nasdaq’s arrival on his CDNX. But, “if they compete with us that’s OK—there’s nothing wrong with competition as long as there are clear rules in place and Canadian investors are protected.” Still, if Canadian investors think the Nasdaq’s notorious volatility is a thrilling ride, just wait until domestic politics is factored in. E3
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