TSX versus AIM

Diane Francis Saturday Post Column July 8:

Figures show that the Toronto Stock Exchange remains the world's pre-eminent market for mining stocks and is holding its own despite aggressive competition from London's AIM "junior" exchange.

"There is a significant part of the AIM story that's not being reported," said Kevan Cowan, Senior VP for the TSX and its venture exchange. "AIM is a media darling but the inter-listed picture is not being shown. Of the 42 Canadian companies listed on AIM, 36 are inter-listed back in Canada. They're not bypassing the Canadian market but are accessing AIM for additional capital."

And the lion's share of the after-market trading for these companies occurs in Toronto, in some cases 90% or more, he said.
But some eyebrows were raised this spring when Canaccord Adams snagged a L20 million IPO on AIM, not the TSX, for Waterloo technology company, Sandvine. Were promising Canadian companies going to start to bypass the national exchange?

TSX officials say that their figures show that Toronto has little, if anything, to worry about concerning the fast-growing AIM market.

They say that AIM should only be compared to a combination of the TSX and TSX Venture Exchange, and not just the Venture Exchange, because the average market cap of AIM and TSX companies are comparable.

"50% of AIM and TSX companies have a market cap of C$50 million to C$250 million. 90% of the companies on the Venture Exchange are less than C$25 million in size," he said.

What's undeniable is that AIM has grown rapidly in the past three years, garnering more listings than the NYSE, Nasdaq and the TSX. But here are some figures comparing Canada's exchange and AIM:

-- The TSX and TSX composites outperformed AIM and the London Stock Exchange between 2001 and 2005 with the TSX up 46.6%; TSX Venture 115.8% and Footsie, AIM 16.5%.

-- On the all-important mining side, Canada continues to dominate, raising C$7.9 billion in equity for listed mining companies in 2005 compared to only $2.2 billion raised on the both the LSE and AIM.

-- In 2005, Toronto had 1,192 listed mining companies and London only 183 but some British listings are global giants such as Rio Tinto Zinc. The result of this is that the overall market caps of the exchanges are similar. Toronto's mining companies at the end of 2005 were worth C$207.2 billion and London's (including AIM) C$266.3 billion.

-- AIM has 220 international listings compared to TSX's 165 at the end of 2005.

-- TSX surpassed AIM in terms of total equity capital raised, quoted market value of listed issuers and by value traded. For instance, in 2005 equity capital raised by TSX/TSX Venture was C$55 billion compared to AIM's C$20 billion.

-- TSX/TSX Venture surpassed LSE/AIM in the mining and oil & gas sectors by number of issuers, new listings and equity capital raised. In addition, TSX/TSX Venture far surpassed AIM in the mining and oil & gas sectors by value traded.

-- In 2005, there were only three Canadian "by-passers" solely listed on AIM, BDI Mining Corp., Hard Assets Inc. and Sanatana Diamonds Inc.

Mr. Cowan, in charge of business development for the TSX Group, said the exchange is also aggressively seeking American and other international listings, as is AIM. The angle here is that these companies can list in Canada, benefit from North American following and yet avoid the cost and complexity of Sarbanes Oxley filings. Time zones are the same, as is the legal system and business culture.

"We are looking at listings in three areas -- mining, oil & gas and, with great traction, small and medium enterprise generally," he said.

TSX officials have zeroed in on small and medium American firms to explain the benefits of the "Canadian option" for their IPOs.

(AIM has even fewer regulatory requirements and has an unusual governance model that outsources regulation and monitoring of listed companies to designated investment bankers, called NOMADs or Nominated Advisors.)

"Our standards are higher than the AIM regime, but we don't require the most expensive requirement under Sarbanes Oxley which is 404 or the internal control certification by an external auditor. Securities commissions have decided not to require this here," said Mr. Cowan.

Marketing efforts have yielded some results and last year the TSX listed 21 U.S. companies, a number which has grown for three years in a row.

"An American company that lists only in Canada has to comply with Canadian reporting issuer requirements," he said.

If such companies eventually acquire a large base of American shareholders then they would have to comply with all the U.S. requirements.

Also, some Canadian companies with listings south of the border are analyzing the costs of complying with the American red tape, possibly with a view toward listing only on the TSX, say industry sources.