Venture exchange retooling model amid commodities slump

The commodity downturn has dealt a blow to the TSX Venture Exchange, a marketplace for emerging companies, in recent years.

Lagging prices for gold, oil and other resources have left investors wary of financing junior mining and energy companies, which make up about 70 per cent of the listings on the exchange.

The S&P/TSX Venture Composite Index is down more than 70 per cent from its March 2011 highs, despite a rally in commodity prices that has boosted it nearly 30 per cent this year.

The volume of shares traded on the market has also been steadily slipping. Last year, 32.4 billion shares were traded on the Venture exchange, down more than 25 per cent from 2008.

“The TSX Venture has been in a bit of a free fall for about five years,” says Ian Russell, president and chief executive of the Investment Industry Association of Canada.

Another problem, according to Russell, is that the exchange is littered with dormant companies, leaving it looking more like a graveyard than an active marketplace.

“These are companies that aren’t generating earnings or profit,” Russell says.

“They’re not growing. They’re just zombies that stay listed on the exchange for whatever reason. I think that creates confusion, particularly for investors.”

Late last year, after months of consultations with various stakeholders, the Venture exchange announced it was planning a number of changes to address some of the issues it’s been facing.

However, a mass delisting of these zombie companies is not among the 25 initiatives that the exchange has proposed as part of its revitalization plan. The exchange did consider the idea, but ultimately decided that its current listing standards suffice, says John McCoach, president of the TSX Venture Exchange.

“We shouldn’t be moving the goalposts around on companies based on individual market cycles,” McCoach says, noting the exchange already moves companies that fall below its listing standards to the NEX board.

Instead, the exchange is focusing its efforts on trying to attract more investors, diversifying its listings to be less resource-heavy and reducing administrative costs for issuers.

Revamping some of its policies to tailor them to non-resource companies is one example of how the exchange hopes to attract companies from a broader array of industries, McCoach says. That, in turn, could help lure more investors.

“Part of it is that we need to do a better job of showing that the exchange is already quite diverse,” McCoach says.

“We have over 500 companies that are in many different sectors that are not related directly to natural resources — technology, life sciences, real estate, financial services, clean technology.”

They’re just zombies that stay listed on the exchange for whatever reason. I think that creates confusion.