The TSE: A Future Vision
Remarks by
Adam Conyers
Senior Vice President, Equities
Toronto Stock Exchange
To
Maritime Life
President's Club Breakfast Meeting
September 20, 2000
Good morning. Welcome to the Toronto Stock
Exchange. It's a pleasure to be invited to participate
in Maritime Life's President's Club breakfast series.
And, I am delighted that you elected to host the event
here, in Stock Market Place.
As I prepared my remarks for this morning's
discussion on the future of the TSE and the stock
exchange business, it occurred to me that you could
not have picked a more appropriate venue for this
subject.
Stock Market Place - an electronic, interactive
learning and visitors' centre - was built in conjunction
with the closing of our trading floor. Both of these
events were driven by similar forces, including:
the increasingly global nature of our business,
customer demand, and
advances in technology.
These have become powerful catalysts for change,
not only at the TSE but also across the exchange
industry.
This change has created an environment where the
world's exchanges are sitting up and paying
attention. Where we are re-examining our core
strengths and value propositions. As individual
exchanges, and as an industry, we are in a fast -
paced, high stakes race to secure competitive
advantage.
Competition, just like change, is not a new
phenomenon. We compete every day - both as
individuals and as organizations. And, it's certainly
familiar to all of you.
Looking out across the room, I see the "elite" of
Maritime Life's investment advisor team. I also
recognize a number of the investment managers who
are here. You are all professionals whose competitive
performance has taken you to the top of the class in
your organizations and the industry.
Competition is good thing. It drives us to be
innovative, to stretch ourselves and to perform to the
best of our abilities. So what does this all have to do
with the future of exchanges and, in particular, the
TSE?
Everything.
Simply put, subject to intense competition and an
environment undergoing fundamental change,
exchanges all over the world are being forced to
reinvent themselves. To evolve. To perform to a higher
standard than ever before. The Canadian market is no
exception.
The days of protected domestic markets and closed
domestic liquidity pools are over. This is a global
business.
Being global means that we have to move fast - faster
than ever before, if we are to remain relevant. We
need to think - as well as act - "outside the box"
while continuing to ensure the quality of our markets.
And, there are two things that we must continue to
do really well - efficiently centralize both liquidity and
market information. Because, regardless of the
change in our environment, as exchanges we
continue to chase and to compete for the same thing
- buyers and sellers. Liquidity and market information
are what attract and hold these customers.
Today's environment requires strategic leadership,
entrepreneurship and the power to make swift
decisions. In the midst of this whitewater, it also
requires accountability. Accountability to our
shareholders, customers and other key stakeholders
who depend on a strong and reputable central capital
market to conduct business - profitably.
So what are the signs of speed and evolution at the
TSE? And, how are we accountable to those we are
here to serve?
Let me start with our own business structure. After
148 years as a not-for-profit mutual co-operative, we
demutualized in April of this year. The TSE is the first
exchange in North America, and one of the first
globally, to do so.
As a for-profit company we are no longer encumbered
by a consensus driven management style.
Demutualization also resulted in the broadening of
our Board of Directors in terms of its national
representation and business expertise.
What's the impact of a new business structure? Our
focus has shifted from meeting the needs of
members to meeting the needs of customers and
shareholders. It has given the TSE the mandate and
governance framework that we needed to be able to
respond quickly to issues and opportunities.
To compete.
It's only been three months, but already we are in a
better position to make decisions - business
decisions - quickly and efficiently -- and to act on
those decisions.
Where each of you are concerned, the most critical
of these decisions relate to the provision of the best
possible market in which securities are traded. A
market environment that helps you to be accountable
to your customers- institutional and retail investors. A
market that you trust, that you can access with ease
and that helps you to generate strong returns.
As the head of Equity Markets, that's my role. I am
responsible for the strategic development of the
equities business -- and maintaining the TSE's
position as the senior equities exchange in Canada.
Markets are known and compete by the unique
product features and benefits that they offer their
customers.
At the TSE, our commitment to competitive product
development is evidenced by continued investment in
innovative and responsive market services and
technology solutions. Solutions designed to help our
customers manage their portfolios more efficiently,
reduce costs and improve rates of return.
On all of these fronts, we have been very busy.
Last year we expanded the after market crossing
session to create the last sale trading session. This
facility has resulted in a more efficient means to
manage crossing session orders for institutions
directed to sell side traders. Through the after market
session, orders can now be matched and executed in
the TSE's order book. Since launch, order volume
traded during the session has increased by 40%.
In an effort to help reduce the market impact costs of
our institutional customers, we have signed an
agreement with Ashton Technology Group Canada to
provide an electronic Volume-Weighted Average Price
trading system. We call it eVWAP or VWAP.
This system, which supports anonymity, will match
orders before market opening for settlement at that
day's volume-weighted average price - which will be
calculated at end-of-day. eVWAP will allow
institutional money managers, and broker-dealers, to
execute securities trades of Canadian listings at
VWAP. As increasing numbers of portfolio managers
adopt VWAP to measure performance, this may
become an effective tool for you too.
Additionally, we are in the process of simplifying our
trading algorithm, which will help us to move towards
pure price/time priority - something that is consistent
with the needs of international money managers and
traders for standard rules.
An added benefit of simplification will be increased
transparency for our marketplace - a feature that is in
everyone's interest. And, following simplification, we
plan to introduce continuous market anonymity which
will help reduce market impact costs in the
continuous market.
Other changes slated for introduction over the next
six months include an electronic call market and
market-on-close features.
Collectively, these and other new features taking
shape on our product development team's "drawing
board" will establish new benchmarks for product and
service in the industry. They will improve the trading
environment for our trading customers. They will help
to improve market performance as a whole and - I
believe - will help the TSE to continue to build its
reputation for delivering - and commanding -
competitive advantage.
But what about the impact of these initiatives on our
listed companies? Will they create competitive
advantage for the TSE in a global marketplace where
companies can list - and interlist - on multiple
exchanges?
The answer is yes.
Recent studies indicate that better execution and
strong liquidity for Canadian issuers remain in
Toronto. A situation that will continue to improve as
features such as eVWAP, anonymity, market on
close and a call market are introduced into the TSE's
market.
The introduction of these features will send a clear
message to existing and prospective issuers about
the competitive advantage of being a TSE listed
company. A message that is already being heard as
over 95% of all eligible Canadian companies that
access the public markets continue to choose the
TSE.
As electronic trading becomes more sophisticated,
and exchanges move to a 24-hour marketplace,
trades will be routed to exchanges offering the lowest
trading and market impact costs. A situation where
the TSE is already well positioned and one where we
are taking steps to maintain our advantage.
However, until automated routing of order flow is
ubiquitous, we will fall short of expectations - those of
our customers, our shareholders and our own - if we
don't capture a larger share of trading - particularly in
interlisted stocks.
With that in mind, in 1999 the TSE launched a
focused US and European market research program
to improve our understanding of issues and
perceptions surrounding the Canadian market, the
TSE and investment in its listed companies. The
question we were seeking to answer was simple.
How do we re-patriate trading?
We talked to buy and sell-side analysts, portfolio
managers and the brokerage communities. This
research improved our knowledge and gave us the
opportunity to "market our selves" - building
relationships and communicating the many benefits
of our market to this critical audience of
decision-makers. The action items identified by the
research are - as we speak - being put into place
around the world.
Our global marketing programs, along with all of the
other initiatives that I have discussed this morning,
are helping us to compete effectively and to build
liquidity.
After all, liquidity is the key to competitive advantage
in our business. It helps to attract trading volume,
deliver best market and lowest cost of execution.
And, I'm pleased to report that the TSE is in a strong
position on all of these fronts today.
Business is good. Strong economy. Listed
companies posting excellent results. A growing base
of active investors - baby boomers - all channeling
their investment energies towards secure and
comfortable retirement.
Result? Volumes and values - factors that build
liquidity - being traded on the TSE have never been
higher. Our performance never more robust.
Just to put this into context, when I joined the TSE in
1996, daily trading volumes average 88.5 million
shares valued at $1.2 billion. This year, we're
averaging 169.2 million shares a day valued at
$3.8-billion. The TSE 300 closed at 11,388 on
September 1. The 39th record high close for the TSE
300 Index - in the year 2000.
The fact is that this year the TSE has outperformed
every other major market by a wide margin. Global
media attention and market interest, that previously
focused almost exclusively on the huge American
exchanges, has begun to turn its attention to north of
the 49th parallel. Articles in the financial press -
domestic and international - are positioning the TSE
as the "hidden treasure" of international stock
exchanges. This is great news for the TSE and its
customers. It's news and interest that we intend to
sustain.
As we focus our effort on competitiveness and
accountability in the development of products and
services, we have not lost sight of the critical need to
sustain market quality.
Successful markets operate on a firm foundation of
trust and confidence. Investor confidence. Confidence
in the public markets, the investment intermediaries
and, of course, the public companies. Practicing
sound corporate governance is one way that all of us
in the capital markets can build and sustain this
trust.
For this reason, at the TSE, we have taken a
leadership role in raising the bar for corporate
governance. And, as a for-profit shareholder - owned
company that includes making sure that our own
governance house is in order.
Over the past 18 months, we've taken a critical look
at our governance practices. Uncovering some
weaknesses, we've responded with a number of
initiatives designed to address our own corporate
governance deficiencies.
This includes our most recent action - the creation of
an industry wide Corporate Governance Committee
that is being Chaired by Guylaine Saucier Chair of
the Canadian Broadcasting Corporation and director
of several private-sector companies. The role of the
committee is to review and make recommendations
concerning corporate governance practices in Canada
relative to domestic and international best practices.
A report will be published in 2001.
In addition to market quality, we are raising the bar
on governance because of evidence that it can
positively impact the competitiveness of markets and
their listed companies.
Last year, McKinsey released a study that quantified
the market value of good governance. They surveyed
investment managers with total assets under
management of $840 billion (U.S.)
The outcome?
On average, fund managers indicated that they would
be prepared to pay an 11 per cent premium for good
governance. Ergo - one of the most important values
of good corporate governance is the cost of poor
corporate governance.
Not only are the stakes high, they are rising. And
they will continue to rise, as the economy continues
to globalize. Taking a tough stance on governance
provides one more opportunity for the TSE - and
Canada's capital markets as a whole - to leverage our
strengths and to leapfrog the competition.
Which takes us full circle. At the TSE, we're in the
midst of creating and supporting a global and
competitive environment for our customers - and
ourselves. We are implementing a new and innovative
way of conducting our business. Business in a world
no longer inhibited by time, national boundaries or
technology.
We are making sure we are ahead of the game.
Rather than be daunted by the forces of change,
we're being proactive. This includes seeking alliances
with those we have competed with in the past.
Alliances that will help us to build our business and
advance the interests of our shareholders, customers
and the long-term capital market requirements of
Canada as a whole.
In June, we announced the TSE would join the New
York Stock Exchange (NYSE) and six other major
equity markets - to discuss the creation of a
round-the-clock Global Equity Market or GEM. The
six other markets are Euronext (which is made up of
the Paris, Amsterdam, and Brussels exchanges),
Tokyo, Hong Kong, Australia, Mexico and Sao Paulo,
Brazil.
The proposed alliance represents over 60 per cent of
the world's market capitalization and the three main
trading time zones. The goal is to develop a central
electronic platform for trading the world's top stocks -
24 hours a day. In effect, access to a global liquidity
pool.
Discussions with our GEM partners are well
underway. As you can image, the topics are
wide-ranging and cover issues such as which
companies will be traded through the alliance, how
they will trade and how those trades will be settled.
TSE President and CEO, Barbara Stymiest is on the
steering committee, along with the heads of the other
exchanges. John Carson, Senior Vice-President,
Corporate Strategy & Market Development is leading
the TSE's participation at the working committee
level.
In a nutshell, this alliance will function as a
self-regulated, agency auction market and operate
according to principles of fairness and transparency.
We estimate that more than 50 Canadian companies
will be traded on GEM. And, while the alliance is
focused on large-cap stocks in each country, we're
confident that our participation in this initiative will
create greater exposure and demand for stocks in the
broader Canadian market as well.
Simultaneously, we are in bilateral discussions with
the New York Stock Exchange in order to strengthen
our North American ties. Because of the similarities
between the two exchanges and trading
environments, a New York-Toronto alliance will likely
serve as a template for the broader global alliance.
Globalization, emerging customer demand, advances
in technology. These are the powerful forces shaping
the environment in which exchanges operate and
compete. They are determining our future. Today.
This morning. Right now. And, as exchanges, we are
racing against the clock to put the solutions in place
that will secure the advantages that we need to
respond. To adapt. To compete. Who will be left
standing? It's too early to say. But, from where I sit -
my money is on the TSE.
Thank you.
For further information please contact:
Steve Kee
Manager, Media Services
Marketing and Communications
The Toronto Stock Exchange - tse.com
416.947.4682 -- office #
416.561.1863 -- cellular #
416.375.8856 -- page # |
