TSX boss bullish on international listingsBy ANDREW WILLIS
Tuesday, March 22, 2005
From Wednesday's globe and Mail
These are boom times at TSX Group Inc., and its newly named head, Richard Nesbitt, sees business getting better as foreign players rush to list on the Canadian exchange in the wake of Ottawa's decision to end the foreign investment cap on registered retirement savings.
Foreign corporations and innovative new securities, such as exchange-traded funds (ETFs), will attract a larger domestic following after last month's federal budget set aside restrictions on non-Canadian investments in retirement funds, predicts Mr. Nesbitt, who became chief executive officer at the TSX three months ago. The 49-year-old sees many of these securities joining the 1,885 issuers now trading on the exchange.
“We've only scratched the surface of what we can do with international listings,” Mr. Nesbitt said in his first interview since becoming CEO.
In a bullish talk that centred on what he called “Canada's golden age,” Mr. Nesbitt said the TSX looks forward to 10- to 12-per-cent annual earnings growth, as it expands stock, bond and energy trading units. The CEO said the TSX is looking at acquisitions, and already planning for the day it can take on the Montreal Exchange in derivative markets, when a standstill agreement between the two expires in four years' time.
As part of that thrust, the TSX Tuesday hired a vice-president for structured products and derivatives, filling the newly created position by plucking Robert Fotheringham out of the senior ranks of the Ontario Municipal Employees Retirement Board pension fund.
When it comes to listing stocks, which accounted for 43 per cent of TSX revenue last year, Mr. Nesbitt said the exchange is working with various financial players on ETFs and other structured products, including those with prices that are linked to the price of gold bullion and other commodities, such as silver and energy. At the moment, such securities account for about 1 per cent of TSX listings, while common stocks account for more than 50 per cent.
The New York Stock Exchange launched a bullion-based ETF in December and it quickly attracted a $2-billion (U.S.) following. Mr. Nesbitt said: “I was so upset to see the NYSE get the gold-linked ETF, not the TSX, that I was bouncing off the walls.”
Standard & Poor's Corp. and the TSX plan to launch a bond index, and Mr. Nesbitt says products will be created to track this benchmark. And the CEO said the exchange is talking to foreign companies in sectors such as mining and energy that might want to trade on the TSX in Canadian or U.S. dollars. Last year saw a record 204 new listings over all on the TSX.
The optimistic outlook on new listings is shared by analysts.
“Looking into 2005, the TSX remains well positioned for further growth given the positive effect that a larger number of listed companies paying a higher level of fees is likely to have on the bourse's earnings,” said a recent report from analyst J.P. Donville at Sprott Securities Inc.
One storm cloud for the exchange is the fact that the TSX domestic monopoly on stock trading is expected to be broken in coming months. So-called alternative trading systems or ATSs are expected to begin offering institutional clients another forum for buying and selling equities.
However, Mr. Nesbitt doesn't anticipate losing business to any ATS. Rather, he sees these trading platforms posing a competitive threat to the so-called upstairs market, the trading operations of Canada's biggest dealers.
“We look at the ATSs as customers,” he said. “We see any ATS adding to TSX revenues, as they will generate data that we can sell.”
One impediment to any plans for building the TSX is a 1999 agreement that gave the Montreal Exchange all responsibility for stock and bond derivatives in Canada, an agreement that expires in 2009. These are an expanding sector, and in most jurisdictions, derivatives such as stock futures trade side by side with underlying securities.
The TSX established an energy derivatives business last year by purchasing Calgary-based NGX, which trades natural gas and electricity contracts. The plan is to expand this business into the western United States, and use NGC as a way to gain staff expertise in derivatives.
“We're putting the building blocks in place in order to be in the equity derivative business in 2009. Four years is actually not that long a lead time,” Mr. Nesbitt said.
There's nothing to stop the TSX from getting into U.S. equity derivatives, and Mr. Nesbitt said that's one of several areas where it could do an acquisition, if the right opportunity came along.
The TSX has a three-person team looking at potential purchases. Mr. Nesbitt said the number of deals shown to the exchange has skyrocketed in the wake of his unsuccessful attempt to buy a stake in electronic trading system Archipelago Holdings LLC. The TSX is debt free and carries a $2.1-billion market capitalization, so it could contemplate large takeovers. But the CEO said: “Any acquisition we do would have to meet a number of strict criteria, starting with the fact that it's shareholder friendly.”
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