TSX Venture may be small but it’s no pushover

Given the run the S&P/TSX Composite has had in the past year, it’s easy to forget that the TSX Venture Exchange performed just as well. After all, why invest in riskier stocks when you can invest in more established large caps? As Linda Hohol points out, Canada’s junior market isn’t as wild as some might make it out to be.

“The TSX Venture is a standard-based exchange,” Hohol says, speaking at the Canadian Institute’s 16th Annual Securities Superconference in Toronto. She’s quite emphatic about this point. This distinguishes Canada’s junior market from others around the world, she says, which is particularly important now as many of the other junior markets are moving towards a lower standard of regulation. “We believe standards are just as necessary for small emerging companies as they are for the large established companies.”

Hohol points to the Alternative Investment Market (AIM) — the small and medium enterprise market of the London Stock Exchange, one of the most successful markets of its kind — to illustrate her point. Light regulation is often cited as one of the chief reasons for AIMs meteoric growth, she says. Since AIM opened in 1995, more than 2,200 companies have collectively raised more than £24 billion ($48 billion Canadian).

By comparison at the end of 2005, there were 2,221 companies listed on TSX Venture and NEX, which is almost 50% more than the 1,537 issuers listed on the TSX. The total market cap of the venture grew to $34 billion. That’s up 22.5% over 2004, which is virtually the same as the S&P/TSX Composite Index’s return, if dividends are excluded.

There are several key obligations on the TSX Venture that don’t apply to AIM. For instance, AIM companies are not subject to CEO/CFO certification or internal control certification. They are only required to file financial statements twice a year versus the quarterly report required by the Venture exchange and they do not have to meet Management Discussion and Analysis (MD&A) requirements.

Her point is investors wanting to access small-cap stocks shouldn’t have to assume any unnecessary risks. At the same time, Hohol notes the added regulatory requirements have not discouraged companies from listing on her exchange. Almost half of the 40 mining companies that listed on the venture exchange last year were international.

It’s no accident that Hohol’s comments are directed squarely on the LSE’s AIM. Last year AIM began a concerted effort to compete with the TSX Venture by making direct appeals to Canadian firms to list in London.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(02/24/06)