TMX POV - The Future of Financial Markets: What Canada Must Do Now to Win

With the support of a robust financial ecosystem, Canadian companies continue to grow and compete in a global environment. Rather than fully-formed, mature companies bursting onto the world stage, the majority of our public companies start out as small enterprises nurtured from inception: by their founding entrepreneurs and the powerful, interconnected network of investors, advisors and other stakeholders that make up our public markets ecosystem. This community plays a critical role in the success of the groundbreaking companies that will position Canada as a globally competitive economy into the future.

Growth-stage companies lead innovation across industries and grow into great companies. To continue achieving their objectives, these companies need the support of dynamic, imaginative and flexible capital markets.

The Importance of Public Venture for the Future Economy

Canada's public venture ecosystem has a proven track record of generating growth for issuers and driving economic prosperity. It is recognized as a global leader in funding the growth ambitions of entrepreneurs and early-stage companies across a range of sectors. Over the last decade, this ecosystem has helped support thousands of companies by providing them with access to capital-raising opportunities, which has allowed them to pursue their strategic objectives, create tens of thousands of jobs and generate economic prosperity in the communities in which they operate.

According to the federal government's key small business statistics in 2022, small and medium-sized enterprises (SMEs) in Canada now employ more than 8 million people, almost 70% of the total private labour force. They contribute more than 50%¹ of Canada's GDP and account for more than 40% of the total value of Canadian exported goods.

Not all of these SMEs have ambitions to grow into larger, multinational organizations. But of the ones that do, a large number of them take advantage of Canada's robust public venture financing markets. A strong public venture market is critical not only for the long-term growth and viability of these companies but also for the health of Canada's capital markets and the nation's economy.

Since 2010, more than 2,400 publicly funded SMEs have been listed on TSX Venture Exchange (TSXV), including 245 new international listings. These companies have raised approximately $85 billion in equity capital through 25,000 equity financings. Over 300 of them have graduated to Canada's senior market, Toronto Stock Exchange, and graduates account for 21% of the S&P/TSX Composite Index*. Obviously, these companies have made a significant contribution to our national prosperity.

The Challenges of Ever-Evolving Markets

Canada's unique and thriving public venture markets have long provided early-stage companies with cost-effective, efficient access to equity. These markets are not static. Modern public companies now have more choice than ever, with the advent of new funding models and the blurring of lines between public and private markets. But at the same time, they face a decline in the number of brokers committed to the public venture ecosystem, as well as additional regulatory complexity. Participants in this ecosystem, including TSXV, continue to advocate for our market with governments and regulators to lower regulatory burdens and enhance access to capital.

With the rise of self-service electronic trading and discount platforms and social media, SMEs in the public venture capital ecosystem also have to deal with shifting market dynamics as a new demographic of investors starts to participate in all platforms and venues.

For these companies, we want to examine ways to simplify and streamline rules and requirements and facilitate more efficient access to the capital they need to grow. We are working with our community to explore ways to increase the visibility and profile of innovative, high-growth, early-stage companies among modern investors, for example, to maximize the opportunities available to these companies for investor-backed growth.

We are also consolidating the power of Canada's public venture capital community in advocating for fair tax and policy treatment for public companies as well as equal access to government incentive programs to stimulate growth and empower and strengthen the public venture ecosystem into the future.

Together, our community of public capital markets will advocate with governments and regulators with a focus on ensuring that public company burdens are lowered, reporting standards are reasonable and tax policies are fair. We will also strive to align economic development initiatives with industry needs and create market structures that support trading liquidity.

We will be guided by direct feedback from SMEs, investors and other participants in our markets. We obtained this feedback in a comprehensive survey that we conducted in 2022-23 of stakeholders across the global venture community. We wanted to find more specific ways of reducing the barriers to public venture capital, expand the global issuer and investor base, and grow the overall ecosystem. We also wanted to explore the reasons why public venture capital is foundational for Canada's prosperity. Ultimately, we hoped to enhance the overall stakeholder experience and clear a path for new companies and investors to enter our ecosystem.

Based on extensive feedback harvested from in-person meetings, written comments and completed surveys from entrepreneurs, investors, financiers, lawyers, advisors, industry professionals, and regulators, we have turned our attention to accelerating exchange transaction reviews while maintaining market integrity and investor confidence, while exploring innovative ways to more effectively connect issuers with potential investors.

The Future of Public Venture in Canada

Our public venture ecosystem needs to modernize and digitize the stakeholder experience and deliver operational excellence by increasing digital access to products, services, and resources. Issuers, investors, and other market participants want accelerated time-to-market and lower costs. That involves us investing in people, improving process transparency and consistency, enhancing communications, providing greater access to tools and self-serve features, and accelerating turnaround times.

In recent years, the composition of our market has evolved materially: new sectors (like cannabis, crypto, and psychedelics) have emerged, new business models have been introduced, and the scale of some companies looking to join our market has grown significantly. The past few years have also seen an increase in market volatility, the unprecedented impact of COVID-19, new geopolitical tensions, technological advancements, and the increasing globalization of markets.

These changes have contributed to new expectations from market participants and, in many cases, compressed windows to fund and list new companies. Not surprisingly, companies and market participants want us to create new — and faster — pathways for entrepreneurs to go public, raise capital, and attain liquidity. Nor is it surprising that investors, keen to support strong and innovative companies, don't want us to compromise our standards.

TSX Venture Exchange launched our ambitious Venture Forward initiative in June 2022 with the aim of strengthening Canada's vibrant and vital public venture ecosystem. Following an in-depth, year-long consultation process with our stakeholder, we identified priority challenges and opportunities, and developed a comprehensive action plan to achieve sustainable, long-term success.

In response, we have committed to evolving our market to accommodate the growth companies of the future. We have created the TSXV Passport Listing Process, for example, tailored to applicants with a minimum pre-listing valuation, minimum arm's length financing, and certain other qualitative criteria. Applicants that qualify will benefit from accelerated review times and increased process transparency, but will continue to be subject to the same level of due diligence as we apply to all new listings.

At TSXV, we have made significant investments to eliminate key processing pain points and backlogs. With a centralized and cloud-based portal for issuers and other stakeholders called TMX LINX, we have automated more than 1,200 manual actions and materially improved processing efficiency and review times for several key transaction types. Today, over 10,000 issuer transactions are processed annually through TMX LINX.

To better support the growth companies of the future, we have undertaken several other initiatives, as well, including:

• transforming our pre-filing advisory service;
• new profiling tools and more platforms where issuers can interact with global investors;
• digital platforms to facilitate capital raising and streamline access to capital;
• prioritizing capital attraction in all global markets to increase investor participation in Canada's public venture market and attract new investors and dealmakers;
• modernizing our policies, including those related to escrow and evidence of value, to lower regulatory burdens, increase process transparency, accelerate review times, and lower costs.

While we have identified some major themes, we don't have all of the answers. Based on our consultations, we have developed near, and longer-term plans and published highlights of our findings and feedback along with planned next steps.

Issuers, investors, and other market participants want all parts of Canada's unique ecosystem — not just TSXV — to continue to innovate and adapt with the goal of lowering regulatory burdens, leveling the playing field relative to other funding options, and enhancing access to capital.

To retain its leadership role among the world's public venture capital markets, Canada needs an ongoing strategy to push the evolution of our unique and powerful capital formation ecosystem, serve the needs of modern stakeholders and sharpen our competitive edge in an increasingly borderless capital market landscape.

As a major participant in these markets, TSXV has committed to a collaborative, long-term initiative to engage our interconnected ecosystem of entrepreneurs, investors, financiers, lawyers, advisors, industry professionals and other public venture stakeholders in identifying priority challenges and to map out a plan to pursue workable solutions.

¹ Government of Canada website, Key Small Business Statistics 2022, ‘Highlights'

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