Trading platform Aequitas is now going after the TSX’s listings business

Having captured about 2% of the market’s daily volume, the alternative trading platform now plans to host IPOs

Shopify staff at the NYSE opening bell

The Shopify team rings the opening bell at the NYSE on May 21, its first day as a publicly listed company. Taking some of the TSX’s listings business won’t be easy. (Richard Drew/AP)

Aequitas Innovations is preparing to go after the TMX Group on another front: listings. The upstart trading and exchange company, backed by financial heavyweights like the Royal Bank of Canada and Barclays, is now accepting applications from companies and issuers of investment products, offering an alternative to the Toronto Stock Exchange.

In March, Aequitas unveiled its trading platform, which is designed to prevent high-frequency traders from taking advantage of other investors. So far, Aequitas has captured about 2% of the average daily trading volume, according to the company. Aequitas brought its trading platform to market by strongly distinguishing it from the TMX Group, and is likewise doing the same for its listings business. Aequitas boasts that it has lower fees, and offers real-time market data at no cost. For companies that migrate from another exchange, Aequitas will waive the initial fees and the annual fees for that year.

There is demand for a listings alternative, judging from some of the submissions to the Ontario Securities Commission during the comment period before Aequitas launched. Peter Volk, the general counsel for TSX-listed Pacific Rubiales Energy, wrote:

“Having a choice of listings venues will no doubt put pressure on all exchanges to compete for new and existing listings and help drive down fees and improve the user experience. We see this as a positive development for issuers that will hopefully result in reduced financial cost and management time spent on the listing, so the resources can be focused on running the business.”

Beyond fees, Aequitas says it will enforce a higher set of requirements in some cases for companies looking to go public. Aequitas co-founder and CEO Jos Schmitt told Canadian Business earlier this year that one of the problems with Canadian capital markets is that companies launch initial public offerings before they’re mature enough to operate as publicly traded corporations:

“We want to look at organziations that are truly ready. There’s nothing worse you can do to a company than to allow it to go public when it’s not ready. That means that our listing requirements will be more stringent than those of the TSX to make people realize you don’t go public when you’re not ready.”

Still, it’s proven hard to take on the TSX. The Canadian Securities Exchange, which launched in 2004, has about 250 listings. The TSX and the Toronto Venture Exchange have 4,000. The CSE focuses on early-stage and small-cap companies, whereas Aequitas has its sights set on bigger fish. But companies want to list where they can be assured of reaching investors and liquidity, and that’s a difficult hurdle for upstarts to overcome. Aequitas is betting that its designated market maker program will help provide liquidity for companies that list with it, however.

The IPO market in Canada is pretty lumpy, too. Last year, there were only 14 IPOs in Canada compared to 73 in 2010, according to a study from PricewaterhouseCoopers, which examined Canada’s capital markets over the past four years. “Despite periods of feverish activity, the market was unable to sustain meaningful momentum,” the report concluded.

This year is looking more promising, with high-profile IPOs from the likes of Shopify, Cara Operations, and Stingray Digital. Sleep Country Canada also announced this week it’s looking to raise $200-million with an IPO.

Chart showing Canada’s IPO Market, 2010–2014