Capital Migration

For much of the past decade, stock exchanges in Toronto and London have tried to attract small-capitalization companies based in the United States. They don’t have much to show for their efforts, but don’t expect them to stop trying anytime soon.

Consider TMX Group, which includes the Toronto Stock Exchange and its baby sister, the TSX Venture Exchange. Last November, TMX brought its road show back to Minneapolis for an event that featured two panel discussions and private meetings with listing prospects. TMX plans to send its recruiters to the city again in 2010.

Then there’s Mark McGowan, who runs AIM Advisers, a California-based consultancy that represents AIM, the London Stock Exchange’s Alternative Investment Market for small caps. McGowan is crisscrossing the country to explain the workings of AIM in face-to-face meetings with small-business executives and the professionals who handle their legal and financial affairs. He has penciled in a visit to the Twin Cities this spring.

These two exchanges differ in many ways. “Small” is larger for AIM, where listed companies’ average capitalization is around $69 million. It’s only $16 million on Toronto’s Venture Exchange, where companies are generally in earlier stages of development.

But advocates for both AIM and TSX Venture have one thing in common: They share a belief that for many reasons, the U.S. capital markets for publicly traded companies are not functioning well enough at the smaller end of the market. Both want to be the needed alternative.

Minding the Gap

“We see a gap in the capital markets that we’re filling,” says Ungad Chadda, senior vice president of the Toronto Stock Exchange.

Studies of initial public offerings, done for the Grant Thornton accounting firm this year, define the gap. The latest of these reports is highly critical of the U.S. capital markets.

David Weild, founder of the New York firm Capital Markets Advisory Partners and a former vice chairman at Nasdaq, co-authored the reports. He found that by 2008, listings on the three major U.S. exchanges (New York Stock Exchange, Nasdaq, American Stock Exchange) had fallen 55 percent, adjusted for growth in the economy, from their peak in 1996. That was by far the worst showing among eight of the world’s leading stock exchanges.