Canadian Securities Exchange to launch a senior listing tier for larger companies

Canada’s junior stock exchange is not just for junior companies anymore.

The Canadian Securities Exchange unveiled plans Thursday to launch a senior tier for the largest issuers listed on its platform. Roughly 100 CSE-listed companies will be gradually transferred to the new tier starting in May, providing them with access to a lower cost of capital and a wider investor base while positioning the CSE itself to compete more directly with the TMX Group-owned Toronto Stock Exchange (TSX).

Since launching in 2004, “we have grown from our startup roots,” CSE chief executive Richard Carleton said in an interview. “This is very much a case of us wanting to grow alongside our largest and most successful issuers.”

The senior tier will be “very heavily dominated” by cannabis companies with operations in the United States; such firms are listed on the CSE in part because TSX rules prevent any of its issuers from being in violation of U.S. federal law.

Of the 108 companies set to join the senior tier, 39 are in the cannabis industry. Mining and technology companies represent the other two major industrial components, with 29 of the former and 15 of the latter in the initial senior cohort.

It took three years of working with the Ontario Securities Commission and the British Columbia Securities Commission to get regulatory approval for the senior tier. While that roughly coincides with the deluge of U.S. cannabis companies listing on the CSE, Mr. Carleton said the plan “predates the cannabis boom.”

“The ultimate object of the exercise here is to ensure that senior companies receive a lower cost of capital,” he said. “Just as it is a lower cost of capital for companies listed on the Toronto Stock Exchange than it is for companies listed on the TSX Venture, we will be tracking very carefully whether companies on our senior tier are in fact rewarded with a lower cost of capital versus companies that are on the regular CSE market.”

That lower cost of fundraising would primarily come from becoming eligible for reduced requirements for margin trading, allowing investors to hold less money in reserve for securities they purchased with borrowed money. The Investment Industry Regulatory Organization of Canada (IIROC) publishes a list of companies eligible for reduced margins and is updated quarterly.

Currently, only TSX, TSX-V or NEO Exchange-listed companies are on that list. Getting senior tier CSE-listed companies added is where Mr. Carleton sees the potential for a competitive edge.

“Our job is to provide an environment where the cost of raising funds is as low as possible, and if that happens to be more competitive than other markets that they could list on in Canada, then that is a very powerful indication that we are on the right track,” he said.

“If we’ve got a mining company that was junior before and raising capital was going to cost them 14 or 15 per cent if they were listed on the classic CSE, but as they get more mature they can raise that money at 6 or 7 or 8 per cent because they are on the senior tier, that is how they are going to determine where they list.”

The TSX needn’t worry about having a stronger rival in the CSE, Mr. Carleton said, as he insists he’s less motivated by the ability to poach listings from competitors than a desire to keep CSE-listed companies from leaving.

“It is not going to be open season on the listings of any other exchange in Canada as a result of this,” he said.