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American Stock Transfer & Trust Co.’s expansion targets small players priced out of modern market demands.Sergey_P/Getty Images/iStockphoto

Giant U.S. stock transfer agent American Stock Transfer & Trust Co. will open a brokerage firm in Canada next year as it seeks to further diversify its operations during an era of consolidation in the traditional transfer industry.

AST, which controls major Canadian stock transfer agent CST Trust Co., launched a new brokerage business in the U.S. in 2012 to serve shareholders and employees whose companies use AST's services, and now plans to export the same strategy to Canada, said AST chief executive officer Mark Healy.

Mr. Healy, who previously was a senior executive at Fidelity Investment's brokerage arm, said AST is currently exploring whether to buy an existing Canadian brokerage firm or launch a new brokerage from scratch. He said the company is working on a filing for a Canadian brokerage licence for the nascent CST Investor Services so that it can develop either option.

"For some reason, transfer agents have cornered themselves off in a corner of the room saying, 'We don't belong with the big boys of the world and the investment banks of the world,'" he said in a recent interview during a visit to Toronto.

"Why? We are very meaningful, and we want to be very meaningful through the life cycle of an issuer from their birth through to maturity, and the same with a shareholder."

The brokerage expansion has grown out of AST's core service of managing the transfer of shares for 4,800 public companies with seven million investors who buy or sell their securities.

Mr. Healy said his company was routinely contacted by shareholders who wanted to sell their securities, but did not have brokerage accounts. AST could only tell them they had to open an account elsewhere before they could conduct a trade.

"We were not bringing value to the customer there. We were just making them mad at us, and we had nothing to do with it – we didn't set the rule," he said. "So we said, 'Let's just set up a brokerage.' … Now if you call up, we just transfer you to our investor services group and open a live account for you.'"

The core of the business comes from employee stock-ownership plans, which allow workers to accumulate shares in their employer.

AST manages 500 employee share plans for corporations across the U.S. and Canada, with a total of one million employee participants, and it creates a brokerage account for each U.S. employee who participates. When those employees want to sell their shares or build a bigger portfolio with other holdings, they have the option of using their existing AST brokerage account.

CST's business also includes 50 corporate stock purchase plans in Canada, which Mr. Healy expects will provide an "incubator" for the new CST Investor Services, which is expected to launch late next year.

Mr. Healy said the business has focused on small investors with as little as $2,000 in holdings, who are the "most under-served people in the North American market."

The expansion comes as the transfer agent business has consolidated substantially in recent years as growing technology demands have unmanageable capital costs for small players.

The number of publicly traded companies in the U.S. has fallen by more than 40-per-cent during the past 15 years as firms have gone bankrupt or opted to become private in the fallout of increasing regulations and the impact of the financial crisis.

"For 50 years before that, public listings went up by 1 per cent every year – it was a perfect little ecosystem," Mr. Healy said. "Then bang, the financial crisis hits and half the companies are gone. That's a huge change for all the industry providers out there."

That continuing loss of transfer-agent business led AST to increasingly diversify in recent years, including a major push to offer expanded services in Canada.

Earlier this year, AST acquired major U.S. proxy solicitation firm D.F. King & Co., and is in the process of rebranding its Canadian proxy solicitation firm – CST Phoenix Advisors – into D.F. King Canada.

Mr. Healy argues the deal "changes the ball game substantially" for proxy solicitation in Canada.

Proxy solicitors work for companies or dissident shareholders to help manage corporate shareholder votes. Most major Canadian solicitors previously used D.F. King as their U.S. agent for cross-border work, Mr. Healy said, but that "pipe is closed" now that D.F. King is owned by AST and is working exclusively with CST Phoenix in Canada.

Mr. Healy says the affiliation with D.F. King will make CST Phoenix a formidable force because of the U.S. and European market access it brings, and because of the advanced technology it employs. He argues stand-alone solicitation firms cannot absorb the expensive technology investment needed in the sector.

"A lot of the tools and analytics and tactics [D.F. King] used in their business are going to now be brought to bear in our Canadian business," he said.