CSE Performance, Industry Insights

Continuing to Deliver: An Interview with CEO Richard Carleton

CEO of the CSE, Richard Carleton at CSE Day Toronto, Spring 2015
CEO of the CSE, Richard Carleton at CSE Day Toronto, Spring 2015

Earlier this month, Canadian Securities Exchange CEO Richard Carleton sat down for an interview with Peter Murray of Kiyoi Communications to discuss the latest developments at the CSE.  Among the topics covered were the performance of the CSE in 2015, the expanding international profile of the CSE, the landscape for early-stage firms raising capital as well as the upcoming enhancements to the CSE.

Below is the full text of their interview. (Questions from Peter Murray have been placed in bold for clarity):

1. Let’s start with a review of 2015 in general. The Canadian Securities Exchange issued a press release recently highlighting continued growth in issuers listed, trading volume and other key metrics of performance. Can you comment on these and is your success a sign of companies finding that financing and other business activities became somewhat easier last year?

Actually, I think it is an article of faith in the industry that it is more difficult at the moment to raise public capital than it has likely been in a generation. And that is not just for companies that operate in the commodities space — given what we’ve heard from the entrepreneurial community it has been a challenge for companies in all sectors to raise capital over the past 12 months.

That is why I believe it is important that despite those difficult conditions we grew considerably last year over the record pace we set in 2014. We had the strongest year ever in terms of trading volume and grew the issuer base by 20%, among other achievements. I think the underlying message of the exchange, which is that we work with a broad number of industry participants to deliver the lowest cost of public capital, really is resonating with the entrepreneurial community. And frankly it is perhaps as a result of the difficult times that we have seen our business continue to grow.

2. It was encouraging to see several companies based in the United States make their public trading debuts on the Canadian Securities Exchange in 2015. Why did they choose the CSE over the alternatives and how is the listing process different for a company domiciled outside of Canada?

As with a Canadian company, an international company has to become a reporting issuer in one of the Canadian provinces before they qualify to list on the CSE. That is accomplished in one of a variety of ways, which can include an offering or non-offering prospectus. At some point in the not too distant future there will be the opportunity to do so via an offering memorandum. There are also the traditional techniques of reverse takeovers and asset purchases that have been used in Canada for years for private companies to become public.

For US companies in particular, I think it is fair to say that regulatory costs and civil liability burdens have put a significant hole in their early stage public capital markets. Much of the early stage capital is coming from venture capital and private equity sources. Companies look at the public market as an exit, not necessarily as a means of raising growth capital. So, when people who need to raise from $5 million to $50 million to build a company understand that you can do that in the public markets in Canada, it becomes a very attractive option.

Additionally, I would point out that entrepreneurs who take their companies public can often retain more control over the future direction of the enterprise than if they accept investment from a venture capital or private equity firm. You often see venture capital and private equity investors exert a very heavy hand on the future direction and management of businesses. From a cost perspective and that of the ability to control your destiny, people around the world find Canada a very compelling place to raise growth capital.

3. Can you give us some feedback on your interaction with issuers in 2015? And looking forward, what do you sense their goals and expectations are for 2016?

Let me start in more general terms by highlighting the results of a series of events we instituted in 2015 called CSE Days. These took place in Vancouver, Toronto, Montreal and New York. We invited issuers from each of the Canadian cities to spend a day with us talking in the morning about issues of specific interest to listed companies. We also focused on helping companies improve their presentation skills by having coaches work with their executives. We concluded the day with a mixer event where the corporate finance community was invited to meet the issuers and the keystone was the companies delivering two-minute pitches to the audience. Our issuers universally found these days to be helpful. They also found it worthwhile to meet not just their peers in the CSE issuer group, but to be introduced to a broader cross-section of the advisors and corporate finance professionals working in each city.

As far as what issuer goals and expectations are for 2016, I don’t think anybody is expecting conditions to change dramatically for the better in the commodities markets. The belief seems to be that it will continue to be a challenging environment for early stage companies of all kinds to raise capital. That being said, it is abundantly clear that there is more investor interest in technology, biotechnology and biopharma undertakings. Through the applications we are receiving we see what seems to be a general rotation of investor interest into those sectors.

4. Are there any other key developments from 2015 to highlight?

One of the first things the Canadian Securities Exchange decided it had to deliver was full electronic access to all of the discount brokerages operating in Canada, given that retail investors play such an important role in junior capital formation. It actually took until spring of last year to bring on board the last of the bank discount brokerage firms. And we saw as each of them came on over the last couple of years, significant enhancements in both the trading activity and market quality. That was a really important milestone, not just for the organization but for the issuers, and one I am pleased to say that we finally completed last year.

5. As we enter 2016, what are the trends you hear from the investment community, and how will these affect the CSE and its issuers? How can the CSE influence those trends?

As we start 2016 there is no shortage of concerning news. I recently heard Ian Russell, President and CEO of the Investment Industry Association of Canada, present the results of his organization’s CEO survey conducted in November, where they spoke to almost 200 of the chief executives of the registered investment dealers in Canada. The picture they painted was quite bleak. They anticipate that costs, chiefly driven by regulatory initiatives, will outstrip any revenue growth, and that there will continue to be a large number of independent dealers in financial distress as a result of difficulties in traditional strengths of the Canadian economy.

In working with that community we continue to look for ways to reduce their cost of operating wherever we can, to try to bring more business opportunities to the dealer community and ideally lower their cost of operations.

There are definitely things we can do as an exchange as well and international initiatives are a good example. When we attract companies from overseas to list in Canada, they are going to use Canadian dealers, lawyers, accounting firms and investor relations professionals to manage their go-public process. So we are bringing net new business opportunities to the local community.

In addition, we certainly are going to be part of the industry discussion about ways to try to improve the trading process in a manner that protects enterprise values for issuers and their investors.

6. Let’s discuss one of your international initiatives. The Canadian Securities Exchange signed a Memorandum of Understanding with the Taipei Exchange in November, and this comes on top of a close working relationship with the OTC Markets group in the United States. What benefits are there to the exchange itself from such international relationships? How about for issuers?

Really, the two questions are intertwined. We find that when companies list in jurisdictions in addition to Canada and have raised money in those jurisdictions, their liquidity profile improves overall. We see tighter spreads and deeper markets for domestically listed companies that are also quoted on the OTC market in the US or Frankfurt in Europe.

Many Canadians aren’t aware that Taiwan is a very dynamic economy heavily involved in precision manufacturing. Taiwan has a sophisticated material science community and in fact enjoys a large positive trade balance with the People’s Republic of China.

The issue that business people in Taiwan have, which is very familiar to Canadians, is that notwithstanding that expertise, it is a relatively small economy, with a population of some 22 million.

As a result, Taiwanese companies are looking for access to the global economy and over the years, for a variety of reasons, have looked to the United States for public capital and to establish that North American presence.

The CSE has always had a strong proposition for companies looking to access North America but at a significantly lower cost and regulatory footprint than they would see in the United States. We had an opportunity to meet with a variety of members of the Taiwanese financial community, including the Taipei Exchange, which is the medium and small enterprise exchange there. We have agreed to compare notes and look for opportunities to promote our issuers in the Taiwanese market, while also searching for opportunities for issuers on their market to potentially list in Canada and obtain access to North America.

For our issuers it is really the same thing. Taiwan has a sophisticated marketplace which is prepared to invest in early stage stories, especially in the technology space. We have a lot of companies that are looking to obtain an Asian presence, and just as we are a low-cost alternative to the United States, there are a lot of advantages for companies to use Taiwan as their stepping stone into the Asian market.

7. The regulatory landscape is constantly developing. Anything to comment on with regard to change at the CSE or ongoing collaboration with regulatory authorities?

We will be publishing proposed changes to our listings criteria in the next few weeks. Keep in mind that we have not amended the thresholds to qualify for listing since the material was originally filed with the Ontario Securities Commission in 2002. We will be raising the bar, but I don’t think the new standards would have had an impact on companies we have listed over the last couple of years had they been in place when those companies applied to us.

We will also likely introduce continued listing requirements that will entail certain enterprise value, size and business activity with the notion that the companies listed on the exchange must have a workable business plan and sufficient capital on hand to fund the programme for a reasonable length of time.

Another initiative is cooperation with the market-making community in Canada to see how we can incent their participation in our markets to a greater degree than happens currently. This will be with a view to ensuring there is a meaningful, two-sided market for every security listed on the Canadian Securities Exchange. It is a real challenge for junior markets – and this is true around the world – to provide for appropriate levels of liquidity for early stage companies, but we have a dealer community in Canada that is working with us to come up with solutions.

8. How do you continue to define the CSE in 2016? How does it differentiate itself from the other exchanges that small-cap and/or early stage companies might consider when they are thinking about going public?

It may sound like a cliché, but we always bring everything back to our overall mission, and that is to deliver the lowest cost of public capital to entrepreneurs looking to tap the Canadian equity markets. With that very clear mandate in mind we can measure all of the activities we are contemplating and if we are making progress in that direction then we know we are on the right track. We believe that not just given our fee structure but the overall cost structure for companies listing on our exchange, that they are in fact achieving the lowest cost of public capital as things stand currently.

We also need to continue to emphasize that the CSE serves entrepreneurs and that we have built an ecosystem that puts them in the middle. We are an independent exchange guided by the voice of the entrepreneur and that truly sets us apart.

Events, Industry Insights

Frugal Fare, Intellectual Feast: Challenges to Innovation for Small Cap Firms with Jeffrey MacIntosh

Macintosh_web
Professor Jeffrey MacIntosh, Toronto Stock Exchange Chair in Capital Markets Law at the University of Toronto

Innovation is a key component of a competitive economy. Often, however, that innovation also requires taking risks. Many small cap firms take on the challenge and risk of finding innovative solutions to problems facing the world today and in the process help raise the wealth and well-being of their host country. What then, is the appropriate role for Government to play in facilitating innovation from entrepreneurs, especially against the current challenging environment for public small cap firms?

This and other fascinating issues related to innovation in Canada will be discussed at an event (now sold out) co-sponsored by the Canadian Securities Exchange and the University of Calgary’s Faculty of Law. Entitled “Frugal Fare, Intellectual Feast” the session will certainly provide both. The keynote speaker, Professor Jeffrey MacIntosh, is the Toronto Stock Exchange Chair in Capital Markets Law at the University of Toronto and is a thought leader in the conversation on innovation policy within Canada.

In particular, MacIntosh’s talk will highlight the Federal Government’s 2011 report Innovation Canada: A Call to Action and the impact to small cap firms of Government policy shifts regarding the Scientific Research & Experimental Design (SR&ED) tax credit program.

The event will take place at the Metropolitan Centre in Calgary on January 15th from 11:45am to 1:15pm.

For additional reading on MacIntosh’s perspectives on innovation in Canada and SR&EDs, the following links may be of interest.

  • Implications of the Recommendations of the Expert Panel on Federal Support to Research and Development
  • Why Cut Innovation?
Industry Insights

Following the Money: Panel Discussion on Raising Capital in Canada

If there’s one thing common to companies of all sizes and structures, it’s that they all need capital to grow and thrive. The ecosystem of how and where raising capital takes place, however, has recently been undergoing rapid evolution.

Whether or not this ecosystem and its stakeholders are moving in the right direction was the central theme of a panel discussion at the 2014 Canadian Investor Conference entitled: “Financing Methods: Where is the Money?”

Organized by Cambridge House International in Toronto, the panel included distinguished members from across the investment industry landscape and was moderated by BNN anchor and reporter Andrew Bell.

The panelists included the CEO of the CSE, Richard Carleton; President of the TSX Venture Exchange, John McCoach; President, and CEO, OTC Markets Group, Cromwell Coulson; President and CEO of BoardSuite, Oscar Jofre; and Co-Founder and Managing Director of WoodsWater Capital LP, David Franklin.

The discussion was a lively one offering a number of perspectives related to the availability and accessibility of capital for early-stage companies in Canada. Among the topics that the panel covered were why retail investors have been reluctant to participate in resource investment markets, the viability of equity-based crowdfunding and the challenges facing early-stage companies in raising capital.

For ease of reference, the following is a list of topics that Richard Carleton spoke to as part of the panel. To view his sections of the talk, simply click on the urls below:

  • Why the retail investor is ‘on strike’
  • Investor ‘malaise’ with respect to resource investing
  • Visibility for Canadian companies to US capital
  • Perspectives on equity-based crowdfunding
  • Overall thoughts on raising capital in Canada

As was shown in the panel discussion, there are many different options now available to firms interested in raising capital. In spite of their differing positions on which direction or platform would be the most viable, what all the participants agreed upon was the high degree of change the capital raising landscape is experiencing.

From the CSE’s perspective, the positive growth and continued interest by companies to list on the Exchange are an important signal from the market. This interest is a validation that the CSE plays an important role in helping entrepreneurial firms attract and obtain the kinds of capital required to grow their business.

While this panel highlighted the uncertainty as to where the money is, it also hinted that a marketplace that efficiently connects capital to innovators is likely to be the place where that money will be going.

Click below to watch the video of the full panel discussion.

Industry Insights

How to Make a Market: CSE Provides Comments on Proposed Changes to NI 21-101 and NI 23-101

When it comes to running a successful enterprise, savvy entrepreneurs understand the value of being an effective listener.

This lesson is one that the CSE has witnessed time and again from the growing numbers of entrepreneurial companies listing on the exchange. It is also a lesson that has helped shape recent comments made by the CSE’s CEO, Richard Carleton, on the difficult task of crafting effective policy for current and future Canadian securities marketplaces.

Along with other major stakeholders across the Canadian securities landscape, the CSE has contributed its insights on the proposed changes to the securities rules: National Instrument 21-101 Marketplace Operation (NI 21-101) and National Instrument 23-101 Trading Rules (NI 23-101).

One of the biggest challenges common to all market stakeholders is how to respond to rapidly changing marketplaces and technologies.

Issues such as data center location and data stream distribution structures may seem innocuous to many observers however the consequences of the decisions made on these ultimately influence the answers to questions such as: Who gets market trading information first? What kind of downtime the market can expect in case of a disaster? And who can access the most detailed trading information (and for what purpose) being generated by marketplace activity?

In reviewing responses received by the Canadian Securities Association (CSA), as part of their request for comments, it is fascinating to note the degree of complexity that arises from many different opinions on so many of the issues being raised.
It is no small feat to sort through these differing opinions let alone create sound, balanced policies that address the needs of today’s marketplace while also leaving room for tomorrow’s marketplace to evolve. And yet, this is the challenge that lies before Canadian securities regulators.

For its part, the CSE continues to demonstrate its commitment to the needs of the current market as well as to the marketplace of the future. Philosophically and operationally, the CSE has strategically pursued creating a fair and efficient environment for entrepreneurial organizations and investors to come together. Reducing operating burden and reduced fees are certainly no coincidence.

When it comes to setting the rules for such a complex and dynamic marketplace, the devil is most certainly in the details. Stepping back for a moment, though, it is precisely the regulatory and administrative details that the CSE understands can be a challenge to the speed at which many companies can grow.

With some time still left before changes to NI 21-101 and NI 23-101 are finalized, there is likely room for further debate. Of the voices that have contributed to the dialogue thus far, however, there is one that warrants being listened to most carefully of all: the market. It’s a voice that great entrepreneurs tend to listen to and one that favors keeping things simple.

Industry Insights

In Need of an Invisible Hand? Proposed Amendments to NI 23-101 Trading Rules Cause a Stir

The waters for securities intermediaries in Canada seem like they’re about to get a bit choppy.

Recently, Canadian Securities Administrators announced that some of rules that govern the transaction of securities are up for review. Specifically, amendments are being proposed to the National Instrument 23-101 (NI 23-101) Trading Rules in the areas of trading fees, data fees and most notably, the order protection rule (OPR).

Given the stakes involved, the proposed changes are almost certain to generate a spirited debate between those in favour of and those opposed to the amendments to the OPR.

One such point of view came from Jeffrey MacIntosh via the Financial Post. In his recent article, MacIntosh takes aim at the proposed NI 23-101 Trading Rules amendments and provides an insightful analysis about the potential impact they may have on the multi-marketplace model.

While there are other issues as well, OPR appears to be a linchpin, and will therefore be an important topic to continue tracking. If you have thoughts or comments on the proposed amendments to NI 23-101, we’d also love to hear them – feel free to leave a comment below.

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Thank you for your response. ✨

Industry Insights

Angels & Devils: The promise and pitfalls of crowdfunding for capital raising

The following views and opinions presented in this post are solely those of the author and do not necessarily represent those of CSE – Canadian Securities Exchange.

Crowdfunding conceptLove it or hate it, crowdfunding looks like it is here to stay. Although the debate on whether crowdfunding is ultimately beneficial or harmful is still ongoing, it appears that major stakeholders from investor groups to securities regulators are beginning to take the idea of crowd-sourced capital raising seriously.

Fairness is a Two-Way Street

Like most promising ideas, the devil, it seems, is in the details.

The spirit of crowdfunding espouses greater access to investing opportunities by smaller, non-accredited investors.  On the other hand, the rules currently in place are designed around curbing widespread participation in “risky” investments.

Striking a balance between investor participation and protection is no easy feat. This balancing act directly impacts industry’s ability to access capital while meeting disclosure requirements.

To be considered as an alternative to current methods of capital raising, crowdfunding needs to be in-line with existing controls on capital raising in a heavily regulated and highly structured capital market infrastructure. After all, the premise is that crowdfunding should increase the ‘fairness’ of market participation.  In the spirit of ‘fairness’ however, that should mean that crowdfunding doesn’t undermine the existing regulatory checks and balances put in place to protect both investors and industry.

Exactly how stakeholders will come to some consensus of balancing participation and protection is still being ironed out. One of the voices in the ongoing conversation about crowdfunding in Canada is the well-respected angel investor, Mike Volker.

A Moving Target

In a recent blog post – entitled “Crowdfunding = Going Public“, Volker presents a picture of an evolving capital-raising landscape in which crowdfunding will essentially mirror the existing landscape but in a much more fragmented way.

Volker’s article highlights the key issues confronting crowdfunding and makes several interesting points.

First, it simply is not fair to exclude investors based their economic standing (ie. the 99%), and that fundraising should be more democratic and inclusive of “non-accredited investors”. (Note the recently implemented “Existing Security Holder Exemption” is a step in the right direction).

In addition, Volker challenges the assertion that fraud is the bigger culprit for investors losing money, pointing instead to businesses failures that plague early stage companies. Simply put, the overriding risk that investors must take-on when making an investment in an early-stage company is that the company or idea simply won’t succeed.

Regardless of fairness or risk,  the main point Volker highlights is that capital is being left on the sidelines as a result of the current system. Non-accredited investors are being held out of the market, due to regulation, and not able to participate in the high-risk, high-reward investments extended to the “wealthy” 1%.

Crowdfunding Hurdles

Letting non-accredited investors participate in earlier stage deals is a key driver behind crowdfunding, but as Volker points out, implementation will be a challenge.

Three points in particular stand out:

  • Share registration and logistics of shareholder management;
  • Standardized continuous disclosure, and
  • Enabling liquidity for investors.

Volker tallies all of the above points and comes to the conclusion that innovations at the stock exchange level, similar to what the CSE has undertaken, could be a good answer to the questions that crowdfunding is trying to answer.

Specifically, with innovation, existing infrastructure can enable companies to efficiently raise growth capital from the public while enabling all investors with adequate, continuous disclosure within a regulatory framework that is fair to all parties involved.

Change is Inevitable

The writing on the wall is clear. There is an appetite by both investors and companies to connect and participate in capital flow in ways that the current system just isn’t providing. Whether this participation need is met by crowdfunding or via existing channels, it is clear that the angels and demons would be better served preparing for change rather than arguing over it.

To read Mike Volker’s full post, click here: http://mikevolker.com/crowdfunding-going-public/

Industry Insights

Reminder: OSC Participation Fee Relief Application Deadline Coming Up

The March 31st deadline to apply for OSC participation fee relief is just around the corner.  As a reminder, earlier this year OSC Staff Notice 13-704 mentioned that certain reporting issuers (class 1 and 3C) and smaller registered companies may be eligible for OSC participation fee relief.

According to the OSC, this initiative was developed as a response to the challenging conditions faced by market participants, specifically those who experienced significant decreases in market capitalization (for reporting issuers) and revenues (for registered companies).

For reporting issuers, the fee relief may range from $160 to $13,350 and for registered firms, the range is projected to be between $235 and $17,725. The notice states that most firms will end up qualifying at the lower end of the range.

To help ensure the application process goes smoothly, it is recommended that supporting documentation be provided on how previous fiscal market cap has been calculated.

The full details on eligibility, documentation and support can be found by clicking on the following link.  There is no cost to apply.

Industry Insights

CSE Included in CSA Notice 45-312, Exemption for Existing Security Holders

Provincial flags of CanadaThe CSE is happy to report that the Canadian Securities Administrators (CSA) have included the CSE to changes made to Multilateral CSA Notice 45-312 – Proposed Prospectus Exemption for Distributions to Existing Security Holders. This rule applies in all provinces except Ontario and Newfoundland, and we are encouraging those jurisdictions to climb aboard ASAP.

It should be noted that the Ontario Securities Commission (OSC) will also be introducing several capital raising prospectus exemptions in the coming week – more to come on this topic as details emerge.

In effect, this exemption allows companies to raise funds from existing shareholders via private placements without having them meet other exemption criteria such as accredited investor status. Incumbent investors will benefit from expanded investment opportunities as a result of this exemption – a win-win for listed companies and their shareholders.

Regarding the additions to exemption, Bill Rice, Chair of the CSA and CEO of the Alberta Securities Commission (ASC), had this comment:

“Certain changes to the exemption were made in response to suggestions that were submitted, including expanding it to include issuers listed on the TSX and CSE.”

CSE is pleased to know that its comments on the matter were recognized and responded to. You can read the CSE comment letter here, originally submitted on January 17th, 2014.

The Exchange would also like to thank its community supporters, including many in the legal community that also forwarded their support of CSE’s inclusion into the exemption.

Further Information Regarding CSA Notice 45-312

To read the full press on the BCSC website please visit: https://www.bcsc.bc.ca/release.aspx?id=19338

The full exemption can be found on the BCSC website as well: https://www.bcsc.bc.ca/policy.aspx?id=19324&cat=4%20-%20Distribution%20Requirements

CSE Issuer Stories, Industry Insights

Medical Marijuana Stocks: A Look at the Budding Industry

Colbert_Marijuna_webThe recent interest in marijuana as an investment idea is garnering more than just a little buzz from the investment community and beyond.

As the regulatory landscape around marijuana continues to evolve in the US and here in Canada the conversation has also begun to change. The concerns, it appears, have been shifting away from whether or not it is acceptable to use, and towards understanding circumstances for appropriate use and how best to structure as well as regulate the cultivation, processing, distribution and (of course) taxation.

While some of the conversation on the wave of ‘ganjapreneurs’ is tongue-in-cheek (see Stephen Colbert’s recent view on the matter here), the Canadian conversation is currently focused on how marijuana for medicinal purposes can be made more widely available.

The following piece by Proactive Investors, provides some background to the recent interest in medical marijuana stocks here in Canada.  It highlights two CSE-listed companies, Enertopia (CSE:TOP) as well as Abattis Bioceuticals (CSE:ATT) as emerging players in this space.

Another recent addition to the CSE listed company roster – Next Gen Metals (CSE:N) – has also identified itself as a participant in the hemp and medical marijuana space having recently created a division to address this market opportunity. Southbridge Resources (CSE:SOU), a CSE listed company, also recently announced that they are making possible inroads into the sector with the potential acquisition of Vodis Innovative Pharmaceuticals Inc.

Without question, the road ahead on marijuana as investment appears to be paved with uncertainties. Nevertheless, entrepreneurs and investors are already at work trying to find where and when ‘budding’ opportunities in the ‘pot-com’ industry are going to present themselves next.

For further context, read the full article on the topic at Proactive Investors.

Industry Insights

CSE Chairman Talks Regulation on BNN

CSE Chairman Thomas Caldwell went One-on-One with Andrew McCreath on his weekly BNN program to discuss regulation and the markets and most pressingly addressed the question: Is too much regulation hurting the securities industry?

Click here to watch the entire interview discussing regulation

Tom Caldwell discussed regulation on BNN
Tom Caldwell discussed regulation on BNN

Tom, a vocal advocate of improving securities regulation in Canada, lent his thoughts on the current state of “over regulation” in the Canadian securities industry, exemplified by his early comments in the interview :

“I think we’ve reached a tipping point where the volume, the mass of regulation is so great – and a lot of it is not substantive in protecting investors – but the volume is representing a massive cost, not only to independent brokerage firms, but also to companies raising money – ergo it’s impacting the economy.”

Tom then touches on the spiralling growth of regulation as illustrated by this point:

“Take a look at the Ontario Securities Act – a year ago it was 2800 pages, this year it’s 3500 pages. it’s been expanding at 20% a year.”

One issue he is particularly concerned about is the upcoming Client Relationship Model, which could have dire consequences on transactional brokers that invest in junior companies:

“Brokers will no longer recommend junior or new companies to investors. The risk is too high for the broker – it’s going to hurt that industry big time.”

From a securities firm perspective, the increasing growth of regulation is making the business model of running a brokerage unsustainable:

“The costs of regulation are now the killer… typically one third to one half of all your administrative costs relate to regulation, that is an unsustainable business model.”

Ultimately, Tom offers his thesis on where the industry needs to look to improve, for the betterment of the economy:

“I think we should take a look at securities regulation and see how we can make it better – better being simpler… because in securities regulation less is more, simpler is better. Because it is easier to police and it is easier to focus on from the broker to comply.”

Not dismissing the importance of regulation (it is very important), Tom makes the telling statement about how growth in regulation can be misinterpreted as a positive by saying:

“Sarbanes-Oxley never saved one investor one dollar!”

The second portion of Tom’s interview focuses on his market outlook.

Click here to watch hear Tom’s view on the markets

Tom_Caldwell_BNN_2

Some quick insights from the second portion of his interview with Andrew:

  • A self-identified “incurable optimist”, Tom is still positive on the markets – both in Canada and the US.
  • He still sees value in some stocks that others might not including Barrick Gold, bought as a turnaround last year (he’s a self-professed “garbage man”),  and US Banks including Citibank, Morgan Stanley, and Bank of America – who have tremendous earning power when the economy improves. He believes they will become substantial dividend payers again as they gradually reacquire stock.
  • Likes Canadian banks as an investor but not as competitor.
  • Inflation will be back and it makes sense to own stuff rather then be a lender in this type of environment.
  • Tom discusses Urbana Corporation (CSE:URB) and thinks there is a great model with closed-end funds as they are cheaper to run than a mutual fund. He attests that a lot of fortunes were made in these vehicles 60 years ago.