What it means
TMX Group was formed through a merger of the group that ran the Toronto Stock Exchange and the Montreal Exchange in 2008. Its best-known market is the Toronto Stock Exchange (TSX), where many of Canada's largest companies are listed, especially in banking, energy and mining.
A second market, the TSX Venture Exchange, serves smaller and earlier-stage companies. The Montreal Exchange is the group's derivatives market, which trades contracts such as futures and options.
Derivatives are financial contracts whose value depends on an underlying asset or rate, and they are used by companies to manage risks such as changes in interest rates. The group also owns clearing and settlement services, which make sure trades are completed and money and securities change hands.
The group's revenue has several streams. Companies pay fees to list their shares and to remain listed, traders pay for each trade, and data customers pay for prices and analytics.
Because these sources behave differently, the mix helps to smooth earnings when trading activity is quiet. For a business, TMX Group matters in several ways.
A company that wants to raise money from investors may choose to list on one of its markets, and an investor buying Canadian shares will almost certainly trade through it. Treasurers who hedge interest rate exposure in Canadian dollars may use its derivatives.
Exchanges around the world compete for listings and trading volume, and they must keep their systems fast and reliable. Regulators in Canada oversee marketplaces to protect investors and maintain fair trading, and companies that ignore the rules risk fines, trading suspensions or delisting.
Anyone using the exchange should expect rules on disclosure, trading halts and market conduct. As a listed company, TMX Group reports its own results and faces the same expectations as its customers.
Its performance tends to rise in busy markets with lots of trading and new listings, and fall when activity slows. This makes it a useful way to read the overall health of the Canadian capital markets, and analysts often compare its trading volumes with its share price to judge how the cycle is turning.
In practice
Real-world examples.
Example
A Canadian mining company wants to raise $50 million from investors to develop a new site. Its finance team compares the Toronto Stock Exchange with other markets, and chooses Toronto because many investors in mining shares trade there.
Example
A start-up with a promising technology but little revenue lists on the TSX Venture Exchange. The lower costs and lighter requirements suit its stage, and the listing gives early investors a way to sell their shares. As the company grows and meets the stricter requirements, it may later move up to the senior market, which would widen its pool of potential investors.
Example
A Canadian bank's treasury desk uses interest rate futures traded on the Montreal Exchange to hedge changes in borrowing costs. The hedge reduces the uncertainty in the bank's budget for the year, and the exchange's clearing service reduces the risk that the other side of the contract fails to pay.
Case study
Seen in the real world.
Northgate Resources is an illustrative, fictional mining company that planned to expand its operations. The board needed $120 million and had to choose between borrowing from a bank and selling new shares.
The chief financial officer compared the cost of each route. Bank debt would carry interest and covenants, which are conditions the lender imposes, while a share offering on the Toronto Stock Exchange would dilute existing owners but add no repayment burden.
The illustrative board chose a mix, selling shares for $70 million and borrowing $50 million. The CFO noted that the listing also gave the company a visible share price, which helped when it later used shares to pay for a small acquisition. The board also accepted that being listed brings continuing costs, including annual fees, audit requirements and regular disclosure to the market.
Watch out
Common mistakes.
- Thinking TMX Group is a government body, when it is a private company that is itself publicly listed.
- Assuming the Toronto Stock Exchange and the TSX Venture Exchange are the same market, when they serve different sizes of company.
- Forgetting that exchange fees and data costs are part of the cost of being a listed company.
Questions
People also ask.
What does TMX Group own?
It owns the Toronto Stock Exchange, the TSX Venture Exchange and the Montreal Exchange, along with clearing and market data businesses.
How does TMX Group make money?
It earns listing fees, trading and clearing fees, and income from selling market data and related services, so its results tend to rise in busy markets and fall in quiet ones.
Why would a company list on its markets?
Listing gives access to a large pool of investors, a public share price and a way for early backers to sell their holdings, but it also brings ongoing fees and disclosure duties.
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