What is the CSE?

CSE

Recognized as a stock exchange in 2004, investors are likely more familiar with the Canadian Stock Exchange (CSE) under its former name: the Canadian National Securities Exchange (CNSX). Currently, the CSE is operated by CNSX Markets and works to provide an efficient alternative to the TSX Venture Exchange for companies that wish to go public in Canada.

The exchange focuses on investors interested in emerging companies as well as the companies themselves. It now lists more than 200 equities, government bonds and structured products, and also operates the first continuous auction market to trade securities listed on other Canadian stock exchanges. The auction market was established in 2007.

In May 2014, the CSE was named to the OTC Markets Group list of qualified foreign stock exchanges. As a result, companies listed on the CSE now enjoy the benefit of being qualified to apply to trade on the OTCQX and OTCQB marketplaces.

According to James Black, vice president of listings development at the CSE, “[t]his additional benefit for CSE-listed companies comes on the heels of a record setting first quarter for the exchange – eclipsing previous bests for trading and listings on our listed marketplace. The addition of the CSE to the OTC Markets Group list addresses a longstanding desire for our issuers and further solidifies our value proposition for companies seeking a primary exchange listing in Canada.”

Though trading volumes are generally lower than those seen on bigger exchanges, the CSE presents an important opportunity through its belief that companies should be able to focus on growing their business and operating more agilely. That being said, the CSE’s tagline, “the Exchange for Entrepreneurs,” is appropriate.

Behind the scenes

One of the more notable features of the CSE is those seated on the company’s board — the CSE’s chairman is Thomas Caldwell, a prominent figure in the investment community. Most notably, Caldwell is recognized as one of the world’s foremost investors in securities exchanges.

Also worth noting is Ned Goodman, who serves as deputy chairman of the CSE; he is also director, president and CEO of Dundee (TSX:DC.A). Goodman has an established reputation as one of Canada’s most successful investment counselors.

Commenting to the Financial Post in late 2013, Goodman said that part of the reason he backs the CSE is his dissatisfaction with the TSX Venture Exchange. He noted, “[v]irtually every issuer on the Venture exchange is not happy with it.”

Listing on the CSE

In keeping with its mission to serve the startup community, the CSE has specific offerings for companies that wish to list and aims to take some of the intricacy and confusion out of the process of going public. Qualified companies can apply to list and will receive a decision within 15 to 20 business days, the CSE’s website says.

Fees for initial listing amount to $12,500, of which $2,500 is the application fee. Thereafter, normal monthly maintenance fees are a flat $500. These rules apply to companies rather than structured products, demonstrating the ease of going public on the CSE.

The exchange also offers listing workshops online, as well as at its offices, for companies that are considering going public. The workshops aim to make the choice and the process less stressful and complicated. According to the CSE’s website, both the listing process and the exchange itself are designed for the needs of small cap companies — the exchange could even appeal to extremely small companies that may have considered crowdfunding as an alternative to an initial public offering. These companies can access public capital and take advantage of features like real-time updates on Google Finance to track how their equities are performing.

Investing in the CSE

The CSE’s enhanced disclosure policies benefit investors who hold shares in any of the listed companies on the exchange. According to the CSE’s FAQ, the exchange has more than 210 listed securities and more than 80 dealers. Most issuing entities have a market cap under $50 million, though several have a market cap above $100 million. Notably, the industries most prevalent on the CSE are those focused on technology and mineral exploration.

Some investors may wonder why companies choose to list on the CSE, and the exchange provides a clear answer to that question. The exchange says that it charges flat fees, with no added charges for transactions or filing, making the cost of listing extremely attractive to smaller companies. Furthermore, the CSE features a streamlined regulation program, allowing management to build business interests instead of worrying over transaction delays or other procedural snafus.

For investors, it is encouraging to note that shareholders in any company on the CSE can access monthly progress reports on the CSE’s website. These reports are required of each listed company in order to help ensure that investors stay up to date. Shareholders can also access information about CSE-listed companies online through discount brokers and via market data on most financial websites.

The CSE’s website notes that the exchange is integrated into Canadian capital markets in the same way that other stock exchanges are. Put simply, even though it’s a market for young companies, the CSE is not all that atypical. Indeed, companies that have switched from other exchanges have not experienced less trading activity since coming to the CSE. Furthermore, the dollar value per trade is higher than on the TSX Venture Exchange.

As for trading fees, they are are comparatively quite low, and were lowered again in May 2014 to encourage greater liquidity in the market. In terms of investing in companies listed on the TSX Venture Exchange, using the CSE’s trading tools to get involved is also now cheaper than before, further supporting the CSE’s mission of connecting Canadian entrepreneurs to capital.

As a final point, it is important to note that CSE dealers are charged a monthly participation fee of $500 in addition to the fees charged to investors, as well as a $3,000 monthly market access fee. There is no minimum monthly trading fee. For these reasons, investors interested in the exchange may want to consider finding a CSE dealer.