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I’m delighted to be here in Vancouver, especially in a place with such a magnificent view of the harbour and the North Shore Mountains.
I’ll tell you, that Gassy Jack Dayton sure had an eye for real estate.
And I’m delighted to have the opportunity to speak to you today.
Your daily work as financial executives gives you an unparalleled understanding of what the huge changes we’ve seen in capital markets mean at the working level.
As CEO of TSX Group, I have some awareness of that, too.
More than awareness, in fact.
When you sign off on the quarter knowing that what’s at stake, in personal terms, could be as much $5 million in financial liability and five years less a day in the Big House, it does tend to concentrate the mind.
The CFOs among you know exactly what I mean.
Apart from your individual experience, your membership in Financial Executives International provides an additional window on what is happening in capital markets.
Through your U.S. affiliates, and the news and information you share with them, you have had a ring side seat to one of the most turbulent periods in American securities law since the 1930s. Their changes affect you directly if your company is registered in the United States.
Through your Canadian affiliates, you’ve seen the changes taking place across this country – both in response to what’s been happening in the U.S. and in response to our own challenges.
And, of course, the best show of all is usually here in B.C.
The new securities legislation that the government has just introduced, based on the work of the B.C. Securities Commission, represents a sharp break both with the past and with the rest of the country.
I don’t think it will offend Doug Hyndman, the BCSC Chair, to describe it as contrarian, because B.C. has a long tradition of being contrary, starting with Amor de Cosmos, the province’s first premier.
My message today, however, is not about B.C.’s contrarian traditions.
In fact, B.C. contrarianism is much over-rated. Vancouver shares a lot with Toronto. For example, we both want an NHL team – just like Calgary.
That aside, this province and its financial community have a vital contribution to make in the evolution of Canadian capital markets and our international competitiveness in the global economy.
The Lotusland image belies the fact that B.C., and especially this city, have always been fundamental to Canada’s place in the world. Indeed, it was decisions made here that made this country possible as a trans-continental country.
The name of this club – Terminal City – reflects Vancouver’s understanding of that role.
This is the End of Steel. This is where the huge volumes of Prairie wheat destined for China and the Soviet Union were transferred to the ships bound across the Pacific in John Diefenbaker’s day.
This is where the lumber from B.C.’s forests began its profitable journey to the U.S. Eastern Seaboard, its biggest market, and coal began its voyage to Japan and other Asian markets.
And this is where the cars and vans from Japan first touch North American shores, where the containers of shirts and shoes, cameras and computers from China began their journey east.
But Vancouver is more than a transfer point for physical products. Much more.
It is an important financial centre – important to activities on every continent.
And it is in global markets that this city’s new leverage on our national future comes from, provided it is prepared to use that leverage.
I’d like to talk about that from the vantage point of TSX Group, as the operator of Canada’s two national stock exchanges and, as such, both a player in global markets and a participant in the changes that have taken place in Canadian markets in the past five years.
Five years ago, we didn’t have two stock exchanges in this country. We had one senior exchange, the Toronto Stock Exchange, and five other exchanges, including the Vancouver Stock Exchange.
For the most part, our securities industry was inwardly focused on local priorities and each exchange was concentrated on its own survival rather than on the overall health of equity markets.
To the extent we had a national stock exchange, it was the Toronto Stock Exchange, but it was basically locally focussed, too, faced with its own problems, including technology problems.
That situation was unsustainable. The real competition was not the competition from one another.
The real competition was from foreign stock exchanges like Nasdaq and the London Stock Exchange and the new Electronic Communications Networks that were then taking a growing share of U.S. securities trading – and continue to do so.
Eventually, the reality of where the real competition lay came home to everyone. That understanding made possible the transformation of our market structure from one of the unhealthiest in the world to the healthiest.
You know the story.
The Toronto Stock Exchange became the senior exchange. The five others, including the old VSE, became the Canadian Venture Exchange or CDNX, centred in Vancouver and Calgary.
Montreal won agreement to develop the Canadian derivatives market.
Winnipeg concentrated on commodities.
CDNX had a great run for a time with the market driven by new tech stocks – until the bubble burst.
And when we offered to buy CDNX two years later in 2001, there was not a great deal of resistance. Indeed there was considerable support, especially in the Vancouver investment community.
We did have our critics, of course.
One group of critics argued that the liquidity of the venture exchange was abysmal and it was only a matter of time before we would close it down. We got exactly the same predictions about the Toronto Stock Exchange – and they were just as wrong in Toronto as they were in Vancouver.
The other group yearned for a return of the good old days.
There were serious questions about our timing, if not our sanity in buying the CDNX.
Our timing, as it turned out, was impeccable. While the tech boom flamed out, the mining industry was coming back.
Mining, of course, had been the core of the Vancouver market since 1907 when the exchange first opened for business.
But it was more than a return to the old days that we were seeing in 2002.
Rather, we were seeing a fundamental shift in the economics of the resource sector and the structure of the world economy.
Driven by the economic transformations underway in China and India, among other countries, we were seeing a long term bear market in resources being reborn as a bull and, by every indication, a long term bull.
We were also seeing Vancouver’s relationship to mining in a different way.
The Vancouver market was still, as it always had been, the most important source of capital for junior mining companies in B.C. and the rest of Canada.
But it had become something more – a source of financing for mining exploration and development world-wide. And I mean on every continent.
Vancouver, in other words, had become a global centre in a global industry, a stature that is surprisingly little noted.
So what we bought, when we bought CDNX, was a first class ticket to global securities markets.
The strengths among junior miners were a natural fit with TSX, on which the major miners find their global financing.
The venture exchange, moreover, was an important potential source for new listings for the Toronto Stock Exchange.
We had some work to do before we could take full advantage of that.
We had to get our own house in order in Toronto, especially in technology, which we did.
We had to integrate our first acquisition, CDNX, into the company, both in terms of technology and in corporate terms. We did that within less than a year of the purchase. That made possible the easy movement of companies between the two exchanges at less cost with less paperwork.
We had to give the whole group a stronger national and international presence.
We did that by bringing all of the elements of the company under the TSX Group brand. CDNX became TSX Venture Exchange and, according to our market research, including it under the TSX umbrella has contributed to its reputation for quality and integrity.
And we had to transform both the senior exchange and the venture exchange from primarily local and regional into truly national institutions.
This we have done in a number of ways. We have established joint TSX-TSX Venture offices throughout the country and we are not finished that process.
We have also begun to display Venture’s successful companies throughout the country – many of you may have attended the Venture Success function in Vancouver in March at which Premier Campbell spoke.
Those of you who did will know John McCoach, vice president of TSX Venture here in Vancouver. He’s here today, along with our national leader in mining, Elaine Ellingham.
And just this past Monday, our Venture Success Campaign hosted investors in Quebec City. We’ve also hosted functions in Calgary and Toronto.
The effect of giving the venture exchange a national reach has been to give Vancouver companies exposure to investors all across Canada.
And it has been to give Vancouver investors more exposure to the opportunities of the rest of the country.
This kind of cross fertilization of ideas and opportunities simply didn’t happen before.
The result is that what was once a local Vancouver market now has a national stature that was inconceivable at a time when it saw itself exclusively in terms of Howe Street.
Paradoxically Howe Street is more important than it’s ever been.
And TSX, the senior market, now has a stronger presence outside Toronto than it has ever had at any time in its nearly 152 years as an exchange.
TSX Group, as you may know, now involves more than equities. We are building an electronic market in institutional fixed income securities through our ownership in CanDeal Inc.
We are expanding our data business through TSX Datalinx, which sells market data to companies like Thomson, Reuters, and Bloomberg and, through their retail customers, that data appears in real time on trading screens around the world.
We are in the corporate information business through CNX Marketlink, a business venture between TSX and CanadaNewsWire.
We sell technology and business services to exchanges and technology companies around the world through TSX Technologies.
And in the last quarter we bought NGX Inc., the Calgary based exchange trading in natural gas and electricity contracts – a business that enhances our ties with energy companies in B.C.
All of these companies have a national and international focus – NGX, for example, gives us a much strengthened presence in the U.S. market as well as in Canada.
And they are all working together to increase TSX Venture’s presence in the rest of Canada and abroad.
And contributing to its success, I might add. A measure of that success is in the numbers.
In 2001, the value of the mining shares traded on TSX Venture was $800 million in U.S. dollars.
Last year, it was $4 billion.
In the first quarter of this year, it was already $2.3 billion – nearly four times the trading in last year’s first quarter and nearly triple the value of all of the trading in 2001. In one quarter.
The value of mining shares traded on the senior exchange, meanwhile, went from nearly $40 billion in 2001 to $78 billion last year. And in the first quarter of this year, it is 72 per cent ahead of the same quarter in 2003 at $31.9 billion.
But these figures mask the importance of Vancouver as a mining centre and the leverage this city can have over the future shape of the national market.
Of the 199 mining companies listed on the senior exchange, 69 are, in fact, headquartered in B.C. – companies like Placer Dome, Teck Cominco, Wheaton River and so on.
And of the 981 mining companies listed on TSX Venture, 605 are headquartered here.
Indeed, we’ve done a rough count of mining companies world wide and it turns out that nearly a quarter of them are headquartered in this province.
And, given that virtually all of them want a view of the harbour and the North Shore Mountains, this city has the largest concentration of mining companies of any city in the world.
That, too, is reflected in the numbers. In 2003, TSX Venture companies completed five times as many equity financings as any other exchange in the world.
Many of them are small companies, of course, but that is the key to stimulating new discoveries in the world and that is what is bringing the world of mining to Vancouver’s door.
TSX recognized the importance of Vancouver’s place in the mining sector in 2001 when we donated $40,000 to help complete the construction of the Pacific Minerals Museum.
I’m not sure it is appreciated, even here, how important Vancouver has become to global mining.
As of February, TSX and TSX Venture companies hold nearly 3,000 exploration and mining properties outside of Canada.
That means Canadian mining investment is at work on every continent, and the numbers are impressive by any standard.
There are some 327 properties in Asia, mainly in China, some 658 in South America, 199 in Australia, 571 in Africa, and 144 in Europe.
Why do I recite these figures?
Because they tell the story of a Canadian industry that is the dominant global player.
They tell the story of a city whose possibilities have long since ceased to be local but have become predominantly national and global.
This is not an aspiration. It is not hype. It is reality.
No other country, no other exchange or group of exchanges is even close.
And integrating TSX Venture’s dominance in the junior mining market with Toronto Stock Exchange’s dominance in the senior mining market has added to that dominant position.
What Canada’s mining cluster focussed here in Vancouver means is not just that we are centre for mining companies.
We are also a global centre for the specialized expertise that goes with this industry – expertise in banking and finance, in mining and environmental law, in securities regulation and securities analysis.
And this is reinforced in turn by the academic infrastructure that supports the industry – the School of Mining Engineering at UBC and the Centre of Metallurgical Process Engineering, the Mining Technology Program at B.C. Institute of Technology, the Resources and Environmental Management Program at Simon Fraser and so on.
What I am describing is a formidable national asset for this city, this province and this country.
More than an asset it is a source of strength and influence in global markets.
It also provides leverage in foreign markets by building Canada’s reputation for quality and for expertise, a reputation from which other companies in other industries can benefit in penetrating markets where the Canadian brand is, as it were, undeveloped.
And it is a source of leverage on national issues that bear on the future of this city and its financial community.
Let me deal first with how we can lever our strength in mining in global markets.
Like the mining industry, TSX Group sees its future in the world. That is where the competition is. That is where the opportunities lie that will build Canada’s position at home and abroad.
And like the mining industry, one of our first areas of opportunity is in the U.S. market. Because of the mining industry, we’re already a big player there.
Of the 7,000 exploration and mining properties financed on TSX and TSX Venture, some 933 are in the United States and Mexico.
But the world is more than North America.
More than 2000 of the mining properties financed on our two exchanges are, in fact, outside North America.
Consider the opportunities now represented by China.
This city’s links to China and China’s links to B.C.’s mining industry go back to the 1850s, when the first Chinese immigrants were drawn here by the lure of gold on the Fraser. That was 10 years before Gassy Jack Dayton arrived in this neighbourhood, by the way.
And they have never since stopped being a part of British Columbia’s evolution, shaping this city in untold ways from the food it eats to its architecture to its tourist services to its investment community.
But what is happening now, in the context of global change, is interdependence of quite a different order.
As we all know, China is now emerging as one of the primary forces in the global economy.
It is the fastest growing industrial and manufacturing economy and the largest consumer society in the history of humanity.
All this has created a voracious demand for resources, which is where one set of opportunities lie. And it has created a demand for the financing to develop those resources, which is where a second set lie.
All of this is to the advantage of B.C., with its strategic position on the Pacific Rim and on the transportation routes between Asia and North America, with its abundant resources, its expertise in the resource industries and in the specialized finance that resource development involves.
And it is to the advantage of TSX Venture and Toronto Stock Exchange.
China already has a growing presence on both TSX Group exchanges. Toronto Stock Exchange has nine mining companies that are either headquartered in China or have significant properties there, plus four others in finance, forestry and the like.
TSX Venture has 40 mining issuers either headquartered in China or with properties there, and two others.
We think that this is a good base to build on, so this fall we’ll be going to China.
We’ll be selling them on the strengths of the Canadian market, its long ties with China and its strengths in all aspects of the mining industry. We’ll be selling them on the advantages of listing their companies on the Toronto Stock Exchange and TSX Venture Exchange.
And we’ll be selling Vancouver as a Canadian financial centre and a place to raise capital for companies based in China.
We hope to build the basis for stronger and deeper relations, through our two exchanges, between Chinese companies and Canadian investors.
And we hope to lever their familiarity with our mining strengths into an interest of other, lesser known areas of strength such as information technology, biotechnology, forest products, transportation and finance.
I might add that we already have built the beginnings of a stronger relationship – the Shanghai Stock Exchange, for example, is one of the customers of TSX Technologies’ business services. They already know what we can do and how well we can do it.
Let me turn now to the second question – how to lever this city’s global pre-eminence in mining into a greater role in shaping the future of Canadian capital markets.
Much of B.C.’s concern about the way national markets evolve has been in terms of preserving the capacity to meet local needs.
But there is nothing inherently contradictory in having a globally competitive capital market and meeting local needs. To my mind, indeed, they go hand in hand.
We are not going to improve our place in the world if we neglect or unfairly burden the small, local companies that represent one of our most important sources of economic strength.
But B.C.’s global needs will not be met, either, if B.C. confines itself to a local perspective and misses the opportunity to shape the broader response to global forces that is now our great challenge.
To return to where I began, the FEI provides you with a unique link to executives with the broad perspective that the times demand.
The revolution wrought by Sarbanes-Oxley must surely be on that list. Its effects have rippled far beyond the American market, in part by legislative design, in part because there are those who believe we should follow the U.S. course in our own market.
As you may know, I disagree with that view. I believe we need to chart a course that meets our own different needs and, by and large, that is what we have done.
Nonetheless, Sarbanes Oxley has had its effects on many of you and on others in the FEI network, so you are among this country’s most knowledgeable observers of what is involved.
While the legislation has been in effect since July 30, 2002, and the costs of compliance have been high, the jury is still out on its benefits.
The primary argument for Sarbanes-Oxley was the need to restore investor confidence. Has it done that?
Since the passage of Sarbanes-Oxley, the markets have been down, up, down again, up again – and I haven’t checked in the last half hour what they’re doing now.
But there are always reasons for markets acting like cats on a hot sidewalk – the Iraq War, mad cow, SARS, interest rates, the phase of the moon, you know the list.
With that caveat, you may find interesting what happened to markets between the time the U.S. acted – July 30, 2002 – and the time all the provinces except B.C. responded, in a fashion – March 31st of this year.
March 31st was the day when certification of company results was first required on the part of CEOs and CFOs.
In that 20-month period when the U.S. legislation was in effect and ours wasn’t, the S&P 500, usually considered the best surrogate for the American market, went up 22 per cent.
That’s pretty good, as a matter of fact.
But in the same period – when Canada had nothing comparable to Sarbanes-Oxley in place – our equivalent index, the TSX/S&P Composite – went up even more, by 33 per cent.
I wouldn’t argue it was better to do nothing.
I’ve heard it argued, however, and I find it persuasive, that the most important thing we can do to enhance investor confidence is not to regulate governance with a set of rules in the manner of Sarbanes-Oxley but rather to focus on more systematic and credible enforcement of stronger rules on such things as insider trading and self-dealing.
In fact, a number of measures have been taken to do just this. The RCMP has new teams in place devoted to prosecuting securities fraud. Stronger criminal laws on insider trading are almost certain.
But what is the right approach to governance? And who is best placed to answer that question?
I would argue that the members of FEI, here, elsewhere in Canada and in the U.S., are among those best placed to provide the answer to this and to other questions.
Have Sarbanes-Oxley type rules improved governance or made it less attractive to run or work for a public company?
Have the benefits been worth the costs?
Are they bringing investors back to the market or frightening good people away from public companies and good companies away from public markets?
You are better placed than most to make a judgment about these issues.
I hope you will tell regulators, in the U.S. as well as Canada, the costs and benefits as you see them.
Here in this province, with new securities legislation before the provincial legislature, you have equally strong reasons for making your views clear.
How will new securities legislation intended to simplify regulation affect a Vancouver company that is also registered in another province or provinces or in the U.S. market?
Will the B.C. law prevail?
Or will the company have to also comply with the laws of Alberta or Ontario or Quebec, laws that may vary significantly or conflict directly with the B.C. legislation?
I think it important that the legislators in Victoria know before they pass the bill into law what the effects may be on companies that must also deal with regulators beyond B.C.’s borders and, in fact, beyond Canada’s.
And again, you are the people best placed to know. And you have the network of friends and associates that provide a ready way to make your views more widely known.
And finally, there is the question of what is happening throughout the Canadian market.
B.C., as it happens, is not the only province with new legislation.
Saskatchewan and Quebec have both taken the approach that one provincial regulator should deal with every aspect of the financial industry.
Ontario has not gone this way as yet but it has been proposed. New Brunswick also has new legislation on the table.
All these draft or legislated measures in the different jurisdictions, including this one, raise the possibility of still greater differences between and among provinces.
Meanwhile, the country’s securities regulators are negotiating a uniform securities law with a passport system based on everybody being in harmony.
I haven’t once mentioned today the need for a single Canadian securities regulator administering a single national securities code. And I won’t.
But I would like to suggest that this thing that I haven’t mentioned is something on which you should be prepared to speak out, too.
You may like it, you may not.
You may have some ideas that will make what seems unacceptable more palatable, that make sure that the balance of advantages and disadvantages, as you see them, of any change in the shape of our securities markets is reflected in the negotiations to come.
Indeed, you may wish to advance the view that the time for negotiation has arrived and that B.C. has everything to gain, nothing to lose and nothing to be afraid of by making its views known.
Certainly – to underline my basic point today – this city’s financial community has the leverage to play an influential role in shaping the future of Canada’s capital markets and make Vancouver more central to that future. I hope you will use it.
Thank you.
