Competition heating up in Canada’s capital markets

After BlackRock Canada moved 12 ETFs away from the TSX, we caught up the CEO of Canada’s biggest ‘alternative’ exchange

Competition heating up in Canada’s capital markets
It’s certainly been a busy year for the Aequitas NEO Exchange. Hot on the heels of BMO Global Asset Management announcing plans to list six new ETFs on the exchange and Invesco’s plans to launch two new PowerShares ETFs, last week BlackRock Canada migrated 12 of its iShares ETF listings from the TSX to NEO. BlackRock’s move marks the first time a Canadian ETF provider has switched listings from the TSX to an alternative exchange.

On the day of the fund’s migration Head of iShares at BlackRock Canada, Warren Collier, joined Jos Schmitt, President and CEO at the NEO Exchange to open the market. Collier expressed his satisfaction at being able to increase competition in Canada’s capital markets and provide the same sort of choice enjoyed by investors in the U.S. and Europe.

“NEO is bringing competition with innovation and values and is clearly starting to outperform other venues in terms of quality of execution,” Schmitt says. “NEO has reenergized the concept of market making by introducing new models, some of which the TSX is replicating. I’m fine with that because we will continue to innovate and I think it will be beneficial to the ecosystem overall.”

Schmitt believes that, for many years, Canada has suffered due to having a single, dominant stock exchange. He thinks that NEO’s recent moves will help to create a spirit of innovation throughout Canada’s capital markets. “The choice is now there and the real winner is going to be investors,” Schmitt says. “Other venues are under pressure to innovate and the fundamental aspects needed for growth in our capital markets are now in place.”

Schmitt feels that Canada is now positioned to benefit from a level of competition that has for some time driven success in the U.S. capital markets, which he describes as “very efficient”. “One of the key reasons for success has been the continuous competition between the NASDAQ and the NYSE,” he says. “That has always kept those parties on their toes; pushed them to be innovative and do what is right for the client. We haven’t had that in Canada.”

Now that many of the major players list on NEO, Schmitt believes that the Canadian capital markets are well and truly unlocked. Invesco was the trailblazer who first launched ETFs on the exchange and BlackRock is now the first to migrate existing funds over from the TSX. “I don’t think anyone was concerned about our values, but everyone is always worried about being the first one and potentially facing operational, technological or access issues,” Schmitt says. “The exchange works well and I anticipate seeing more migrations and more ETF listings. Now the fund companies are comfortable, they’re ready to go.”

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