Nasdaq in Montreal
Only brokers would attend a party at that hour. Hundreds of invitations were sent out for 8:30 Tuesday morning for the launch this week of Nasdaq Canada - opening the tech-oriented U.S. stock exchange directly to Canadian investors. Named on the invitation was a high-level crowd: Quebec Premier Lucien Bouchard, his deputy premier and finance minister, Bernard Landry, and Frank Zarb, Nasdaq Stock Market Inc.'s hyper-ambitious chairman. All were destined to gather on St-Laurent Boulevard in Montreal at the chi-chi Complexe Ex-Centris - a cinema normally dedicated to independent films. The site was to be linked by satellite to the New York City showplace of the Nasdaq market. The entire market, including its new Montreal wing, was to be opened from the cinema in a ceremony to be displayed on Nasdaq's multi-storey screen in Times Square.
The morning revelry comes more than six months after Zarb and Bouchard struck a deal to bring the world's largest screen-based stock market (that is, one with no trading floor) to Canada - or more precisely, to Montreal. Their agreement, announced from New York amid much fanfare as well, was seen partly as an end run by Nasdaq around the Toronto Stock Exchange and partly as a crafty move by the Parti Québécois, which wants to see equities trading return to Montreal. The pact, and this week's party, also come at a time when the world's securities markets - Canada's included - are in tremendous flux. The old-fashioned world of suspenders and hand signs is being replaced by computer strokes and high-speed electronic signals. Major exchanges, such as those in Paris, Amsterdam and Brussels, as well as Toronto and New York, are forming international alliances. Zarb's goal for the Washington-based Nasdaq is to compete as a nonstop, round-the-world exchange, accessible to all. While the Montreal connection is only a tiny piece of a much bigger puzzle, the red-carpet treatment given to Zarb by the Quebec government is a big help.
Hoopla and grand ambitions aside, what arrives this week - Phase 1 of Nasdaq Canada - is a modest affair. Nasdaq officials describe three stages to their project. First, Nasdaq terminals on the desks of registered brokers in Montreal will be linked to the U.S. exchange, allowing traders to place orders directly. Phase 2 is potentially much more significant: the creation of a new equities market in Canada. The shares of listed Canadian companies would be bought and sold in both Canada and the United States. But this second phase, vaguely scheduled for 12 to 18 months from now, will only take place if Phase 1 is considered a success, says John Wall, president of Nasdaq International Ltd. and the man responsible for getting Nasdaq Canada up and running. Phase 3 sees the linking of this new Canadian market with Nasdaq Europe and Nasdaq Japan - and the implementation of the nonstop market.
So what changes this week? The large Canadian brokerages - and some smaller ones - already have U.S. affiliates or subsidiaries that are active Nasdaq traders. Nasdaq's new arrangement drops the step of calling the United States to place an order, and cutting a step saves money. But it also has a high cost: allowing a foreign governing body - NASD Regulation Inc., a separate arm of the National Association of Securities Dealers, which set up Nasdaq in 1971 - to regulate the Montreal-based broker members. The Quebec Securities Commission, which regulates them in other fields, will not have jurisdiction over their Nasdaq activities. Some Canadian players perceive another cost, too - that Nasdaq Canada will siphon off much of the Canadian securities business. The plan, particularly if it gets to Phase 2, could shrink the existing Canadian market, says one Bay Street brokerage executive. "Why," he asks, "am I going to feather their nest and marginalize the Canadian market?"
There is already a trend for Canadian businesses to migrate south, responds Wall. This year, 35 will list on Nasdaq, he says, some exclusively, attracted by the immense heft of the U.S. marketplace. In 1999, the Toronto Stock Exchange, Canada's largest, turned over about $390 billion (U.S.) in trades, Wall points out, while Nasdaq's turnover rate is between $90 billion and $100 billion (U.S.) a day. "New potential growth companies are not even participating in the Canadian market," Wall says. Even Phase 1 of the Nasdaq project helps Canada, he argues. Before this week's launch, Canadian brokers shipped trading business to U.S. offices, he says. "Why can't the business be done right in Canada?"
While most of Canada's large brokerage firms have signed up, there are holdouts. Merrill Lynch Canada Inc., part of one of the world's largest financial houses, and RBC Dominion Securities, the investment-banking arm of the Royal Bank of Canada, are the two biggest firms that, for now, are not participating. A Merrill spokesman says his firm already has 165 Nasdaq market makers in New York who trade 90 per cent of the approximately 5,000 Nasdaq-listed companies, including nearly 150 Canadian firms. "We can better serve Canadian and global clients by executing Nasdaq trades under our centralized trading operation based in New York," he says. Dominion Securities, which is buying U.S. financial firm Dain Rauscher Corp., says its clients might be better served out of its U.S. offices. Once the $2.2-billion deal closes, says DS equity chief William Moriarty, the company will look at Nasdaq and "re-evaluate the business model."
Another issue was language. Would Nasdaq operate in French? Non. As a U.S.-based exchange that for now has only computer terminals in Montreal, it will function in English. Bouchard's interest in Nasdaq centres on the return of an equity market to his province. The Montreal Exchange, in existence since 1874, gave up its equities business last year as part of an agreement with the other exchanges in Canada. That deal - itself a response to shifts in the securities business outside Canada - gave Montreal all of Canada's derivatives business. But, to the chagrin of the separatist Quebec government, its equities trading was ceded to the Toronto Stock Exchange, Canada's market for large and mid-sized corporations, and to the Calgary-based Canadian Venture Exchange, or CDNX, where small-cap companies are traded.
The TSE, which is talking with the New York Stock Exchange and other bourses about creating a global trading system, says it welcomes the competition. "Nasdaq being here is a good thing - it gives people alternatives," says Barbara Stymiest, president and chief executive of the TSE.
The party on St-Laurent Boulevard this week in Montreal marks the beginning of Nasdaq Canada. Once markets are a 24-hour-a-day affair, the party may never finish.
A sampling of Canadian companies that list on Nasdaq (all are also listed on the Toronto Stock Exchange)
COMPANY: JDS Uniphase Corp.
INDUSTRY: fibre optics
MARKET CAPITALIZATION (U.S. dollars): $65.4 billion
COMPANY: Ballard Power Systems
INDUSTRY: fuel cells
MARKET CAPITALIZATION (U.S. dollars): $7.6 billion
COMPANY: Research in Motion Ltd.
INDUSTRY: wireless devices
MARKET CAPITALIZATION (U.S. dollars): $5.9 billion
COMPANY: Enbridge Inc
INDUSTRY: natural gas
MARKET CAPITALIZATION (U.S. dollars): $4.1 billion
COMPANY: Mackenzie Financial Corp
INDUSTRY: mutual funds
MARKET CAPITALIZATION (U.S. dollars): $2.3 billion
COMPANY: QLT Inc.
MARKET CAPITALIZATION (U.S. dollars): $2.2 billion
COMPANY: ATI Technologies Inc.
INDUSTRY: graphics chips
MARKET CAPITALIZATION (U.S. dollars): $2 billion
COMPANY: Bell Canada International Inc.
MARKET CAPITALIZATION (U.S. dollars): $1.5 billion
COMPANY: Air Canada
MARKET CAPITALIZATION (U.S. dollars): $1 billion
COMPANY: 724 Solutions Inc.
INDUSTRY: wireless banking
MARKET CAPITALIZATION (U.S. dollars): $818 million
Source: Nasdaq; TSE
Maclean's November 27, 2000