Silicon Valley North #47                                       September, 2002


The Way I See It… by Michael C. Volker


Do we really need a “junior junior” stock exchange?

The Toronto Stock Exchange (TSX) is thinking about launching a 'junior junior' stock exchange. This would provide a home for those companies that no longer meet the listing criteria for the nascent TSX-Venture Exchange (TSX-V). Many companies got onto the TSX-V with so-called "Tier-3" status. This was done to accommodate those that moved over from the "unlisted" market, previously referred to as the CDN when the TSX-V (the former CDNX) was created from the merger of the Alberta, Vancouver, and CDN markets.

Stock exchanges are like clubs. The holy grail for technology companies is to be listed on Nasdaq. Like clubs, stock exchanges have different admittance criteria and, as such, companies that belong to them enjoy a certain status. Continued listing standards are generally lower than those required for initial entry. When companies fail to adhere to these, they risk expulsion. This is what’s happening now on Nasdaq which is faced with having to deal with many companies that have fallen from grace.

Similarly, an argument in favor of a new exchange is that the TSX-V will appear more credible with the riff-raff gone. However, instead of creating a new exchange and brand, wouldn’t it make a lot more sense to use a simple designation to identify companies that get offside? Presently, Tier 3 companies’ ticker symbols start with the letter “Y”. A qualifier of this type should do the trick. Companies wouldn’t have to list and de-list from different exchanges. It would also be easier for companies to go public earlier (yes, I know that's a contentious topic but if that's what it takes to get capital, it should be an option to companies) and then migrate to the higher ranks by removing the "Y" rather than going through a more complicated process.

Interestingly, a recent tax expert noted that these Tier 3 companies were, according to Canada Customs and Revenue Agency, not considered to be public companies because they don’t trade on a recognized stock exchange. Hence, investors in such companies could benefit tax-wise. For example, the $500K life-time capital gains exemption for private companies would apply. Similarly, other private company perks may also apply. Putting these companies on a "recognized" exchange, however junior it may be, could remove such benefits. (Securities regulators and our tax department are inconsistent in their definitions on what constitutes a public company.)

How will a new, junior-junior exchange really help the technology sector? David Raffa, writing in Business in Vancouver recently, suggested that the TSX's time would be better spent in figuring out how to make the TSX-V work more effectively for tech companies in raising capital. Catering to the tech sector and promoting itself more - building on its successes should be a priority. Focusing on the opportunities in the tech sector would be more productive than fussing around with an even more junior market.

I had to chuckle at a recent article in Red Herring about  a Vancouver-based software company. It comments that “the Vancouver penny stock market—and the characters who lurk there….isn't a market in which value, like cream, rises to the top. It's a world where prices tend to go up because someone is helping them up.”

As we’ve now seen, by several recent examples, the junior markets aren’t the only places where you’ll find mis-dealings. What’s been happening in the major U.S. markets makes the “characters” on Vancouver look like kids caught dipping into the candy jar.

Let’s focus on making the current TSX-V really hum. A lot of work needs to be done in the public education area. Rather than fighting the futile battle of trying to operate a “clean” market, let’s be more pragmatic. There are always going to be scams and cheats.

The way I see it, we must make the TSX-V work as a venture capital venue for technology companies. Doing this will result in more winners and there’ll be less concern about hiding the losers under another umbrella.


Michael Volker is a high technology entrepreneur and director of Simon Fraser University’s Industry Liaison Office. He oversees Vancouver’s Angel Technology Network and is Chair of the BC Advanced Systems Institute and past-Chair of the Vancouver Enterprise Forum. He may be reached at