Published in the Calgary Herald.
Last week brought one of the more consequential shifts in Canadian capital markets in some time. Ontario agreed to join the country’s securities passport system, an arrangement that lets a company clear its home regulator and then raise capital across the country without repeating the exercise province by province.
There were no major headlines and no fanfare, just a rather dry regulatory announcement — the kind that only capital markets geeks get excited about.
Start with what the passport actually does. For a company based outside Ontario, clearing its home provincial regulator was never enough on its own. To raise money from Ontario investors, it also had to separately satisfy the Ontario Securities Commission — a second review, extra fees, more delay.
Other provincial regulators, meanwhile, already accepted Ontario’s approvals. With Ontario joining the passport system, one approval — in any jurisdiction in Canada — will carry across the country.
For nearly two decades, Ontario stood outside a system every other province and territory had joined. Its arrival is not, on its own, a transformation. But it is a signal that our regulators and policy-makers are now treating the ease of raising capital in Canada as a matter of some urgency.
That message is long overdue. Kudos to the federal and provincial finance ministers who pushed this harmonization forward.
The urgency is easier to appreciate when you look south. U.S. capital markets are having a banner year. Investment-banking fees at the six largest U.S. banks jumped roughly 45 per cent in the second quarter. U.S. merger activity has surged about 80 per cent to roughly US$1.5 trillion. And companies have raised a record US$251 billion in equity in the first half of the year, with a pipeline of marquee names still waiting in line.
Bankers are busy, the deal backlog is the deepest in years and, for the moment, being a public company is exciting again.
In Canada, we are not at the same party. The picture here isn’t a disaster, just subdued. The TSX index has been setting record highs, which sounds like health until you notice how little is actually coming to market.
This year has, in fairness, been an improvement: five operating companies have gone public on the TSX in deals that raised new capital, after several years in which such offerings could be counted on one hand. But five is nowhere near what a market of this size should produce, and against the U.S. numbers it barely registers — even proportionally.
The deals that do happen still tend to come as take-privates, U.S. listings or takeovers that subtract a Canadian name from the exchange rather than add one, even as the index itself has outpaced the U.S. and most of its developed-market peers.
That backdrop is exactly why a modest regulatory announcement deserves more attention. When the capital markets next door are booming and yours are not, the quiet work of making your own market easier to access is no longer housekeeping. It is about competitiveness and how easy or costly it is to raise capital here.
The passport will not produce a wave of new listings on its own. It will, though, make raising capital simpler and cheaper for companies already listed here.
There is a great deal more to do before founders and investors regard a Canadian listing the way their American counterparts regard a U.S. one.
But direction matters and so does urgency — and on both counts, last week’s announcement is a win that deserves more fanfare.
J. Ari Pandes is an associate professor of finance and an associate dean at the University of Calgary’s Haskayne School of Business. He is also a research fellow at the C.D. Howe Institute.