Sunday, February 20, 2011

The New National Stock Exchange

Should the Toronto and London Stock Exchanges merge? Of course they should, since the marketplace is global and other borses (exchanges) are merging in this era of global capitalism. And it fits in well with the Feds argument for one national exchange. The irony is that while business sees this as a favorable idea the right wing politicians don't.

But reaction from CEOs and chief financial officers suggests that executives at many of Canada’s largest public companies do not want politicians to step in. Corporate leaders are optimistic that a merger will benefit both traders, and firms seeking capital. Many executives added that it would be pointless to fight against the forces that are spurring consolidation in the exchange business globally.

Business case

Caldwell insisted there will be a net benefit to Canada in this deal.

Here are some of his arguments in favour of a TSX-LSE merger:

* "The listings, the fundraising, the corporate finance will still be done in Toronto." * If it gives "easier access to Canadian companies, easier access to European and Middle East funding via the London Stock Exchange, that would be a tremendous economic boom." * "The LSE does not have a derivatives platform, that is options, and Montreal does. So they're going to be using the Montreal system and staff to build their products in Europe." * "Quebec may actually get jobs out of this" * "We are going to have a greater selection of investments quite possibly, and greater access to capital."

Once again the nationalist protectionist impulses of the Federal and provincial governments (regardless of the ideology of the party in power) misses the point...

Hudak shares Liberal doubts about value of TMX-LSE merger for Ontario is global and no matter how you regulate it nationally, or provincially, until those regulations are internationalized then you have failed to address the real nature of the new global capital markets.

David Weild, a former Chairman at Nasdaq, says that might not be the case, as the exchange companies—now publicly traded—don’t adhere to the same principals they did in the past when they were private.

“They used to be quasi public utilities that had to look out for the public good by building better economies, they looked out for the entire ecosystem that included dealers, institutional and retails investors and issuers,” he tells BNN.

“They have taken their eyes off of the plight of the small cap company, which is the one that generates jobs and innovation and regenerates economic growth for the world’s economy.”

The very markets that led to the recession and financial collapse of 2008. Denying these mergers does not address the real issue; how to regulate them.

A number of executives across various sectors said it would be difficult for them to argue that Canada should block any deal, given that they are expanding into other countries themselves.

“We at Canaccord believe that Canada should be open to foreign investment,” said Canaccord chief executive officer Paul Reynolds.

And quite a few business leaders took the argument a step further, saying flat out that Ottawa has no business weighing into this deal. “If the Canadian government subscribes to and practises free trade and open market economics, it should leave it alone,” said Ed Miu, chief financial officer of Eldorado Gold Corp.

“Who cares?” said Bill Holland, chief executive officer of CI Financial Corp., adding that exchanges are now “nothing more than a bunch of servers and a name.

“The bigger the better,” he said. “All you’re trying to do is get the most liquidity at the best prices. Is it something that is vital to Canadian interests? Not at all. It’s a non-issue.”

And this weekends G20 Finance Ministers meeting did nothing to address the need for global regulations, leaving each national capitalist regime to come up with its own policies.

This then is the anarchy of capitalism, best reflected by the unregulated Canadian stock market that allows provinces to regulate their own marketplaces.

Right wing provincial governments
oppose a single national regulator, claiming their constitutional right to have their own regulations and stock markets. Mind you in the case of Alberta and B.C. both Stock Markets have been home to many a ponzi scheme, Bre-X to just mention one.

Scandal in the Alberta Stock Exchange

Pro Sports and Criminal Capitalism the Skalbania Pocklington story

They may have a 'constitutional' right to having provincial Stock Markets but that constitution was written in 1867 when the Canadian borse but was a mote in gods eye. The City of London (the Stock exchange) still dominated the markets in Canada until the great depression.

Initial Corporate Ownership Structures
As the stock market deepened, widely held industrial firms also appeared. The Hudson’s Bay Company generally had no single dominant shareholder, though its Chief Factor often seemed to rule the company and its shares did not trade on exchange. But Canada now had numerous small, widely held mining companies and two widely held giants. Canadian Pacific was widely held from its inception; and by 1900, Bell Canada too was widely held.
However, many large Canadian firms now belonged to pyramidal corporate groups – structures in which a family or closely held apex firm controls other listed firms, each of which control yet other listed firms, and do on. The first such group, that of the Cox family, established in 1899, served as a model.
Still, Canadian pyramidal groups were usually not terribly complicated, at least relative to their modern descendents. Most had only a few tiers and a handful of firms. The economic motivations of their builders are also fairly straightforward.
Prior to the big push period, and early into it, old money families and railroad tycoons diversified their wealth by venturing into different industries. As the stock market developed, and public
shareholders became a significant source of capital, selling minority interests in these ventures to small investors became increasingly common. Listing its controlled subsidiaries lets a wealthy family leverage their retained earnings into control over much larger pools of capital than their own wealth, yet retain
complete control. It also let them diversify more extensively while operating on a larger scale in each industry. Thus, began the first corporate groups.
Larger corporate groups were often the result of takeover waves. From 1909 until 1912, when the economy abruptly slowed, 275 of Canada’s largest firms coalesced into 58 in half a billion dollars worth of M&A transactions. The most active corporate acquisitor of this period was Max Aitken, who assembled Canada’s largest pyramidal group. The son of a Presbyterian minister, he rose through the
ranks of Royal Securities, ultimately running the firm for its controlling shareholder, John Stairs, heir to the old Nova Scotia merchant family. In 1906, he used his earnings to buy Montréal Trust, and then used that firm to take over Royal Securities. Aitken issued debt in London on a huge scale and used the
proceeds to buy steel mills, cement companies, power companies, and other firms all over Canada. In this way, he built the Steel Company of Canada from MontrĂ©al Rolling Mills, Hamilton Steel and Iron, Canada Screw, Canada Bolt and many other smaller firms. Aitken also formed Canada Cement out of twelve of the country’s thirteen Portland cement makers. At the end of the big push years, Aitken, always a passionate imperialist, bought the title Lord Beaverbrook and retired to London.

No comments: