4) Why do / would foreign companies choose Canadian stock exchange (TMX / TSX) to list their company over the stock exchange in their own country? (Apart from listing fees)
Hello, and thank you for your question about foreign companies choosing to list on the Canadian stock exchange rather than their domestic exchanges. The most useful sources we found to answer your question are Investopedia for high-level information and the Toronto stock exchange website for specific data. The short version is that 40% of trading on TSX and TSXV are from outside of Canada. This is primarily due to the political stability of the country, along with low inflation rates, which creates a strong overall market. Below you will find a deep dive of our findings.
We began our research with a look at the specific benefits of listing in Canada. From those beginnings, we branched out to see what reasons companies or experts were giving for choosing the Canadian stock exchange over their domestic exchange. The following is a list of the reasons and benefits that were identified through our research.
In 2016, the TSX reported growth of 17%, which was much higher than the U.S. growth rate of 13.6%. Many financial analysts are predicting continued growth due to the "Trump Effect." The TSX is heavy in energy stocks and they feel that the Trump administration will pass legislation beneficial to Canada's energy markets.
Also, multinational corporations choose to list on exchanges in more than one country. This practice increases their stock liquidity and protects them against losses caused by unstable currencies and markets. Canada is politically stable and inflation rates have stayed under control, which makes for a strong market.
GREATER VISIBILITY OF STOCKS
The TSX is heavily populated with energy, raw materials, and financial sector stocks; therefore, small to medium-sized companies in technology and health care enjoy greater visibility in the Canadian stock exchanges.
In addition to greater market attention, small and medium-sized companies also enjoy greater investment demand. Listing in Canada on the TSX and TSXV expands the investor pool to include Canadian investors who may be looking to invest in attractive international opportunities.
FEWER REGULATIONS / GREATER FLEXIBILITY
U.S.-based cannabis (marijuana) companies can legally list on the Canadian stock exchange to raise capital when they can't list on the U.S. stock exchange due to legal status confusion. Currently, the marijuana industry is a multi-billion dollar industry and waiting for a more favorable climate in the U.S. isn't prudent for business.
Other U.S. start-up companies are looking to the Venture Exchange, the junior exchange of the Toronto Stock Exchange. The Venture Exchange allows capital funding at a lower price point than the U.S. stock exchange. It is also "less litigious" than the U.S. markets.
Costs of going public and maintaining on TSX are less than the U.S. stock exchanges. Another benefit for companies is the fact that corporate taxes aren't charged on capital raised in Canada. Also, the timeline for going public on the Canadian stock exchanges is shorter than those in other countries.
To wrap it up, the TSX estimates that as of 2017, 40% of the trading on TSX and TSXV are from outside of Canada. This is due to factors like lower volatility and regulations coupled with greater flexibility and visibility. Thank you for using Wonder! Please let us know if we can help with anything else!