Your Guide to CNQ: A Stock Exchange for a New Millennium
Why CNQ is Gaining Popularity: Advantages for Listed Companies and Investors
CNQ’s streamlined regulatory model removes the duplication between the exchange and the provincial securities commissions, thereby, eliminating the waiting time for transaction approvals or reviews and minimizing the cost and time for companies to obtain a listing. CNQ companies are able to take advantage of opportunities faster and without the associated high costs and time delays of other stock markets. Listed Companies also benefit from both significantly lower exchange fees and savings in management time and professional advisory fees.
CNQ’s Enhanced Disclosure requirements provide investors with complete and timely information on company activities by using the internet to create a single source of corporate and market information. CNQ is the only Canadian exchange which requires that Listed Companies post all their public disclosure to the exchange website - www.cnq.ca. Investors also benefit from the highest standards of disclosure, as CNQ requires companies to provide information on a monthly, quarterly and annual basis.
What is so different about CNQ?
Again, CNQ’s regulatory model is disclosure rather than transaction driven. To put this into context, the exchange regulates its listed companies in the same manner as the commissions. There is no need to go cap-in-hand to CNQ in order to obtain their permission to complete an acquisition or a private placement for example. It is simply a matter of completing and posting exchange specific disclosures on the website (www.cnq.ca) which includes a certificate of compliance signed by a senior officer or director indicating that the proposed transaction complies with any and all applicable corporate law, securities act and regulatory instruments. Therefore, the process to complete a transaction for a CNQ listed company is as follows: Post the appropriate form on the website and issue a press release – wait 24 hours – close the transaction. There is no cost or delay. Delays can be particularly troubling for junior companies financing windows can close abruptly leaving a private placement waiting for exchange approval at the same time it is falling apart. In addition, the company sacrifices management time and money, in terms of fees paid to the exchange, to review the private placement. This would never happen on CNQ.
Investor’s Axiom: Disclosure, Disclosure, Disclosure.
From an investor perspective, CNQ listed companies must make disclosures which are beyond simple press releases and the typical regulatory filings. These disclosures include management prepared monthly progress updates and quarterly listing statements as well as yearly updates to the company’s Listing Statement, which is posted to the listed company’s unique page in the Listings Disclosure Hall. The Listing Statement or Form 2A follows roughly the same format as a long form prospectus. Enhanced disclosure of the nature described is required for a company to maintain its listing on CNQ. It also serves to provide a more complete record for investors who can analyze the information contained in the disclosures and as a result, make a more informed investment decision.
Trading System and Regulation
While CNQ seemingly takes a hands-off approach, please don’t be mistaken, this is not an over-the-counter market. It’s an exchange regulated by the Ontario Securities Commission and has policies and procedures in place to protect the integrity of the marketplace. As well, before a company is approved for listing, CNQ does background checks on all the principals of the company to ensure they are acceptable and the company must meet certain minimum financial and distribution requirements.
CNQ’s trading system is a fully automated marketplace based on pure price-time priority providing immediate execution of trades. Client and dealer orders are fully exposed, providing issuers with visibility and investors with easy access to information.
What are CNQ’s listing requirements?
Also, in order to list on CNQ, public companies must have liquid assets or a business plan that demonstrates a reasonable likelihood that the company can sustain its operations and achieve its objectives. Companies that are not yet generating revenue from business activity must have a reasonable plan to develop an active business and the financial resources to carry out that plan. Those who are in the mineral or oil and gas exploration industries must have an interest or the ability to earn an interest on a property with a completed technical report that is compliant with the appropriate National Instrument. Also, merchant banking or venture capital companies need either $2 million in net tangible assets half of which invested in at least different two different investments or $4 million in which case there is no diversification requirement.
So, CNQ offers integrity while allowing its listed companies the latitude to maximize value for its shareholders. CNQ doesn’t take an implicit seat on the board of directors and tell you how you should run your business.
What about profile and visibility?
It is hard enough for a junior company to cut through the noise and tell its story effectively. How can CNQ help? Again, the unique CNQ model offers a unique solution in the form of the Listings Disclosure Hall at www.cnq.ca. Each CNQ listing has its own profile in the Disclosure Hall and is a one-stop-shop for investors researching CNQ listed companies. The site offers extensive trading information including market depth with a fifteen minute delay and access to charts and analytics as well as the company’s regulatory filings. As noted earlier, each month CNQ listed companies must post a monthly progress report. CNQ specific quarterly and annual reports are also required. This is part of CNQ’s enhanced disclosure initiative that not only ensures companies provide complete and up-to-date information but also makes it available to all to see. Listed companies also benefit because the Disclosure Hall acts as an investor relations hub at no cost since there are no fees to file on CNQ. Listed companies can leverage the CNQ website to keep its shareholders informed as well as get their story out to a larger audience. While the CNQ site remains the best place for delayed data because depth is included at no charge, quotes are also available at Stockhouse, Stockwatch, the Financial Post website among others.
What about liquidity?
Well, liquidity is a function of the company whose underlying securities are being traded, its prospects, and its ability to inform the investing public of its prospects. CNQ is simply a secondary market. However, liquidity is always an issue for junior companies and again, the CNQ model endeavors to assist in injecting liquidity for small and emerging companies. This assistance comes in the form of a market making model that allows for multiple participants thereby adding an element of competition to the mix. A market maker must be a member of the Investment Dealers Association in good standing as well as commit to providing at least one buy and sell order with a reasonable spread using the firm’s own capital. CNQ has also done away with some of the negatives associated with market making with its automated marketplace that provides immediate execution of trades. All bids and offers go into one central limit order book and are therefore real and not indicative. So, the combination of client and market maker orders help to create orderly markets for junior companies. Finally, investors place orders for CNQ listed securities in the same manner as you do on other exchanges, through your broker. Also, CNQ’s value and number of transactions have been on an up hill ride with increases of 65% and 140% respectively. CNQ has clearly demonstrated that its unique model is ideal for small to medium size companies and liquidity continues to improve as more of its listed companies are successful and that success is reflected in their share price.
Can companies raise money on CNQ?
Small and emerging companies often rely heavily on the capital markets in order to raise money to fund their business plan or growth strategy. It doesn’t help to go through the potentially expensive and time consuming process of going public only to discover that you can’t raise money because of concerns over the exchange on which you are listed. The evidence, however, increasingly suggests this is not the case on CNQ. Total financings in 2007 have doubled over the same period last year. The largest sum raised in one financing this year was $35 million but it is interesting to note that the smallest financing closed on CNQ to date is $10,000. While this is a relatively modest sum, it demonstrates the strength of the exchange’s streamlined regulatory model. Closing a financing of this size would not make economic sense if the company were listed elsewhere. The fees associated with the review of the transaction would far exceed the amount raised. However, on CNQ, the company need only follow the exchange’s disclosure requirements wait a day and then close it. Sometimes even the smallest amount can serve as a vital lifeline allowing a company to move on to its next stage of development.
Why start another exchange?
On May 7, 2004 CNQ - Canada’s New Stock Exchange was formally recognized as a full fledged stock exchange by the Ontario Securities Commission. Notably, CNQ became the first new stock exchange to be recognized in Canada in over 70 years and reversed a trend toward the consolidation of Canada’s exchanges that had occurred in the late 1990’s. Until CNQ’s arrival, the consolidation of exchanges left Canadian public companies with no alternatives outside the TSX Group of exchanges. This new, effective monopoly in Canada was particularly disruptive to the small cap and emerging segments and that is where the story of CNQ begins. Initially, CNQ sought to provide a regulated, visible marketplace to public companies that had become orphaned or underserved due to the consolidation that had taken place. However, as the founders of CNQ consulted with the financial, legal and investor communities as to how an ideal marketplace would be structured, a different strategic direction for CNQ began to emerge. Because of its unique position to be able to create something completely new from the ground up utilizing feedback from relevant constituencies, CNQ decided to enter the marketplace with a unique model and compete directly for junior public companies. To that end, CNQ began operations on July 25, 2003 as a quotation and trade reporting system or QTRS along the lines of NASDAQ but soon after sought recognition as an exchange.
Conclusion: CNQ gaining momentum
Clearly, CNQ has established itself as a much needed alternative for Canada’s venture oriented companies and whose business, regulatory and market model was designed specifically to address the unique needs of this important segment. It is often said that small and medium enterprises are Canada’s economic engine. While the public market of small and medium enterprises represents only one piston, it is integral that it be in good working order to ensure the engine functions properly. Therefore, it is comforting to learn that an exchange has been built specifically with this market in mind. This not only benefits the companies themselves but also their investors. From inception to the present, CNQ’s mantra remains Integrity, Transparency, and Liquidity. Now it is up to companies and their investors to leverage the competitive advantages found at CNQ: Canada’s New Stock Exchange.