A new report from the IIAC reveals causes and solutions to revive Canada's shrinking public markets
A recent paper from the Investment Industry Association of Canada (IIAC), authored by Thomas Kalafatis, explores the significant decline in Canada’s public equity markets, often described as a ‘hollowing out.’
This trend has seen the number of companies listed on the Toronto Stock Exchange (TSX) drop by 50 percent, from 1,486 in 2008 to 747 in 2023.
The TSX even went 18 months without an Initial Public Offering (IPO), indicating a challenging environment for Canadian businesses seeking public capital.
Kalafatis outlines various contributing factors and proposes solutions to stimulate growth and restore the vibrancy of Canada's equity markets.
Kalafatis notes that the weakened public markets in Canada reflect broader issues within the private sector, impacting entrepreneurship, technological advancement, and regional economic balance.
He argues that the decline affects not only issuers but also employees, investors, and intermediaries.
Canadian companies increasingly opt to sell to foreign buyers instead of going public, leading to reduced capital and innovation within Canada.
This shift has economic implications, as the loss of Canadian head offices results in fewer well-paid, high-value jobs and diminished local economic benefits.
The paper identifies several causes for this decline. The fixed cost burden on issuers and intermediaries, regulatory changes, the shift towards private capital as a substitute for public equity, and significant government spending are all highlighted.
Additionally, regulatory structures initially intended to protect markets may now be hindering growth.
Kalafatis advocates for a reduction in fixed costs, greater transparency and fairness in private markets, and a shift away from government interventions that crowd out private investment.
The proposed remedies aim to create a more conducive environment for Canadian Financial Institutions Groups (FIGs) to expand globally and strengthen the domestic market.
This includes encouraging FIGs to pursue growth internationally through supportive tax policies, removing barriers for foreign investment, and enhancing market transparency.
Kalafatis emphasizes the need for systemic reforms, including easing regulatory burdens and fostering a market environment where public equity is more attractive.
He suggests that if these changes are implemented, Canada’s equity markets can regain their position, supporting innovation and growth on a global scale, ultimately benefiting the Canadian economy and its competitiveness.
