Stock markets and investment dealers

Stock exchanges constitute an organized marketplace where buyers and sellers of equity securities can get together and trade shares. Companies can raise new equity capital by issuing shares on the primary market. A secondary market allows investors to exchange outstanding shares. Investment dealers bring primary issues of securities to the market and also trade existing securities on the secondary market for their clients.

In 2002, Canadian companies raised $17.7 billion in new common and preferred shares from domestic and international stock markets. Although substantial, this amount was lower than the $18 billion raised in 2001 and $26.5 billion in 2000.

Though many companies bring new issues to market, the total amount raised is mostly influenced by a few very large transactions. For example, many of the newly de-mutualized insurance companies seek to raise capital in the stock markets. Some of these transactions alone can be worth more than $1 billion.

	Downtown Toronto Photo: William Doré

Chartered banks now own almost all the major investment dealers. Traditional, 'full-service' investment dealers now face competition from electronic trading firms doing business over the telephone or on the Internet. The bank-owned securities dealers also have discount affiliates that allow individual investors to trade online.

More and more Canadians have an interest in the stock markets. In 2002, a full 46% of adults in the country owned shares directly or through investment funds. In 1989, only 23% of adults were shareholders.

The ability to trade online has turned more than a few Canadians into 'day traders.' These market players concentrate on very short-term price movements in stocks and may buy and sell the same company's stock several times in one day. During the high-tech boom in the late 1990s and in 2000, day traders speculated mainly in technology stocks, which, because of their ascribed volatility, were suited for short-term trading.

In an effort to help streamline operations, the four major Canadian stock exchanges agreed to realign in 1999. The Toronto Stock Exchange or TSX became Canada’s only exchange for the trading of senior equities. The Montreal Exchange assumed responsibility for the trading of derivatives, while the Vancouver and Alberta Stock Exchanges merged to form the TSX Venture Exchange, which handles trading in junior equities.

At the beginning of April 2000, the TSX became The Toronto Stock Exchange Inc., a for profit company. December of 2001 saw the finalization of the earlier merger. The TSX Venture Exchange began trading on the TSX platform (one company: two markets). April of 2002 marked the re-branding of The Toronto Stock Exchange and adoption of the acronym TSX.

In March 2000, the Toronto Stock Exchange’s monthly trading exceeded $100 billion for the first time ever. Then in May 2000, daily trading exceeded $15 billion for the first time. The year 2002 saw 1,300 companies listed on the TSX and 46.4 billion shares valued at $637.8 billion traded. The Toronto Stock Exchange was ranked 7th in the world in terms of market capitalization in June of 2002. It is the third most active stock exchange in North America behind the New York Stock Exchange (NYSE) and NASDAQ.