Resource World Magazine

32 www.resourceworld.com J U N E / J U L Y 2 0 1 7 T he financial services business has undergone major changes over the last 30 years. Probably the big- gest change began in 1987 when banks were granted permission to own brokerage firms. Today it is estimated that between 80% and 90% of Canadian retail invest- ment assets are under bank administration. Other changes to the investment indus- try that have occurred include: • The amalgamation of Canada's various exchanges in 2000, followed by an IPO of the TSX Group in 2003 (which was taken over by the Maple Group, a consortium of Canadian banks, pension funds and invest- ment firms) • Increases in automation expense • Growth in the discount brokerage sector • Escalation in regulatory compliance costs • Increases in exchange trading fees • Acceleration of automated algorithmic trading platforms • The emergence of exchange traded funds (ETF's) • Changes to trading rules including the ability to short stock on a down tick • The emergence of 'Dark Pools' and alter- native order matching exchanges The list is extensive and each point is probably worthy of an article unto itself. The smaller boutique-style firms have faced great adversity in the wake of all this change. Added expenses and shrinking margins, as well as a prolonged bear mar- ket in both the energy and mining have taken a toll on smaller Canadian brokerage firms. These firms have spread the rising costs and decreasing revenues over a much smaller asset base. Approximately 30% of IIROC licenced firms have ceased to exist over the last four years. Some of these firms have gone bankrupt; some have sim- ply resigned their membership in IIROC; while other have been sold to, or amalgam- ated with competitors at low valuations. Also affected by all this change are the listed venture companies themselves. Early stage, retail-based public venture financings have become increasingly difficult to com- plete. Canada's public markets were never designed as place where wealth was to be managed, but rather a place where substan- tial wealth could be created if investments in early stage ventures proved successful. As the involvement of the retail bou- tique brokerages has diminished and the secondary market place has been made more complex, even opportunities that have been successfully de-risked don't often have the benefit seeing that de- risking accurately reflected in their market priced valuations. This has been largely due to a decreasing amount of retail par- ticipation in the secondary market. Some of the reasons for decreasing retail partici- pation in the secondary market include: • Retail brokers, still left in the business, have seen the profitability on market trans- actions diminish substantially. • The likelihood of a substantial price increase is diminished due to increased complexity in how the secondary market operates. • A large percentage of retail assets are being managed by firms who limit or ban participation on venture stocks at the retail level. • Retail firms that once provided after- market support in the form of capital markets-driven research are no longer in business. When somewhat de-risked assets are trading at poor valuations, larger institu- tions do often provide necessary funding, but because the financing is usually com- pleted in the context of the market, the financing is often so dilutive that it doesn't provide the early investor with a return that is commensurate with the assumed risk. Recently, there has been some positive regulatory change for the boutique firms Changes in financial services impacts investors by Derek Wood INVESTMENT EQUITY CAPITAL RAISED ON TSXV C$M YTD SEPTEMBER 30, 2016 During the first three quarters of 2016, TSXV-listed companies raised $3.1 billion in equity capital via 1,181 financings. This represents a 15% increase over the amount of equity capital raised during the same time in 2015. Source: TSX Venture Exchange Mining 1,795.5 Technology 445.8 Real Estate 237.8 Diversified Industries 170.8 Life: Sciences 164.2 Financial Services 127 Oil & Gas 124.4 Clean Technology & Renewable Energy 62.4 CPC 10

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