On the Competitiveness of the Canadian Stock Market · the Canadian Stock Market Ce´cile Carpentier, Jean-Franc¸ois L’Her & Jean-Marc Suret* Even if the competitiveness of the

On the Competitiveness ofthe Canadian Stock Market

Cecile Carpentier, Jean-Francois L’Her & Jean-Marc Suret*

Even if the competitiveness of the Canadian securities market is a central argument inthe ongoing debate related to the proposal of a single securities commission, the exactlevel of competitiveness and the evolution of this market are largely undocumented. Thenumerous changes that modified the structure of the securities market during the lasttwenty years probably explain this lack of evidence. Two dimensions of the market’scompetitiveness deserve attention. The first one is the proposition that the Canadianmarket is unable to compete with other markets in attracting and keeping new listingsand transactions. The second one is the proposition that a discount penalizes firms thatfinance in Canada relative to the U.S. We address the first proposition by carefullyanalysing the evolution of the Canadian market from 1990 to 2007 in terms of marketcapitalization, number of listed companies and trading volume. We then compare theincrease observed in Canada with similar data from other countries. We analyze thediscount argument in light of recent studies that explain this phenomenon, and documentthis discount on other markets. The objective of this article is to provide documentedevidence that could ground the debate on the optimal regulatory structure for theCanadian market.

Meme si la competitivite du marche canadien des valeurs mobilieres est un argumentcentral du debat qui entoure la creation d’une commission unique des valeurs mobilieres,le niveau exact et l’evolution de ce marche sont mal connus. Les nombreux changementsqui ont touche la structure de ce marche au cours des vingt dernieres annees expliquentprobablement cette lacune. Nous pensons que deux dimensions de cette competitivitemeritent d’etre analysees. La premiere est cet argument qui veut que le marche canadiensoit mal arme pour faire face a la concurrence des autres marches. Il ne serait en mesureni d’attirer de nouvelles inscriptions ni de conserver les transactions. Le second argu-ment indique que les emetteurs canadiens souffriraient d’un escompte lors de la ventede leurs actions. Nous traitons le premier argument en analysant soigneusementl’evolution des principaux indicateurs de developpement du marche entre 1990 et 2007.

* Cecile Carpentier and Jean-Marc Suret are Professors at Laval University Quebec, andFellows of CIRANO (Montreal). Jean-Francois L’Her is from La Caisse de depot etplacement du Quebec. Contact Author: Jean-Marc Suret, email: [email protected]. The views expressed in this article are those of the authors anddo not necessarily reflect the position of the Caisse de depot et placement du Quebec. Theauthors thank Jacques Saint-Pierre for his very helpful comments. Any remaining errorsare own.

288 BANKING & FINANCE LAW REVIEW [24 B.F.L.R.]

Il s’agit de la capitalisation, du nombre de societes inscrites et des volumes de trans-action. Nous comparons ensuite l’evolution canadienne a celle des autres pays. Nousanalysons l’argument de l’escompte en utilisant les travaux recents qui expliquentl’origine de cet escompte et qui montrent qu’il existe egalement dans la plupart despays. L’objectif de l’article est d’alimenter le debat relatif a la structure de la regle-mentation des valeurs mobilieres au Canada a l’aide de donnees rigoureuses.

INTRODUCTION

Recently, a great deal of attention has been devoted to the healthof the Canadian securities market, in conjunction with the proposal of asingle securities commission. According to the Wise Person CommitteeReport, the weaknesses of the Canadian Securities regulation systemmake Canada less competitive than it should be at a time of increasingglobal competition.1 The Committee reports that many capital marketparticipants, large institutional investors and market intermediaries ar-gue that Canada’s international competitiveness suffers as a result of thecurrent structure and that it is disadvantaged internationally because ofits regulatory system. The Task Force to Modernize Securities Legisla-tion in Canada was commissioned in June 2005 by the InvestmentDealers Association of Canada, with the mandate of making recommen-dations to modernize securities legislation in Canada that would main-tain or enhance the competitiveness of Canada’s capital markets. Thegeneral hypothesis underlying these reports is that the competitivenessof the Canadian securities market is indeed low and that Canada lacksthe conditions to attract and keep new listings and trading volume.

This concern relative to the competitiveness of the Canadian se-curities market has been exacerbated by the global situation of intensifiedcompetition among exchanges and by an apparent decline in the relativeweight of North American Markets. The decrease in the relative shareof initial offerings resulting from a shift to London Alternative Invest-ment Market (the AIM), launched in 1995, as well as the Asian markets,has raised serious concerns south of the border, as clearly illustrated inthe report commissioned by the mayor of New York and Senator Schu-mer.2 This report notes a decline of 4% to 7% in New York’s relative

1 Wise Person Committee, It’s Time (Ottawa: Report to the Minister of Finance, Governmentof Canada, 2003) online: �http://www.wise-averties.ca/reports/WPC%20Final.pdf� [It’sTime].

2 McKinsey & Company, Sustaining New York’s and the U.S.’ Global Financial ServicesLeadership (New York: Report commissioned by New York’s Mayor and Senator Schumer,

THE COMPETITIVENESS OF THE CANADIAN STOCK MARKET 289

share of financings and the loss of a significant number of jobs in thefinancial sector, and attributes this situation to regulatory causes, amongothers. In a work entitled The Competitive Position of London as aGlobal Financial Centre, Yeandle et al.,3 evidence the strong increasein the volume of equity transactions on the London Stock Exchangerelative to the New York Stock Exchange. A recent paper by Rousseau4

evidences that the AIM has been extremely successful in attractinginvestors and issuers, including a number of Canadian public companies.However, Rousseau concludes that the importation to Canada of theregulatory model used by the AIM would be very difficult.

The present article is justified by the observation that, even if thelack of competitiveness of the Canadian securities market is underlinedin numerous documents and reports, evidence of the current and pastsituation of the Canadian stock market relative to the other developedmarkets is scarce. Harris advocates more empirical analysis to informthe debate on securities regulation in Canada. He contends that “thedebate in Canada [...] typically has not been informed by robust empiricalanalysis.”5

Probably because of the lack of empirical evidence, opinions aboutthe strength of the Canadian market diverge considerably. The variousreports wrote by the successive task forces in Canada generally evokedthe lack of competitiveness of the market. However, for Boisvert andGaa “In Canada, the number of shares traded on the Toronto StockExchange (TSE) has doubled in the last five years, while the dollar valueof trading has increased three-fold. Some 49 per cent of Canadians nowhold equities in some form, twice the level of involvement recorded only

2006) online: �http://www.senate.gov/�schumer/SchumerWebsite/pressroom/specialreports/2007/NY REPORT%20 FINAL.pdf�; See also L. Zingales, Is the U.S. CapitalMarket Losing its Competitive Edge?, ECGI – Finance Working Paper (2007) 192 online:�http://ssrn.com/abstract�1028701�.

3 M. Yeandle, M. Mainelli, & A. Berendt, The Competitive Position of London as a GlobalFinancial Centre, (Corporation of London’s Report, 2005) online: �http://www.cityoflondon.gov.uk/NR/rdonlyres/131B4294-698B-4FAF-9758-080CCE86A36C/0/BC RS compposition FR.pdf�.

4 S. Rousseau, “London Calling?: The Experience of the Alternative Investment Market andthe Competitiveness of Canadian Stock Exchanges” (2007) 23:1 B.F.L.R. 51.

5 D. A. Harris, “A Symposium on Canadian Securities Regulation: Harmonization or Nation-alization?” (2002) [unpublished, online:

�http://www.tsx.com/en/tradingServices/docs/2279SymposiumBrochure.pdf� at 3].


11 years ago.”6 According to Jenkinson and Ljungqvist, Canada ranksahead of the U.S., Japan and the U.K. in terms of increases in stockexchange listings from 1981 to 1998.7 Freedman and Engert concludethat “data do not provide much support for the view that domestic capitalmarkets have been abandoned by Canadian firms or hollowed out inrecent years.”8

The discrepancy of opinions regarding trends in the Canadian stockmarkets can be traced primarily to the lack of clear-cut evidence. Ex-ploiting the historical data pertaining to the Canadian markets is a realchallenge, due to several changes in the market and in the reportingmethods. Most data available for Canada are provided by the stockexchanges and are characterized by several difficulties: The merger ofseveral exchanges, double counting of several stocks before the mergerof the exchanges, the merger and the associated delisting of severalsecurities and the inclusion at the beginning of the 1990s of several largeforeign corporations in the estimation of the Canadian stock marketcapitalization, followed by their exclusion during the 1990s. Moreover,divergent opinions about the health of the Canadian stock market arefostered by the specific situation of this market in terms of cross-listing.According to Karolyi, Canada has the world’s largest number of secu-rities listed abroad (211 in 2002); the next country is Israel, with 59foreign listings.9 Several Canadian-based corporations post high trans-action volumes on American stock markets, specifically corporationslisted on the National Association of Securities Dealers Automated Quo-tations (NASDAQ). When analyzing the health and relative global po-sition of the Canadian stock market, we must take into account thisunique factor. Our first objective is to present a clear picture of thechanges in the Canadian stock market from 1990 to 2007, a periodcharacterized by a sharp increase in competition among stock ex-

6 S. Boisvert & C. Gaa, “Innovation and Competition in Canadian Equity Markets” (Summer2001) Bank of Canada Review 15.

7 T. Jenkinson & A. Ljungqvist, Going Public: The Theory and Evidence on How CompaniesRaise Equity Finance, 2nd ed. (Oxford: Oxford University Press, 2001).

8 C. Freedman & C. Goodlet, “The Financial Services Sector: An Update on Recent Devel-opments” (2002) 91 Bank of Canada Technical Reports, online: �http://ideas.repec.org/p/bca/bocatr/91.html�.

9 G. A. Karolyi, “The World of Cross-Listings and Cross-Listings of the World: ChallengingConventional Wisdom” (2006) 10 Review of Finance 99.


changes.10 The second objective is to examine the relative position ofthe Canadian stock market versus the other main developed stock mar-kets. Only this worldwide comparison can provide relevant informationabout the competitive position of the Canadian stock market. However,this comparison is complicated by the mergers of several markets inWestern Europe (Euronext) and in Nordic countries (OMX).

The article is divided into four parts. Part 1 presents the key datapertaining to the evolution of the Canadian market from 1990 to 2007,and discusses the adjustments and corrections required to obtain accurateand comparable data. The second section is devoted to an internationalcomparison to assess the relative rank of the Canadian market. The thirdpart presents and discusses the arguments related to the Canadian dis-count and cost of capital. This article concludes by discussing whetherthere is strong evidence of a lack of competitiveness of the Canadiansecurities market.

1. RECENT TRENDS IN THE CANADIAN STOCK MARKET

(a) Measurement Tools and Problems

The classical indicators used to analyze the development level andgrowth of a securities market are market capitalization, the number oflisted companies and trading volume. These indicators describe differentand complementary dimensions of a stock market. Listing a large num-ber of new companies can be a good signal of a market health, but ifthese companies are very small and thinly traded, these listings generatelittle economic activity. A market where several large firms are listedexhibits large market capitalization but generates little activity if the

10 In 1991, interlisting of Canadian corporations has been facilitated by the implementationof the Multijurisdictional Disclosure System (MJDS), which allows Canadian issuers tomeet their U.S. filing requirements using Canadian disclosure documents. Canadian issuerscan use MJDS forms to offer securities publicly in the U.S. based on a Canadian prospectusthat is subject to review only by Canadian securities regulators. In addition, MJDS allowseligible Canadian companies to meet their ongoing U.S. public annual reporting require-ments by wrapping a Form 40-F around their annual information form filed with theCanadian securities regulators and by filing the Form 40-F with the SEC. During the 1990s,the Canadian and U.S. markets competed using the decimalization decisions, intended todecrease transaction costs. In the U.K., the AIM was implemented in 1995. From 1990 to1998, more than 100 consolidation deals in the exchange industry have been reported andanalyzed. See A. Cybo-Ottone, C. DiNoia & M. Murgia “Recent Development in theStructure of Securities Markets” (2000), Brookings-Wharton Papers on Financial Services223.


stocks are traded abroad. Indeed, the three dimensions of a market shouldbe analyzed simultaneously.

Each measure presents several difficulties, which are particularlyacute in the Canadian context. The market capitalization is the sum ofthe market value of all firms listed in a market. This measure should becorrected when a single firm is listed on several stock exchanges in thesame country, a situation that prevailed, for example, for numerous firmslisted in Montreal and Toronto before the transfer of stock trades to thelatter exchange. A second problem is the treatment of foreign issuers.Large foreign issuers can sharply influence the measure of market cap-italization in their host country. Whereas the classic method for resolvingthis difficulty is domestic capitalization, this method was not used in theestimation of Canadian capitalization in the early 1990s.

Several difficulties can also bias the number of listed companies,particularly when the objective is to compare several markets. Generally,stock exchanges define rules and delist companies whose stocks do notmeet requirements based on price, capitalization or volume. NASDAQdelists a company if the stock trades under $1 for 30 days, and if thesituation is not corrected during the following six months.11 In Canada,during the main part of the period we analyze, the delisting rules allowedsecurities to stay listed for a very long time, even if these securities arenot traded or if their price is very low.12 Several of these stocks are usedas shell companies during a reverse takeover listing. Before the NEX13

11 See J. Macey, M. O’Hara & D. Pompilio, Down and Out in the Stock Market: The Lawand Finance of the Delisting Process (2005) [unpublished, online: �http://ssrn.com/ab-stract�583401�]. Delisting rules are complex, they vary between exchanges and theirapplication is partially discretionary. In 2001, NASDAQ suspended this Penny Stock Rulefor several months because “about 15 percent of Nasdaq’s listed companies are tradingbelow $1 at this time.” See Aliza Earnshaw, “Nasdaq’s suspends $1 minimum listingrequirement” (2001) Portland Business Journal, online:�http://www.bizjournals.com/portland/stories/2001/09/24/daily41.html� last visited Jan-uary 15, 2009.

12 For example, in December 2001, 313 stocks listed on the TSX Venture Exchange hadprices equal to 3 cents or less.

13 According to the TSX Venture Exchange, “NEX is a new and separate board of TSXVenture Exchange. It provides a new trading forum for listed companies that have fallenbelow TSX Venture’s ongoing listing standards. NEX companies have the opportunity torefinance, reactivate or reinvent themselves in order to re-apply to TSX Venture Exchangeprovided they can evidence their compliance with TSX Venture Minimum Listing Require-ments,” online: �http://www.tsx.com/en/nex/aboutUs/about.html�, last visited January15, 2009.


was created, in 2003, companies that fell below TSX Venture’s (TSXV)ongoing listing standards were designated inactive and given 18 monthsto meet the standards or be delisted. However the delisting is not sys-tematic and “the Exchange uses discretion and flexibility in applyingthe rules.”14 The ongoing standards for Tier 2 listing on the junior marketrefer to a minimal market capitalization of CAN$100,000 (in 2007),minimal working capital of CAN$50,00015 and significant operatingrevenues in the previous 12 months; or at least $100,000 on expendituresdirectly related to the development of assets in the previous 12 months.No conditions apply to the stock price. By comparison, similar limitsfor the NASDAQ (under standard 1) are US$5 million for market cap-italization and US$1 for the stock price.16

This situation, together with the low initial listing requirements thatprevail on the TSXV, can explain why the number of listed companiesis high in Canada. Several firms that would have been delisted in othercountries are still traded in Canada. Second, the application of stricterrules by the exchange can induce significant variation in the number oflisting companies. This was apparently the case during the restructuringof the exchange, and the same situation has prevailed since the creationof the NEX. A part of the decrease in the number of Canadian listed

14 Policy 2.4 relative to Tier Maintenance Requirements (page 3 of the Corporate FinanceManual of the CDNX, as at January 2000), reads as follows:(b) If a Tier 2 Issuer fails to meet more than one Tier 2 TMR, the Exchange will notify the

Issuer of the Tier 2 TMR that it does not meet and will allow the Issuer 90 days to meetthe requirements. If, after 90 days, the Issuer still does not meet all Tier 2 TMR, theExchange will designate the Issuer Inactive and apply the restrictions on Inactive Issuersretroactively to the initial Notice date.

(c) An Inactive Issuer can continue to trade on Tier 2 of the Exchange, but an “I” will beadded to its trading symbol until it has completed a Reactivation and meets Tier 2 TMR.An Issuer which is designated as Inactive has 18 months to meet all Tier 2 TMR. If anIssuer does not meet all of the applicable Tier 2 TMR within 18 months, its Listed Sharescan be suspended from trading.

(d) The Exchange uses discretion and flexibility in applying Tier 2 TMR.15 After the creation of the NEX, the Exchange still uses discretion and flexibility in applying

Tier 2 TMR. According to the TSX Manual (2007, policy 2.5, page 3): “If an Issuer has aviable business although it does not meet certain elements of the Tier 2 TMR, the Exchangemay determine that it is not appropriate to transfer the Issuer to NEX. The Exchange willconsider the seasonal or other cycles which affect an Issuer’s business. If an Issuer’sWorking Capital is low because of seasonal or other temporary conditions, the Exchangemay delay enforcement of this Policy but will continue to monitor the Issuer.”

16 According to the Listing Standard and Fees document, available on the NASDAQ site (lastvisited January 30, 2009) online: �http://www.nasdaq.com/about/nasdaq listing reqfees.pdf�.


companies is linked to these events. Lastly, the trading volume is also asource of difficulty, mainly in Canada. A large part of the trading in thelargest Canadian stocks, issued by cross-listed firms, is done abroad.We consequently distinguish the domestic from the foreign trading vol-ume for Canadian firms.

(b) Adjustments for Double Counting and Listing of ForeignStocks

Between 1990 and 1998, before the merger of the various ex-changes, several companies were listed on more than one market, andthe total reported number of Canadian listed stocks was clearly inflated.In 1999, the Alberta and Vancouver Exchanges merged to form theCDNX. In 2001, the Montreal Exchange (ME) opted to specialize inderivatives, and transferred its small capitalization securities to theCDNX, which is now the TSXV. The restructuring had disruptive ef-fects: on November 22, 1999, the trading of certain classes of shares ofsmall-cap corporations was transferred from the ME to the CDNX. OnDecember 6, 1999, 56 large-cap corporations on the ME were transferredto the TSE, and interlisted securities were henceforth traded only on theTSE. The number of corporations listed in Montreal fell from 532 onNovember 30, 1999 to 129 on December 31, 1999. The transfer coveredover CAN$1,000 billion of market capitalization.17 However, because91 large companies were listed on both the ME and TSE, three of whichwere also listed in Vancouver, the transfer had little effect on the capi-talization of the TSE. This transition was apparently an opportunity todelist roughly 400 securities that probably did not meet the criteria ofeither of the original two exchanges.18 In October 2001, all remainingsmall-cap securities were transferred from the ME to the CDNX.

We therefore adjust the number of stocks and market capitalizationsfor double counting of stocks that are listed on several Canadian ex-changes simultaneously. We also adjust the number of stocks and marketcapitalizations for foreign firms whose stocks are listed but rarely traded

17 This value is based on the difference in stock market capitalization at November 30, 1999(CAN$1,005 billion) and December 31, 1999 (CAN$0.684 billion), according to the 1999annual report of the ME.

18 We should observe an increase of 403 securities on the TSE but in fact only 23 newsecurities were listed from 1998 to 1999.


in Canada (e.g., BP, IBM).19 Indeed, except for 1999-2000, when theaverage proportion of trades on foreign stocks concluded in Canadareaches 0.60%, it was lower than 0.10% in each of the other years. Theselarge foreign firms gradually disappeared from the records. Their hugesize significantly impacted the reported capitalization of the Canadianmarket, and we illustrate this effect in our estimations.

(c) Changes in the Canadian Market

Statistics provided by the international organizations20 are simplyinapplicable to Canada, because they include the TSX only up to theyear 2000, and the sum of the TSX and the TSXV thereafter. Accord-ingly, we report in Table 1 (all Tables can be found at the end of thearticle) a non-corrected number of listed companies by summing thenumbers reported by the various exchanges.21 Even after the stockexchange restructuring, the international statistics are still biased, asthey include firms whose options are traded on the Montreal Exchange,but whose stocks are listed on another exchange in Canada.

Table 1 also reports the corrected data for the number of listedcompanies and for the market capitalization of the Canadian stock mar-ket. We estimate that the corrected number of companies listed on theCanadian stock market is 4,182 instead of the reported 4,696 in 1990.22

The total capitalization reported by the Canadian exchanges in 1998 wasCAN$2,267.16 billion. Following incorporation in the TSE of securitiesalready listed in Montreal and Vancouver, on December 31, 1999 thetotal capitalization diminished to CAN$1,522.27 billion, which illus-trates the impact of double counting. In 1990, the reported capitalizationof the Canadian stock markets was CAN$1,079 billion, while the cor-

19 IBM disappeared as a listed security in Canada in 1995. In its final prospectus (November5, 2002), the TSX Group Inc. reports a total capitalization of CAN$1,300 billion in 2001,but CAN$264 billion were associated with foreign securities, which are almost never tradedon this market.

20 Statistical data are available online at the World Federation of Exchanges website (1990-2007) online: �http://www.world-exchanges.org/WFE/home.asp?menu�421&document�4880�.

21 We do not present the yearly numbers of listed firms and market capitalization reported byeach exchange, but this data is available from the authors.

22 We corrected the reported number of listed stocks in 1990: 94 stocks were omitted due totheir being listed in several exchanges, 20 due to the listing of foreign companies and 400due to the adjustment observed during the merger. These approximations have little impacton the rank and the estimated growth rate.


rected Canadian companies amounted to only CAN$328 billion.23 Usingcorrected data, we estimate the average annual growth rate of the Ca-nadian market capitalization at 11.21%. The number of companies listeddecreases. This can be traced to the delisting of 400 inactive stocks whenthe exchange was restructured, and to the creation of the NEX, whereinactive stocks are now listed.

Table 2 presents the changes in trading volume. These numbers areaffected only slightly by the previously mentioned problems. The goodnews is that globally the trading volume on Canadian securities increasesfrom CAN$115.13 billion to CAN$2,795.64 billion, at an annual rateof 20.64%. The bad news is that the increase is mainly observed in theU.S. The volume of Canadian securities traded in the U.S. grew fromCAN$31.04 billion in 1990 to CAN$1,053.64 billion in 2007. Since1990, the annual growth rate of American trading has been 23.04%,which largely exceeds the domestic growth rate of 19.52%. However,since 1998, the gap has widened, as shown by the respective growthrates of 22.41% and 13.57%. Accordingly, the ratio of the U.S. volumeto the total volume of transactions on Canadian securities climbs from26.96% (in 1990) to 37.69% (in 2007) and the trading volume in theU.S. represents 60.48% of the Canadian volume in 2007. The proportionof U.S. trading is volatile, and is mainly linked to several hot stocks thatare listed on NASDAQ. Nortel largely explains the peak observed in2000, while Research in Motion with CAN$215.6 billion of trades, equalto 94.5% of the volume in the U.S., explains the surge of Americantrades in 2004. However, there is a steady and significant increase in theproportion of American transactions involving Canadian stocks. Thisslippage, in spite of the declining advantages of cross-listing for Cana-dian firms, surely represents a challenge for the Canadian stock market,especially for Canadian growth stocks.

2. THE CANADIAN STOCK MARKET RELATIVE TO THEMAIN DEVELOPED FOREIGN MARKETS

In all countries, the stock market has progressed steadily since 1990.Below we analyze the number of listed corporations or securities, total

23 To eliminate the effect of double-counting, we have estimated the capitalization of each ofthe Canadian companies listed on more than one stock exchange in Canada, from 1990 to1998. These amounts have been used to correct the reported capitalization of the variousexchanges.


capitalization and trade volume, which are classic indicators of the levelof development of a stock market. Since comparisons are possible onlywhen numbers are expressed in the same currency, we express all valuesin US$. The growth rate for Canada thus differs from previously reportedfigures, due to the exchange rate variation from 1990 to 2007. Moreover,the growth of a market is a combination of two factors. The first one isthe issuance of new stocks, net of repurchase by listed companies andthe capitalization of newly listed companies. The second one is thegrowth in the value of stocks, summarized by the variation in the index.These effects should be distinguished, and the first effect should beinterpreted only as a measure of the capacity of a market to attract newlistings and issues.

(a) Number and Characteristics of Public Corporations

Table 3 reports the number of listed securities in the main developedforeign stock markets, in 1990 and 2007, and the variation in the numberof listed stocks during the whole period. We have adjusted the numberof Canadian listed stocks in 1990 as previously indicated. The U.S. andCanada retained first and second position respectively in terms of num-ber of listed securities. However, the number of listed companies de-creased by 11.83% in the U.S. and by 9.39% in Canada. Karolyi docu-ments this reduction in the number of listed stocks in North Americafrom 1990 to 2002, and the acceleration of this phenomenon since theburst of the high tech bubble.24 However, several countries exhibit stronggrowth in the number of listings: U.K. and Spain have surpassed 3,000stocks,25 while the Japan market has reached 2,891. Switzerland poststhe lowest variation in the number of listings, which is in fact negative(-19.19%).

The decrease in the number of listed stocks in Canada can be seenas problematic in light of the numerous actions that the exchanges, thesecurities regulators and the governments have implemented to stimulate

24 See Karolyi, supra, n. 9.25 Nonetheless, the case of Spain is unique. Most of the listed companies are closed ended

mutual funds (SICAVs) that had to be listed in a stock exchange to qualify as a collectiveinvestment scheme and qualify for tax benefits associated therewith. On May 2006 anAlternative Stock Market (Mercado Alternativo Bursatil or MAB) was implemented forclosed end funds and stocks with small market capitalization. The statistics on the Websiteof the Spanish Exchange indicate that 3,288 of these funds were listed in December 2007.See the Factbooks, online: �http://www.bolsamadrid.es/ing/portada.htm�.


the listing of young companies. These initiatives include low listingrequirements, capital pool companies and the introduction of tax incen-tives like the Quebec Stocks Saving Plan. Carpentier et al., report 2,573new listings in Canada from 1991 to 2006, for an annual average of161.26 Corresponding annual numbers are 47 Initial Public Offerings(IPOs) in France, 80 in the U.K., 43 in Germany and 412 in the U.S.27

As the total number of listed firms decreased by 504 during the period,the number of delistings can be estimated at 3,077, plus the 400 stocksthat vanished during the merger of the exchange. Approximately 3,477companies disappeared from the Canadian listings in 16 years. Thissignificant “death rate” may result from mergers, going private trans-actions and delistings.

Clearly, the promotion of early listing warrants reexamination. Onaverage, initial offerings raised US$131 million in Germany, US$74million in France, US$93 million in the U.K. and US$63.5 million inthe U.S.28 In Canada, the median amount initially raised by an IPO isless than CAN$1 million, excluding privatizations and demutualizations.Only 10% of Canadian IPOs during the 1991-2000 period raised pro-ceeds that exceeded the US$20 million threshold, and are thus compa-rable to issues of SEC-covered securities under the National SecuritiesMarket Improvement Act of 1996. The Canadian market is characterizedby the presence of a large number of new businesses, generally small-cap, along with a significant death rate among listed corporations. It isthus atypical compared with the other developed markets.

(b) Market Capitalization Growth

Table 4 compares the growth of the Canadian stock market withthat of the major developed stock markets. First, the ranking related tomarket capitalization does not change very much during the 18-yearstudy period: Canada ranks 7th rather than 6th. Canadian market capi-talization expressed in US$ grew at an annual rate of 13.09%, compa-

26 C. Carpentier, J.-F. L’Her & J.-M. Suret, “Stock Exchange Markets for New Ventures”(2009) forthcoming in the Journal of Business Venturing. These authors study Initial PublicOfferings, qualifying transactions of capital pool companies and listings through reversetakeovers.

27 A. Ljungqvist & W. Wilhelm, “IPO Allocations: Discriminatory or Discretionary?” (2002)65:2 Journal of Financial Economics 167.

28 Ibid.


rable with the growth observed in France and Switzerland. Five countriespost a lower growth rate than Canada (U.S., Japan, U.K., Germany andItaly). The growth in capitalization is affected by the changes in thevalue of stocks (the Price Index Return) and by the net creation of capital.To disentangle both effects, we report the average annual growth rate incapitalization and the MSCI29 Capital Index variation. The differencesbetween these two rates can be interpreted as the rate of creation ofcapital: this is the portion of the growth in capitalization that cannot beexplained by the appreciation of the stock’s value. In terms of capitalcreation, the Canadian annual average growth rate is 2.37%, which isslightly higher than the growth rate of other larger stock markets suchas the U.S. and Japan. However, the Canadian capital creation is signif-icantly lower than that of smaller markets such as Hong Kong, Australia,and Spain. The net Canadian capitalization growth is therefore slow,which implies that statements referring to the dynamic growth of theCanadian exchanges should be qualified.

(c) Trade Volume Growth

Data from Levesque, Beaubien and Geoffrion Inc. show extremelyrapid growth in the value of trades on Canadian stock exchanges between1976 and 1998.30 As growth in trading value is a worldwide phenome-non, we present a comparison with other developed markets in Table 5,for 1990 and 2007. For each country, we report the annual growth ratein trade volume, together with the average return of the MSCI CapitalIndex. The comparison of both rates indicates the annual net variationin volume, which is not explained by the changes in stock value.

The relative position of the Canadian market is deteriorating: itdropped to 10th place in 2007, from 8th place 17 years earlier. TheCanadian stock market has been surpassed by those of Italy, Spain andSwitzerland. In net terms, volume growth of Canadian trades was lessthan that of the U.S., and only four countries in our sample had poorerperformance.

29 Global equity indices provided by MSCI Barra have become “the most widely used inter-national equity benchmarks by institutional investors.” See MSCI Barra online: �http://www.mscibarra.com/products/indices/�.

30 R. Shearmur, “Financial Flow and Places: The Case of Montreal” (2001) 27:2 CanadianPublic Policy 219 at 233.


Canada is thus progressively losing strength relative to other mar-kets, particularly the American market. Stock market growth is fuelledby internal factors, but may also be triggered by the issue of securitiesby corporations or, on the contrary, weakened by the transfer of localsecurities trading to other markets.

The loss of ranking of the Canadian stock market is essentially dueto the transfer to the U.S. of a large part of the trades on cross-listedsecurities. The total (Canadian and U.S.) trade volume on Canadiansecurities is US$2,676 billion in 2007,31 corresponding to the sixthhighest trading volume among the markets analyzed.32 The loss of asignificant and growing part of trade to the U.S. market is thus the mainchallenge for the Canadian securities market. Why the U.S. market iscapturing a growing part of the trades of Canadian stock is not totallyclear. Firms list abroad for several reasons, and it is in the interest ofinvestors to trade in the country where the liquidity is higher and thetrading cost are lower. Two arguments are evoked in the debate sur-rounding the regulatory structure in Canada, which deserve attention.

3. CROSS-LISTING PREMIUM AND COST OF CAPITAL

According to several reports, firms that cross-list in the U.S. benefitfrom a cross-listing premium (CLP) and a decrease in their cost ofequity.33 This can partially explain the movement of Canadian securitiesactivity south of the border. Both arguments, translated by a “Canadiandiscount” is often used as evidence of the lack of competitiveness of thelocal market. For example, in his address to the Economic Club ofToronto, Tom Allen, Chairman of the Task Force to Modernize Secu-rities Legislation in Canada, argues that capital markets in Canada suffer

31 This number is the sum of the Canadian value traded (US$1,634.87) and the U.S. valuetraded (US$1,041.14 that we get by converting in US$ the amount of CAN$1,053.63 fromTable 2) of Canadian based companies.

32 Trades in the U.S. of Canadian based companies represent only US$330.6 million less thanthe total value traded in the Australian market (Table 5). A comprehensive analysis of thecross listing phenomena in Canada is provided by C. Carpentier, J-F. L’Her & J-M. Suret,“Does Cross-Listing Reduce the Cost of Equity?” (2008) [unpublished, online: �http://ssrn.com/abstract�1045561�].

33 Both dimensions are linked as follows. A basic principle in finance indicates that a stockprice is the sum of the present value of future cash flows. If the rate (the cost of capital)used to actualize the future stream of cash flows decreases, the present value moves in theopposite direction. Accordingly, a premium (in the U.S.) is consistent with a lower cost ofcapital in this country.


from a “made in Canada discount. There is no doubt that this exists.Research which we have referred to in the Report indicates that thediscount is 25 basis points from the price attracted by comparable eq-uities in the U.S. Whether this is accurate is not the issue. It offers anorder of magnitude. Multiply this by the equities financed in Canadaannually and one can see that there is a critical need for improvement.”34

This proposition seems to refer to the “cross-listing premium,” observedwhen a domestic company cross-lists. At this time, its value appears tobe higher than similar but non-cross-listed companies. Such a premiumis observed for companies from all countries, and is not specific toCanada. On average, the cross-listing premium is estimated at between17% and 22% (depending on the estimation method) for a listing on anAmerican exchange, regardless of the home country of the newly cross-listed company.35 This premium results from the fact that a companythat is listed in the U.S. subjects itself to a more stringent regulatoryenvironment as well as to greater scrutiny by the authorities, analystsand institutional investors. This environment improves the governancesystem. The premium can also be linked to better possibilities for fi-nancing growth. When Canadian firms cross-list in the U.S., the pre-mium seems to disappear after a few years, and it does not constitute apermanent advantage for these firms.36 The bottom line is that Canadianfirms that list in the U.S. can benefit from a temporary cross-listingpremium, but as firms from all countries benefit from a similar advan-tage, it is premature to link this premium to Canada-specific factors.

As asserted by the Wise Person Committee Report “In addition,these [regulatory] costs, when combined with the other weaknesses ofthe current system. . .result in an increased cost of capital for Canadianfirms. While the precise increase may be difficult to quantify, any un-necessary increase in the cost of capital results in a competitive disad-vantage that Canada cannot afford to bear.”37 The general wisdom is

34 T. Allen, Chairman of the Task Force to Modernize Securities Legislation in CanadaPresentation to the Economic Club of Toronto (Toronto, Ontario, 10 October, 2006) online:�http://www.tfmsl.ca/documents/TaskForceSpeech(TomAllen) fr.pdf�.

35 G. Doidge, A. Karolyi, & R. Stulz, “Why Are Foreign Firms that List in the U.S. WorthMore?” (2004) 71:2 Journal of Financial Economics 205.

36 M. R. King & D. Segal, “The Long-Term Effects of Cross-Listing, Investor Recognition,and Ownership Structure on Valuation” (2006) EFA 2007 Ljubljana MeetingsPaper,online:�http://ssrn.com/abstract�924585�.

37 It’s Time, supra, n. 1 at 39.


that the cost of capital is higher when the investor protection, governancerule and enforcement are weaker.38 Accordingly, several papers haveproposed such comparison between Canada and the U.S. It should bementioned that the estimation of the cost of equity is a very difficulttask.39 Moreover, differences between national costs of equity may sim-ply be a product of differences in the industrial structure of these coun-tries. Natural resources justify a higher cost of capital than utilities, forexample, and both sectors weigh differently across the countries. Thiscan explain the heterogeneity that emerged from in previous results.King and Segal40 established a lower cost of equity in Canada than inthe U.S., but the other studies can be summarized as follows.41 Overall,based on a measurement of data for large-cap businesses, the cost ofcapital in Canada seems to be identical to the cost of capital in the U.S.On the whole, Hail and Leuz attribute a slight advantage to the U.S.(10.2% compared with 10.5%), while Claus and Thomas attribute a 20basis point advantage, but in favour of Canada. Comparisons betweenthe two countries, however, are difficult due to differences in theirindustrial structures. He and Kryzanowski therefore analyze each sectorand find no such differences. Indeed, Canada has a net advantage of

38 We follow the literature by using the terms cost of capital and cost of equity indiscriminately.39 The cost of equity is the rate required (expected) by the investors to own shares, and it

depends on the perceived risk of the shares. To estimate this cost, researchers have positedseveral hypotheses and used complementary methods. See L. Hail & C. Leuz, “InternationalDifferences in the Cost of Equity Capital: Do Legal Institutions and Securities RegulationMatter?” (2006) 44:3 Journal of Accounting Research 485 for a good description of thesemethods and challenges. In a seminal paper dedicated to the estimation of the cost of equityfor sectors, Fama and French estimate that standard errors of more than 3.0% per year aretypical in the estimation of the cost of capital. This indicates that when one claims that thecost of equity is 12% in a sector, we can only conclude that this cost is between 9% and15% with a probability of 68%. See E. Fama & K French, “Industry Costs of Equity” (1997)2 Journal of Financial Economics 153.

40 M. R. King & D. Segal, Valuation of Canadian – vs. U.S. – Listed Equity: Is There aDiscount? Bank of Canada Working Paper No. 2003-6, online: �http://ssrn.com/abstract�419582�.

41 The main studies dedicated to the comparison of the cost of capital between Canada andU.S. are J. Claus & J. Thomas, “Equity Premia as Low as Three Percent? Evidence fromAnalysts’ Earnings Forecasts for Domestic and International Stock Markets” (2001) 56:5The Journal of Finance 1629; C. Freedman & W. Engert, “Financial Developments inCanada: Past Trends and Future Challenges” (2003) Bank of Canada Review 3; L. Hail &C. Leuz, supra, n. 37; Z. He & L. Kryzanowski, “Cost of Equity for Canadian and U.S.sectors” (2007) 18 2 The North American Journal of Economics and Finance 215; J. Witmer& L. Zorn, “Estimating and Comparing the Implied Cost of Equity for Canadian and U.S.Firms” (2007) [unpublished, online: �http://www.bank-banque-canada.ca/en/res/wp/2007/wp07-48.pdf�].


some 100 basis points in the finance and resource sectors. Recently,Witmer and Zorn re-examined these differences, using various meth-odologies and taking enterprise characteristics into account.42 On aver-age, they analyzed 180 Canadian businesses per year, of which one-thirdwere cross-listed. The financial sector was excluded. The authors esti-mate that the cost of equity is 30 to 50 basis points higher in Canada,but this difference has decreased since 1997, a decrease the authorsattribute to changes in the relationship between interest rates in the twocountries. Given the diversity of results, the small sample sizes and thefindings of the various studies, it appears difficult to state that there aremajor differences between the cost of capital for Canadian companiesand American companies in recent years. The differences reported arein fact minor, given that measuring the cost of capital invariably resultsin significant estimation errors, regardless of the method used.

This literature survey indicates that there is no strong empiricalsupport for the so called “Canadian discount.” Nor is there a significantdifference between the cost of equity between the U.S. and Canada.

4. CONCLUSIONS AND IMPLICATIONS

To scrutinize the changes in the Canadian stock market over thepast 18 years, we closely analyze various indicators of the health of astock market. We pay particular attention to problems arising fromdouble counting of stocks before the merger of the Canadian exchanges,listing of very large but low-traded foreign stocks, and the trading vol-ume in the U.S. of cross-listed Canadian stocks. The results of thisthorough analysis of the indicators measuring the changes in the Cana-dian stock market can be summarized as follows.

First, the number of listed stocks remains high relative to otherdeveloped markets. However, unlike non-North-American markets, thenumber of listed stocks has decreased notably. The public policies im-plemented to stimulate the listing of new firms have not resulted in asignificant increase in the total number of listed securities. Approxi-mately 3,477 companies vanished from the exchanges during this period.This death rate is abnormally high.

42 Figure 1 in Witmer & Zorn study, ibid., illustrates the diversity of findings in previousstudies on this subject.


Second, the growth of the Canadian stock market capitalization iscomparable to that of other developed stock markets. It is higher thanthat of large stock markets – the U.S. and Japan – but lower than that ofsmaller stock markets – Hong Kong, Australia, and Spain. The netincrease in capitalization is estimated at 2.37% per year. The net pro-ceeds of equity by corporations have thus become relatively low.

Third, the trading volume on the Canadian stock market is lowerthan on other size-comparable stock markets. However, when we alsotake into account the American volume of cross-listed Canadian stocks,the Canadian stock market compares favourably to global markets. Theaverage figures hide important cross-sectional differences, becausegrowth stocks listed on NASDAQ drive most of the American volume.The importance of cross-listing is a singularity of the Canadian stockmarket. This particularity is likely to increase the liquidity of interlistedCanadian stocks. However, it raises difficulties relative to the capacityof the Canadian market to retain Canadian corporations, given the powerof attraction exerted by the most important market of the world, the U.S.stock market. The U.S. volume of Canadian cross-listed stocks is grow-ing at a much faster rate than the domestic volume.

The relative position of the Canadian market appears to declinerelative to the London market place, but a similar observation can bemade for the U.S. market. Several reports,43 as well as the study carriedout by Goldman Sachs44 and that of Doidge et al.,45 show that a numberof factors, other than the regulatory system, explain the success of theLondon marketplace. The growth of the European and Asian markets isthe first factor. In many countries, market capitalization represents amuch lower portion of the gross national product than in North America.This gap is being closed and financing activities are refocusing onEurope and Asia. London has a significant time zone advantage, pro-viding an overlap of trading hours both with Asia and with the Americas,whereas the markets open on the U.S. East Coast only after the close ofall other markets. London is integrated in the European Union, eventhough it has not adopted its currency. Finally, the growth of hedge

43 Supra, n. 2 and n. 3.44 Goldman Sachs, “Is Wall Street Doomed?” (14 February 2007) Global Economics Weekly

6.45 See Doidge et al., supra, n. 33.


funds, mutual funds and pension plans is, and will continue to be, morerapid outside than inside North America. The same is true of economicgrowth, particularly in India, China and Russia. According to McKinsey& Company, the availability of human resources is also a key componentof financial market competitiveness. Finally, Doidge et al., show thatchanges in listing choices are largely reflective of changes in the natureof issuers. Companies that obtained listings on AIM would generallynot have been able to list themselves on the large American exchanges.The foregoing explains the following finding by Goldman Sachs: “Legaland regulatory factors probably do matter, and policy reform mightstrengthen New York’s competitiveness. Nonetheless, we do not seethem as the critical drivers behind the shift in financial market inter-mediation, even in the aggregate. Quite simply, economic and geo-graphic factors matter more.”

Our work documents the competitive position of the Canadiansecurities market. The extreme view that proposes that this market istotally unable to compete is not in line with the data. The slipping ofCanada in terms of capitalization and number of listed company is low,and can be explained by worldwide factors. The main challenge facedby the market is probably the transfer of large trading volume towardthe U.S. market. There is scant evidence of a significant advantage forCanadian firms to be listed in the U.S.: costs of capital are similar andthe difference in value, which is not specific to Canada, vanished aftera few years. Mainly, the transfer of trades concerns very large companiesthat have been cross-listed in the U.S. for years. It is worth noting thatthis dimension is not frequently evoked in the debate surrounding theCanadian securities regulation. One explanation for this is probably thatthis evolution is more grounded in the market structure and liquiditythan in the securities regulation.


Table 1: Annual distribution of market capitalization, grosstrading volume and number of listed corporations onthe Canadian exchanges (Alberta, Vancouver,Montreal, Toronto, CDNX and TSX venture exchanges)between 1990 and 2007. Market capitalization andgross trading volume are expressed in CAN$ billion.

Year

Number of listedcorporations (non-

corrected)

Total marketcapitalization

(non-corrected)

TSEnumber of

listedcorporations

Correctednumber of

listedcorporations

CorrectedCanadianmarket

capitalization

1990 4,696 1,079.29 1,193 4,182 328.021991 4,342 1,102.19 1,138 NA 368.771992 4,055 1,074.52 1,119 NA 350.941993 4,080 1,365.13 1,193 NA 465.791994 4,180 1,258.34 1,251 NA 460.831995 4,128 1,488.06 1,258 NA 526.21996 4,247 1,830.39 1,323 NA 698.671997 4,425 2,030.62 1,420 NA 838.511998 4,431 2,267.16 1,433 NA 1,039.911999 3,943 1,522.27 1,456 3,814 1,166.142000 4,124 1,449.86 1,398 3,996 1,168.912001 4,122 1,257.29 1,316 4,004 989.342002 3,888 1,056.32 1,304 3,808 909.022003 3,401 1,308.62 1,340 3,331 1,176.222004 3,440 1,570.79 1,421 3,369 1,410.892005 3,640 1,864.04 1,537 3,557 1,729.342006 3,801 2,116.18 1,598 3,678 1,974.882007 3,945 2,151.63 1,613 3,789 1,997.43

NA means not available. To eliminate the effect of double-counting from interl-isting, we have estimated the amount of Canadian interlisted share capitalizationfrom interlisted companies in Canada in 1998, and from capitalization for thesesecurities for each year from 1990-1998. Sources: Montreal Stock Exchange:Rapport d’activite au 31 decembre 2002 a 2007, Revue mensuelle, 1999-2001;Statistiques, Recherche et information sur le marche (1991), Statistiques, faitssaillants: Negociations, inscriptions, membres (1992, 1993); Revue boursiere etrepertoire des societes (1994, 1995, 1996, 1997 and 1998). Toronto StockExchange Review, Alberta Stock Exchange Review, Vancouver Stock ExchangeReview, and CDNX monthly Review, and TSXV review.


Table 2: Annual trading volume of Canadian securities inCanada and in the U.S., 1990-2007. Trading volume areexpressed in CAN$ billion.

Trading volume onCanadian securities

Proportion of U.S.Trades relative to

CanadaandU.S. Canada U.S.

Can-adianand USVolume

(%)

Can-adianVo-lume(%)

1990 115.13 84.09 31.04 26.96 36.911991 113.52 90.12 23.40 20.61 25.971992 129.11 101.77 27.34 21.18 26.861993 267.35 186.33 81.02 30.30 43.481994 323.26 222.36 100.90 31.21 45.381995 369.25 256.05 113.20 30.66 44.211996 510.52 369.44 141.08 27.63 38.191997 643.28 497.62 145.66 22.64 29.271998 725.18 554.43 170.75 23.55 30.801999 769.04 530.61 238.43 31.00 44.942000 1,654.24 961.23 693.01 41.89 72.102001 1,092.25 716.13 376.12 34.44 52.522002 899.09 640.93 258.16 28.71 40.282003 944.29 655.21 289.08 30.61 44.122004 1,448.12 844.75 603.37 41.67 71.432005 1,752.13 1,090.77 661.36 37.75 60.632006 2,263.55 1,449.16 814.39 35.98 56.202007 2,795.64 1,742.01 1,053.63 37.69 60.48

Average Growthrate 1990-2007 20.64% 19.52% 23.04% — —Average Growthrate 1990-1998 25.87% 26.59% 23.75% — —Average Growthrate 1998-2007 16.18% 13.57% 22.41% — —


Table 3: Ranking of sampled countries according to the numberof listed corporations at the end of 1990 and 2007

Rank Number Rank Number Variation (%)

2007 1990

United States(NYSE, NASDAQ, AMEX) 1 5,965 1 6,765 -11.83%Canada (all markets) 2 3,789 2 4,182 -9.39%United Kingdom (London SE) 4 3,307 3 2,559 �29.23%Japan (Tokyo & Osaka SE) 5 2,891 4 2,071 �39.59%Canada TSE 1,613 1,193 �35.21%Australia (Australian SE) 6 1,998 5 1,136 �75.88%Korea Exchange 7 1,757 6 677 �159.52%France 10 707 7 578 �22.32%Spaina 3 3,537 8 427 �728,33%Switzerland (Swiss Exchange) 11 341 9 422 -19.19%Germany (Deutsche Borse) 9 866 10 413 �109.68%Hong Kong 8 1,241 12 299 �315.05%Italy (Borsa Italiana) 12 307 12 220 �39.54%

Euronextb 1,155 920 �25.54%OMXc 851 493 �72.62%

Sources: Statistical data available online at the World Federation of Exchangeswebsite (1990-2007) �http://www.world-exchanges.org/WFE/home.asp?menu�421&document�4880�, Euronext web site (2007), �http://www.euronext.com/editorial/wide/editorial-7338-FR.html�, and Standard & Poors, EmergingStock Market Fact Book, New York, 1995, 2000, 2001, Global Stock MarketsFactbook 2007, and TSE Review, 1993 and 2007, Five Year Statistical Summary.a In June 2001, the governing companies of the four Spanish stock exchangessigned a protocol involving creation of a company that would act as an integratingcentre of all Spanish markets and as a decisive instrument for their internationalprojection. The “Bolsas y mercados espanoles” was founded in 2002. Since then,the international statistics have reported the number of listed stocks of the inte-grated market, while previously, only the main exchange was covered �http://www.bolsasymercados.es/asp/homepage.asp?id�ing�.b We estimate the number of listed corporations in 1990 by summing the valuesreported by Amsterdam, Brussels and Paris Stock exchanges.c OMX Copenhagen, OMX Helsinki and OMX Stockholm have integrated OMXin 2005; we summed the number of listed corporation of these three stock ex-changes to obtain the reported value for 1990.


Table 4: Ranking of the sampled countries at the end of 1990and 2007 by market capitalization, in US$ billion.

2007capitalization

1990capitalization

Annualmean

growth ofcap.(1)

Annualmean

growth ofthe MSCIindex (2)

Net annualmean

growth ofcapital

(3)�(1)-(2)

rank cap. rank cap. in % in % in %

United States(NYSE, NASDAQ,AMEX) 1 19,922.28 1 3,105.22 11.55 9.30 2.25Japan (Tokyo &Osaka SE) 2 4,543.12 2 2,928.53 2.62 0.83 1.79United Kingdom(London SE) 3 3,851.71 3 850.01 9.30 6.89 2.41Germany(Deutsche Borse) 6 2,105.20 4 355.31 11.03 9.36 1.67France 4 2,736.99 5 314.38 13.58 9.84 3.74Canada TSE 7 1,962.27 6 242.25 13.09 10.72 2.37Switzerland(Swiss Exchange) 9 1,271.05 7 157.63 13.06 12.56 0.50Italy (BorsaItaliana) 12 1,072.53 8 148.77 12.32 7.04 5.28Spaina 8 1,799.83 9 111.45 17.78 11.68 6.10Australia(Australian SE) 10 1,298.32 10 107.94 15.76 10.44 5.32Korea Exchange 11 1,122.61 11 110.30 14.62 6.96 7.66Hong Kong 5 2,654.42 12 83.39 22.58 11.58 11.00

Euronextb 4,222.78 499.66 13.38 — —OMXc 1,242.58 153.80 13.08 — —

Sources: Statistical data available online at the World Federation of Exchangeswebsite (1990-2007) �http://www.world-exchanges.org/WFE/home.asp?menu�421&document�4880�, Euronext web site (2007), �http://www.euronext.com/editorial/wide/editorial-7338-FR.html� and Standard & Poors, EmergingStock Market Fact Book, New York, 1995, 2000, 2001, Global Stock MarketsFactbook 2007, and TSE Review, 1993 and 2007, Five Year Statistical Summary,Bank or Canada exchange rate at the end of the year, and market index per countryin US$.a See note a of Table 3.b We estimate the number of listed corporations in 1990 by summing the valuesreported by Amsterdam, Brussels and Paris Stock exchanges.c OMX Copenhagen, OMX Helsinki and OMX Stockholm have integrated OMXin 2005; we summed the capitalization of these three stock exchanges to obtainthe reported value for 1990.


Table 5: Ranking of the sampled countries at the end of 1990and 2007 by value traded in US$ billion.

2007Value traded

1990Value traded Annual

meangrowth

of cap. (1)

Annualmean

growth ofthe

MSCIindex

(2)

Netannualmean

growthof capital(3)�(1)-

(2)rank cap. rank cap. in % in % in %

United States(NYSE, NASDAQ,AMEX) 1 45,900.32 1 1,815.48 20.93 9.30 11.63Japan (Tokyo& Osaka SE) 2 6,733.93 2 1,531.52 9.10 0.83 8.27United Kingdom(London SE) 3 10,333.69 3 543.39 18.92 6.89 12.03Germany(Deutsche Borse) 4 4,324.93 4 508.71 13.42 9.36 4.06Franced 12 769.95 5 116.89 12.50 9.78 2.72Korea Exchange 8 2,005.99 6 75.63 21.27 6.96 14.31Switzerland(Swiss Exchange) 9 1,886.31 7 68.84 21.50 12.56 8.94Canada TSE 10 1,634.87 8 54.78 22.11 10.72 11.39Italy (BorsaItaliana) 6 2,312.53 9 42.17 26.56 7.04 19.52Spaina 5 2,969.52 10 40.97 28.65 11.68 16.97Australia(Australian SE) 11 1,371.74 11 40.19 23.08 10.44 12.64Hong Kong 7 2,136.91 12 34.68 27.43 11.58 15.85

Euronextb 5,639.76 170.99 22.83 — —OMXc 1,864.67 31.06 27.24 — —

Sources: Statistical data available online at the World Federation of Exchangeswebsite (1990-2007) �http://www.world-exchanges.org/WFE/home.asp?menu�421&document�4880�, Euronext web site (2007), �http://www.euronext.com/editorial/wide/editorial-7338-FR.html� and Standard & Poors, EmergingStock Market Fact Book, New York, 1995, 2000, 2001, Global Stock MarketsFactbook 2007.a See note a of Table 3.b We estimate the number of listed corporations in 1990 by summing the valuesreported by Amsterdam, Brussels and Paris Stock exchanges.d As value traded in 2007 is not available, the value traded in 2006 is reported.

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