I feel a bit like an elephant on this TSX/LSE deal, but to have an institutional memory of at least five years is not much to crow about. Nevertheless, I can’t help but smile at the sudden aboutface the TSX is having when it comes to the many benefits of the London Stock Exchange. In fact, since the TSX (TMXGF.PK) has more actual company listings on the Venture Exchanges than the “Big Board”, you’d think the AIM’s regulatory Wild West would be a deal breaker. Let’s be honest about that at least. If the TSX/LSE merger goes ahead, the TSXV will merge with the AIM. And yet, the AIM is largely unregulated. How, exactly, will that work? Has the LSE agreed to change the very foundation of what makes the AIM tick? Or has the TSX agreed to have its junior exchange now be essentially unregulated to comply with AIM’s existing rules and practices?
AIM’s success is not encouraging news for the Toronto Venture Exchange (TVE), which is trying to carve a niche as the place for growth-oriented companies. In a recent speech, TVE president Linda Hohol said AIM’s Achilles heel is its reliance on its 85 nominated advisors (NOMADS) to police the companies they bring to the exchange — as opposed to having a strong central regulatory body that ensures a market is fair and open.
This structure, she said, does not work because “instead of setting standards that encourage companies to get better as they grow, AIM holds the NOMADS responsible for a company’s transgressions.” As a result, she contends NOMADS are conflicted because they have a financial stake in a client’s success while, at the same time, a responsibility to do the job of a regulator.
That’ll be a tough circle to square. Regulators ((NOMADS)) who are, essentially, financially incented to turn a blind eye. The new OSC Commissioner, the Hon. Howard Wetston, has a speech coming up at the Economic Club of Canada — perhaps he might weigh in on the topic of whether or not Canadian investors will be protected from this oddity should the merger proceed, or will our existing regulatory framework be watered down to the lowest common denominator?