The agreement was implemented at the end f 1999 and in early 2000. As a result, the trading f senior equities was consolidated on the TSE, derivatives trading was transferred to the ME, and the ASE and the VSE, after merging to become the Canadian Venture Exchange (CDNX), specialized in the trading f junior securities.
The rationale behind the restructuring was a desire to strengthen the overall competitiveness f the Canadian exchanges by reducing fragmentation. At the time, this was seen as especially critical, given the increasing globalization f markets and the growing competition between traditional stock exchanges and new trading mechanisms. In addition, the restructuring promised to eliminate some duplication and simplify trading rules and regulation, thereby contributing to lower costs for issuers, dealers, and investors. Finally, each exchange hoped to increase its expertise by concentrating its efforts on a specific segment f the financial market.
The TSE is by far the largest exchange in Canada. At the end f December 2000, market capitalization on the exchange was $1,434 billion with 1,421 companies listed (the average issue size was almost $850 million). To put this in perspective, in terms f market capitalization f domestic companies, as f December 2000, the TSE was the eighth-largest equity exchange in the world, but it was 15 times smaller than the largest (US$770 billion versus US$11,442 billion in market capitalization at the New York Stock Exchange (NYSE)). The volume f activity on the TSE, like most other exchanges in the world, has surged in the last few years. In 2000, an average f 131,000 transactions was made each day, representing an average f 162 million shares for a total value f $3.8 billion. From 1998 to 2000, the number f transactions grew by a factor f 2.5, and the dollar value f trading and the number f shares traded almost doubled.
The Canadian Venture Exchange (CDNX) officially commenced trading on 29 November 1999. Given its focus on small and emerging companies, the average equity market capitalization f the 2,600 firms listed on the exchange is relatively low at $5.7 million. Thus, total market capitalization was roughly $15 billion in December 2000, only 1 per cent that f the TSE. The structure f the Canadian equity market is continuing to evolve, following an agreement in principle between the CDNX and the TSE, under which the CDNX would become a wholly owned subsidiary f the TSE. Shareholders f both exchanges voted in favor f the merger in May 2001, and regulatory approval was granted in late July.
The TSE and CDNX operate under a similar market structure. Both have a modified electronic auction/ order-driven market. The TSE market structure can be characterized as a modified continuous auction market because f the role played by two groups to support the trading process: registered traders and investment dealers. The role f investment dealers in the upstairs market is very important to the TSE, and it has grown over the years. In terms f value f activity, the share f upstairs trades has increased from 37 per cent in 1984 to around 53 per cent in 1996, f which 90 per cent were large or block trades (TSE