Canadian Lawyer

46 A p r I L 2 0 1 5 w w w . C A N A D I A N L a w y e r m a g . c o m Aequitas, which launched in March, sees law firms as an important partner, says Pavalow, and is looking for client-focused law firms that are "innovative and support- ive of new ways of doing things. Aequitas officials have been meeting with corporate lawyers and doing roadshows among law firms explaining their offering. The interest from the legal community has been very, very positive. We are trying to create a level playing field for long-term investors." Stock exchanges used to be simple businesses and brought together people seeking capital to fund their ideas and businesses, and financiers willing to risk money. However, the stock exchange world has changed dramatically, fueled by a technology arms race and the advent of electronic trading. Gone are floor traders, replaced by computers that trade in mil- liseconds, and not by the tick as before. Billions of dollars are now made and lost thanks to the click of a mouse. High-frequency trading has become the benchmark and is driving much activity on stock exchanges at the expense, Aequitas argues, of long-term investors, such as retail and pension or mutual funds, as well as the companies that issue equity. Aequitas founder, Jos Schmitt, head- ed the former Alpha Exchange when it became part of the Maple Group acquisi- tion, which saw Canada's leading invest- ment banks and insurers, including some backers of Alpha, buy the company that operated the TSX and Canada's venture exchange. Schmitt and his management team struck out more than a year ago to once again start a competing exchange, vowing to bring more transparency to the market and tackling the problem of predatory high-frequency trading — where traders use a technology advantage to front-run trades, an issue that regulators have been studying. "We are trying to be a force that changes behaviour in the way things are done," says Pavalow. Aequitas is backed by RBC Dominion Securities Inc., CI Investments Inc., IGM Financial Inc., and pension funds PSP and OMERS. Technology trading firm ITG Canada Corp. is also part of the ownership mix, as is BCE Inc. The exchange's rules and trade-matching criteria are designed to take the advantage away from high-frequency traders. It is also creating a designated mar- ket-maker program for investment firms that want to provide liquidity. Aequitas will have three trading books and securities listed on the TSX, TSX Venture, and Aequitas NEO will be trad- ed in the different books. One concern Aequitas has about current market struc- tures in Canada is that companies are taken public too soon and before the market is ready to support them from a liquidity standpoint. "We have stepped back and said not everybody needs to be listed or should be listed," Pavalow explains, saying the listing focus will likely be on mid- and large-cap companies looking to garner cross-border exposure. "We will not get any small-cap or startups." The exchange will also focus on new products to help companies raise capital, she says, adding she expects to see some exchange-traded and closed-end funds listings, as well. One of Aequitas's priorities is remov- ing red tape from the listing process. The listing standards are "clear, objective, and easy to understand," says Pavalow, add- ing the exchange will "not get bogged down" in approving things like acquisi- tions or private placements. "We don't get involved in discretion." Aequitas is also creating an exchange for trading in private company shares — billed as an "alterna- tive solution for raising capital" — which it hopes to launch later this year. Demographics suggest Canada is entering a period where established fam- ily businesses will be sold, as founders step aside, and their children carve out alternative career paths. Lawyers servicing family-run businesses will be looking for solutions, so the Aequitas private offering could be arriving at the right time. Yet, the reality remains that the TMX is a juggernaut with the lion's share of the listing market. Also, public markets have been choppy of late, making it a chal- lenge for Aequitas to launch. Whether it can grow to be more than a thorn in the TMX's side, remains to be seen. Pavalow, however, is optimistic. The "value proposition" for Aequitas is different, she says. "If we were doing what everybody else is doing, I would be worried. Because what we are doing is so different, I am not worried." Jim Middlemiss blogs and is a principal at WebNewsManagement.com. B A C k pA g E o p I N I o N @Jimmiddlemiss By Jim Middlemiss ttention law firms, the Aequitas NEO Exchange wants you, or more accurately, your clients. But that's OK, because Aequitas isn't some new-fangled, law firm startup seeking to steal your business. Rather, it's Canada's newest stock exchange, looking to bring a fresh vision to raising capital and driving liquidity, which many Canadian companies rely on to grow their business. That's where law firms come in. Lawyers are ideally situated between potential issuers (capital-seeking businesses) and investment banks that want to take them public. That's why Aequitas is launching a referral program for lawyers, explains lawyer Randee Pavalow, chief issuer products officer at the upstart exchange. Aequitas shaking up exchanges A wheTher [aequiTas] can Grow To be more Than a Thorn in The TmX's side, remains To be seen.

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