CNSX Markets Inc. – Shareholders Update
I am pleased to provide you with a progress update on behalf of the management and staff.
As you will see from the attached press release, the final component of the Urbana Corporation-led financing closed on March 4. Following completion of the transaction we have 20,209,405 common shares outstanding. Urbana holds 10,056,236 shares, or 49.76% of the company.
With the proceeds of the offering in the company treasury, the CNSX team has started executing against the plan discussed at the shareholder meeting late last year:
• CNSX Markets has retired the long term debt owed to two parties, totaling $828,180. The company is also again current on payments with its principal technology supplier, NASDAQ/ OMX. For the first time in the history of the company, we are operating on a debt-free basis.
• With the debt situation resolved, one of the key uses of proceeds was to reinforce our efforts to assemble a community of investment dealers, advisors and investors to support our listed companies in their capital raising efforts and investor relations activities and to enhance secondary market liquidity on the Canadian National Stock Exchange. To that end, our senior management team and sales group (often accompanied by our Chairman, Mr. Caldwell), have been meeting with the investment community across Canada. We’ve also sponsored and participated in the Cambridge House International Mining Show in Vancouver (11,000 attendees) and the PDAC mining show in Toronto (more than 30,000 attendees); announced a partnership with Innovate Calgary, an award-winning technology company incubator at the University of Calgary; and presented to Montreal investment managers and dealers at an Urbana-sponsored luncheon in late February.
• Hearing more from people about what they value most about our exchange’s products and services, has enabled us to sharpen our message. “The Exchange for Entrepreneurs” is the new tag line for our marketing materials. Our superior service for companies looking to raise money through the public capital markets has a number of key components:
o A clear rule book that sets the ground rules ahead of time. No surprises for company management or their advisors.o A streamlined process that doesn’t force the company to redo many of the steps that it went through when it cleared its prospectus and that doesn’t second guess company management on business issues.
o Deeply experienced staff. The listings team has been active in Canada’s capital markets for a number of years, and is well positioned to work with companies and their advisors to anticipate and address any issues that come up during the listings process. Companies value our services highly as a result.
o Cost: lower and predictable fees and fast time to market ensure that our listings services will always be substantially more cost effective than alternatives in Canada or abroad.
• New web services: we have finalized arrangements with Sutton Compliance Communications to deliver a new web site for the company. Along with this new service, we will be building individual sites for our issuers to assist in their continuous disclosure, regulatory filings and investor relations efforts.
• Technical Projects: as presented to the shareholders in December, the new funding has enabled us to make small capital investments designed either to reduce costs or enhance our services, in particular on the Pure Trading side of the business. We are developing enhancements to our order routing system to support new order types of assistance to liquidity providers, and to provide a centralized set of risk management tools for use by dealers in their “Direct Market Access” and “Sponsored Access” programmes. We will also be announcing, shortly, the availability of our services from the Equinix data centre in downtown Toronto. Equinix is the principal housing facility for many dealers, vendors and prop trading firms in Canada. Over the summer, we will be focusing on a major release of the trading system: we will merge the CNSX and Pure Trading systems on to a single trading platform, and we will introduce even more features and functions designed to improve the liquidity available through our system. A major side benefit of the system merger will be to significantly reduce the costs and simplify the workflow for dealers connecting to our system.
With all of this activity under way, we are also carefully monitoring the progress of the business against budget. With two months under our belts, some clear themes are emerging for the early part of 2013:
• Although our listings pipeline (companies conditionally approved for listing, usually subject to completion of financing) is in excellent shape, the number of companies completing their listings in Canada has dropped significantly from a year ago. In January and February 2012, the TMX exchanges listed 55 companies. During the same time last year, we listed 7 companies. This year,the TMX is at 19 companies for the same period; we are at 3. Although there are signs of increased activity, particularly in the tech space, it’s clear that early stage companies are having difficulties raising money at this point.
• Trading volumes continue to disappoint in the senior markets. Notwithstanding new highs being created in the Dow Jones average in the United States, investor enthusiasm for equities as an asset class has yet to reflect itself in trading volumes. It’s clear that any gains in trading revenue during the early part of the year will have to come from market share increases.
• The expense discipline implemented over the last couple of years to conserve cash continues. As a result, although trading and new listing revenue has not met forecast, we delivered net ordinary income of just under $70,000 for the first two months of the year. This exceeded budget by approximately $8,000. Given that we are positioned to handle increased levels of new listings and trading activity without taking on material additional costs, we are confident that as the market improves, we should be well positioned to increase our bottom line results.
As always, please do not hesitate to reach out with any questions or comments.