The battles Jos Schmitt sees ahead for Canadian capital markets

In working towards that goal of global listings integration, Schmitt wants to see Canada improve access to consolidated market data. Canada lacks the kind of consolidated market data that investors in the United States have through the Securities Information Processor (SIP), which is co-owned by the various US exchanges. The SIP consolidates data from all the exchanges because securities are traded across a multitude of venues. The SIP makes that consolidated data available to all industry stakeholders, giving US investment advisors a consolidated view of the full US market. It doesn’t matter where your security is traded, a US advisor will have a full view of the bid/ask spread on that security, its last sale price, and the volume traded. Advisors in Canada don’t have that view of our markets.

Schmitt explains that in Canada, both advisors and discount channels are limited to data from the exchange on which the security is listed. While those securities can trade in different forms on other exchanges, if a security is listed on the TSX advisors and investors can only access its price, spread, and volume from the TSX, regardless of the way it has traded on another exchange. Canada lacks consolidated data, Schmitt says, because the cost is very high to the exchanges. Nevertheless, without that consolidated data investors and advisors have only a partial view of the market. They could be making decisions based on a perceived lack of liquidity in a security, only to find out that its TSX volume only comprised 20 per cent of the total volume traded that day.

Fundamentally, Schmitt sees consolidated data as an issue of informed decision making. Without this shift, he thinks that Canadian investors and advisors cannot make fully informed decisions.

Beyond the issue of consolidated data, Schmitt sees other topics that must be addressed on Canadian capital markets. Among them is a shift in Canadian short selling practices. While he is not opposed to short selling and sees it as part of the price discovery process, he describes some aspects of Canadian short selling as “predatory,” as regulations haven’t been strengthened the way they have in the US or Europe. The reticence to change those regulations, Schmitt says, often come with a sense of ‘why would we change what we’ve always done.’ Schmitt argues that there needs to be change because without stronger regulations investors are more exposed to potential harm.

Schmitt also highlighted the need for a more robust Canadian derivatives market as he discussed the challenges still ahead for Canadian capital markets. Derivatives, he says, are a key component in good portfolio management, but Canada lacks a meaningful derivatives market. Comparing Canada to the US, and accounting for each country’s relative market size, Schmitt still sees Canada underperforming. Schmitt wants to see greater volume traded in Canadian derivatives markets, and their yield enhancement and capital protection traits made more widely available to Canadian investors.