VSE, top junior resource market, still setting records

While the period since October 19 has been one of reduced volumes and lacklustre trading for the Vancouver Stock Exchange, Canada’s leading junior resource market has continued to set more records, as new listings, in particular, have hit record highs.

A sure indication of its underlying strength and resilience, this activity along with financing and filing activities, reaffirm Vancouver’s long-term domination of venture capital interests — in the face of growing competition domestically and abroad.

It also reflects the competitive success of several initiatives the Exchange has undertaken during the past year — new listings policies have been initiated to speed up and facilitate the listing and filing process; a response formulated to the OSC initiative (the Ontario Securities Commission’s decision to permit the financing and trading of junior resource issues); a concerted effort made to increase offshore interest in the VSE marketplace; and final details completed on the Vancouver Computerized Trading or VCT system, now in operation.

“We’ve undertaken an aggressive program of development and growth,” says Vancouver Stock Exchange President Donald Hudson, “in the belief that our response to today’s competition will have a profound impact on our competitive success over the next decade.”

Of the several new listings procedures Vancouver has introduced over the past few months, chief among them are: new review and response times for most listings submissions; use of certified filing submissions; and a new policy on corporate disclosure.

Processing and response times were formulated in response to general concerns expressed by the filing community now being met within ten calendar days. The essential purpose of these new standards is to give filers an expected initial-response date to their filings. Urgent submissions may be treated on a priority basis.

Certified Filing Submissions for stock options and private placements, allow filers to complete additional filing requirements and certify the accuracy of their submission on prescribed VSE forms, as a means of reducing filing time. Where submissions are certified without qualification, they are now automatically accepted by the exchange.

The new Corporate Disclosure policy makes listed companies totally responsible for the dissemination of their news releases through a number of news information channels (including commercial wire and publication services), as specified by the exchange.

“Prospective listing companies,” says Hudson, “look at what the various exchanges and securities commission do, as well as what they have to offer. We can’t stop others from listing juniors, so we have to offer the best systems and services.”

The British Columbia Securities Liaison Committee is comprised of persons representing the legal, accounting, brokerage, and regulatory interests of the local securities industry and has formed a special subcommittee to formulate a wide range of changes to the VSE and Superintendent of Brokers policies as part of the competitive response to the policy of the Ontario Securities Commission on junior natural resource issuers. The OSC policy has substantially duplicated the policies and procedures of the listings department of the VSE except in the area of its founder stock policy which is more closely based on the Toronto Stock Exchange model. A summary of the changes proposed by the special committee should be available for comment from the community in the very near future and will encompass founders or principal share policies for resource issuers and industrial issuers, performance shares, earnout formula, dormant issuers, compensation options, promoters options, oversubscription options, private placements, bonuses and finders’ fees, and director and employee stock options.

But the review and adoption of policy changes at the VSE is not limited to a reaction to the OSC initiative. It has always been a continuing process, watched over closely by senior Exchange personnel. During 1987, for example, changes included the lengthening of the terms of warrants issued to brokers and the public, a policy requiring more timely disclosures of the details of reverse takeovers, amendments to the rules restricting the amounts of free trading stock formerly escrowed which can be traded, and a relaxation of the pricing of incentive stock options.

In addition to its unmatched experience and infrastructure in the junior resource market, the breadth of VSE operations partly derives from a substantial offshore image, including an excellent rapport with European financial institutions, an options trading network that included the Amsterdam and Sydney Stock Exchanges, and the fact that the VSE now maintains a representative in Hong Kong in recognition of the growing interlisted and other financial links with that robust financial centre.

Serious inquiries have been received from two Asian companies, one based in Hong Kong and the other in Japan, regarding listing on the VSE. And a Hong Kong broker, who has already purchased a VSE seat, last fall will be applying for VSE membership. The exchange is increasingly dependant on foreign investors, with the US accounting for approximately 25% of trading volumes, and private placements from the US and the UK accounting for over 30% of all such financings.

The VSE’s current strength is not dependent on external incentives. An example is the surprising resilience demonstrated by the level of listed company activity that has taken place since October 19. For example, in the first five months of 1988, total VSE financings reached just over $470 million (of which $52 million was raised through the Initial Distribution System, whereby companies can conduct their first public shares offering on the VSE floor coincident with being posted and called for trading), new listings climbed to 130 companies; and Statements of Material Facts filings (qualifying financings) totalled 46.

The variety of new listings does not obscure the fact that the VSE is still predominantly a junior resource-based exchange. Of the 24 new listings in April alone for example, 20 were junior resource companies and the remaining four were in the fields of micro-biochemistry, consumer products, franchise daycare and veterinary pharmaceuticals. The geographical distribution of those listings is also significant; of the twelve based outside B.C., two were in the Yukon, two in Ontario, one in Quebec and seven in the United States.

While the VSE remains a junior resource-oriented exchange, the numbers of junior industrial companies being accepted for listing is steadily growing. Of the 2100 current listings, over 350 are non- resource companies.

Typical of factors likely to contribute to the VSE’s competitive positioning and liquidity is the automation of its trading system currently under way. Three years in conception and development, 0 1/2the $6.2 million system was designed by VSE professionals and international consultants to conform precisely with the unique requirements of the VSE’s high volume venture capital market.

The new system is powered by IBM System 88 mainframes. Surveillance is tightened by the capability of a complete audit trail before and after each trade. Of considerable importance is the fact that the technology will eventually allow trader-work stations, to be infinitely expandable, to members or affiliates’ offices throughout the world.

While 25 development stocks were first introduced to automated trading in May, the intention is to convert over a 15-month period the entire 1500 development listings to the system, so automating 70% of total trading volume on the Exchange. Eventually, the remaining senior issues may also be added to the system. A full time control staff of four will be located adjacent to the trading floor, and will oversee the operations of the VCT system.

The system’s chief advantages are its speed of execution and ability to provide complete and timely depth-of-market information, and more accurate quotations. This puts the Exchange on an equal footing with North America’s other major markets, provides the basis for future global trading links and enhances the VSE’s credibility with the international investment community.

The VSE’s track record of attracting and accommodating resource issuers is well known. Innovative responses to change, coupled with new initiatives in regulation and operations ensure a competitive marketplace for the future.

VSE Listing Requirements

Cost of going public on the VSE can range from $25,000 to $100,000, which includes initial listing fees of from $2,500 to $10,000.

The minimum requirements to be approved for listing are:

(1) established management ability in the company’s field;

(2) sponsorship by an Exchange member;

(3) an established transfer agent in Vancouver;

(4) a minimum of 250,000 shares publicly held and free-trading;

(5) compliance with that legislation that relates to the company’s incorporation;

(6) a minimum issue price of first stock sold to the public of 30 cents;

(7) minimum proceeds of “seed capital” of $100,000 and, combined with first public distribution, a minimum of $175,000;

(8) a minimum capital expenditure by the company on assets of $60,000;

(9) a minimum of 150 beneficial shareholders, exclusive of company insiders;

(10) the company must demonstrate sufficient funds to carry out its started plan, plus an unallocated $30,000.