Introduction to the NEX

The NEX (an acronym for "NEX Exchange") operates as a specialized board of the TSX Venture Exchange, providing a unique trading forum for companies that have failed to maintain the ongoing listing standards of the broader TSX Venture platform. Launched to support firms facing operational and financial hurdles, the NEX aims to offer these companies a lifeline—allowing them to maintain a public presence, liquidity, and potential visibility to attract investors or acquirers.

What Types of Companies List on NEX?

The NEX accommodates companies that exhibit low levels of business activity or have completely ceased to operate. Such firms are typically designated on the NEX with an "H" or "K" suffix added to their trading symbol, signaling their status. This designation serves as a warning to potential investors regarding the risks involved.

Transition from TSX Venture to NEX

When companies on the TSX Venture Exchange fall short of meeting the continuous listing criteria, they usually have a grace period of 90 days to improve their compliance status. If unsuccessful, they are transferred to the NEX board, where they can remain indefinitely. This system relieves firms of the immediate pressure of delisting and provides them with a chance to reassess and potentially revive their business strategies.

Cost Structure and Listing Requirements

Fees for Listing on NEX

One of the significant advantages of the NEX is its lower cost structure compared to TSX Venture Exchange. NEX charges a minimal quarterly listing fee of $1,250. This stands in stark contrast to the TSX Venture, which can command annual sustaining fees and review submission fees that range from $5,200 to $90,000. This cost-effectiveness makes NEX an enticing option for companies looking for ways to remain listed while they navigate challenging times.

Disclosure and Compliance Obligations

Companies listed on the NEX are still bound by the same disclosure obligations that apply to all Canadian public corporations. This means that they must maintain good standing with Canadian securities commissions and fulfill transparency requirements, which includes regular financial reporting and investor communications.

NEX Exchange Trading Hours

The trading hours for the NEX are aligned with standard business hours in North America, operating from 9:30 a.m. to 4:00 p.m. ET on business days. This schedule allows for ample time for investors to engage with trades, although it is essential to note that the trading volume and activity on the NEX tend to be lower than on the primary exchanges.

Pros and Cons of NEX

Advantages

  1. Liquidity: Provides a venue for companies struggling to maintain investor interest to keep their stock in circulation, which can help with selling shares.
  2. Lower Costs: The significantly reduced fees associated with the NEX make it financially viable for companies that may face cash flow issues.
  3. Extended Lifeline: The opportunity to remain listed indefinitely alleviates the immediate pressure on company management and shareholders to either meet standards or face delisting.

Disadvantages

  1. Increased Risk: Investors can face higher risks as companies on the NEX often operate in distressed conditions, increasing the likelihood of eventual delisting.
  2. Disclosure Compliance: Despite the relaxed standards, companies must still adhere to rigorous disclosure rules, which may be burdensome.
  3. Stigma of Listing: Being listed on the NEX may deter potential investors who perceive these companies as failing or unstable, even if they present opportunities for turnaround.

Comparison with NEX in the UK

It is important to clarify that NEX in Canada is separate from the NEX Group based in the UK, which was formerly known as ICAP. The UK-based NEX specializes in electronic financial markets and post-trade services, primarily catering to financial institutions instead of individual investors. The value and operational focus of these distinct entities highlight the need for investors to understand the context of their investments.

Market Value of NEX Entities

As of late 2022, NEX Group traded on the London Stock Exchange with a market capitalization of approximately GBP 4.23 billion. In contrast, the Canadian TMX Group that oversees the NEX in Canada was valued at around CAD $7.70 billion. These figures reflect the considerable scope and influence of both entities within their respective markets.

Conclusion

The NEX serves as a crucial haven for companies facing operational challenges, offering them a stage to maintain investor engagement and explore growth opportunities despite lowered expectations. While companies listed on the NEX board enjoy advantages such as lower costs and a public trading platform, investors must exercise caution due to the associated risks of liquidity and potential for continued declines. Understanding the duality of NEX and its relation to both the TSX Venture Exchange and the broader financial landscape is key for all stakeholders involved.