Canadian initial public offerings (IPO) peaked in 2021, with 77 new listings raising $9.2 billion, excluding capital pool companies and special purpose acquisition corporations. But this country’s IPO market has since softened significantly.
Still, Grant Vingoe, the chief executive of the Ontario Securities Commission (OSC) is hopeful that the country will see even more IPO activity as a result of recent regulatory reforms.
At the Bloomberg Forum for Investment Management in Toronto last week, Vingoe said Canadian regulators are working to make IPOs more attractive.
Since last year, IPOs in the country are now no longer required to have a third year of audited financial statements, bringing them in line with what most Canadian companies would experience if they listed in the U.S.
In addition, companies can have follow-on offerings within one year of the IPO without a substantial review. It’s a feature that the U.S. doesn’t have and will let the company work with additional demand after its IPO, Vingoe said.
“A lot of people will ask about about how we position ourselves in relation to the U.S. capital markets, and ensure that any IPOs emanating from Canada have a place in the Canadian market,” he said.
But getting more companies to list in Canada goes beyond loosening regulatory requirements, as the Canadian market is simply less structurally attractive than the U.S. market, said consumer advocate and policy analyst Harvey Naglie. “The objective of encouraging listings in Canada, in fairness, is much too ambitious a goal,” he said in an interview.
For one, there is more risk capital in the U.S. with the appetite for IPOs. And, as retail investors increasingly move towards index funds and ETFs, companies need to be listed on popular U.S. indices to be included in those funds, Naglie explained.
Analyst coverage is also more abundant in the U.S. than in Canada. Some Canadian sectors are so small firms can’t justify hiring an analyst to cover it, Naglie said. It’s less attractive for companies to list where there aren’t any analysts advising potential advisors to invest in interesting investment theses.
“A company choosing to list on Nasdaq over the TSX is not making that decision because of one extra year of audits or a substantial review of a follow-on offering,” Naglie added.
AI, prediction markets
The OSC chief also addressed two other hot-button industry topics: AI and prediction markets.
While the OSC is “technology neutral,” it recognizes that industry professionals are concerned about AI, Vingoe said. “There’s a question about AI being so transformative in so many dimensions that it might need a bespoke regulatory environment — that remains to be seen.”
For now, the regulator is using a principles-based approach where securities regulation applies to AI use for requirements like accountability documentation, preventing hallucinations and protection against cyber criminals.
On prediction markets, Vingoe said Canadian regulators are taking a measured approach compared to their counterparts in the U.S.
Last month, the Canadian Investment Regulatory Organization (CIRO) gave Wealthsimple Inc. the green light to offer a limited set of forecast contracts, making it the second firm in Canada to get this kind of regulatory approval, after Interactive Brokers Canada Inc.
The prediction markets that offer such contracts in the U.S. have sparked controversy and drawn intense scrutiny from lawmakers. For example, there were allegations of insider trading on Polymarket contracts related to the U.S.-Israeli war on Iran and the U.S. capture of Venezuelan President Nicolás Maduro.
But, as Vingoe pointed out, event contracts related to political events are illegal in Canada. Firms here are only allowed to offer forecast or event contracts tied to economic indicators, financial markets and climate trends.
Also, just as Canadian retail investors who want to participate in foreign securities markets need to do so through a local broker, they will need to do the same to access foreign prediction market contracts. Approved financial organizations will serve a similar role as an intermediary that offers Canadian retail investors access to the Commodity Futures Trading Commission-regulated U.S. forecast contracts, such as those on Kalshi, Vingoe explained.
Further, Canadian regulators are only allowing prediction market contracts with a duration of 30 days or more to be offered here. Those with a shorter duration, which were banned by the Canadian Securities Administrators in 2017, were “dangerous” and “there were really terrible cases of people losing their life savings,” Vingoe said.
Sports betting contracts aren’t allowed in Canada either, and gaming authorities such as the Alcohol and Gaming Commission of Ontario will oversee them. The OSC only has jurisdiction over financial contracts, Vingoe said.
By taking this relatively measured approach, Canada’s stirring up fewer legal battles between different levels of government, he added. “There are instances like this, where incrementalism and limited steps to gauge the consequences and assess the regulatory environment are superior to a big-bang approach.”