The Canadian Securities Exchange is buying the NSX! So will Australia finally get a legitimate second exchange?

The big news for Australian investors this week isn’t rate cuts or what Trump may or may not do on tariffs, but that the Canadian Securities Exchange is buying the NSX. This is because Australia might finally have a legitimate secondary exchange – in our view, if not now, then it never will.

Before we go further, we would like to clarify by legitimate we aren’t denying the NSX never existed. But the low liquidity means that you cannot realistically say it is a genuine secondary exchange that the UK’s AIM is to the LSE and the CSE is to the TSE (we’ll outline how in this article). But maybe now, things might be about to change for the NSX due to this tie up.

The Canadian Securities Exchange is buying the NSX

The CSE and NSX announced their tie-up on Monday. The deal will see the NSX’s shares delist from the ASX with the CSE paying $0.035 per share for fully paid ordinary shares. The deal represented a 59% premium to Friday’s closing price and a 67% premium to the three-month VWAP. The deal was unanimously recommended by both companies’ boards.

As we have written about before, the NSX is the closest thing Australia has to a secondary exchange, but lacks the liquidity that other alternative markets have like the AIM and CSE itself. To give you an idea, the NSX does not even have 50 companies listed but the CSE has over 700 companies. It purports to offer a more efficient operating model, advanced technology and a more competitive fee structure.

The NSX has for the last year been run by former ASX executive Max Cunningham who has made it his mission to build up his current employer to the status of its peers in Canada and the UK. And he has told investors the tie up will help in that mission, building on work behind the scenes that has been done over the last 12 months in reviewing the listing rules and the NSX’s technology stack.

‘The CSE’s acquisition will provide NSX with financial strength and operational stability, and bring global expertise to local exchange activities’, Cunningham said.

‘The Canadian experience demonstrates that one exchange size does not fit all.

‘Issuers and investors in Australia are keen to see a dynamic alternative to the larger, legacy incumbent. A stronger balance sheet enables NSX to expand our product offering, sharpen our customer focus, and provide Australian companies, brokers and investors [with] liquid, reliable and well-regulated services.

‘We believe in a strong, accountable and transparent regulatory environment underpinned by rules rather than opaque ‘precedent-based’ decision-making around waivers and other governance matters’.

Does the NSX stand a legitimate chance now?

We can’t say so with certainty, but if the tie up with the CSE isn’t the ‘head start’ needed then it is difficult to see what else will – other than perhaps a tie up with the AIM.

Australia probably does have the space for a secondary exchange, given our superannuation system and higher appetite for risky assets, but there needs to be liquidity. The CSE will bring a tonne of experience in terms of what may be required to increase liquidity in the bourse.

The tie up may even result in investors and brokers in those exchanges looking at companies on the NSX. And over time, we could even see companies move from the ASX to the NSX. Of course, the key will be liquidity – we cannot stress that enough. If liquidity remains at current levels, the NSX will never be a true alternative to the ASX.

As an aside, this tie up could also put a higher degree pressure on the ASX to get its CHESS replacement roll out right. Not that there’s been no pressure at all, but not to the extent there would be if there was a legitimate secondary exchange.

Conclusion

We think Australia has the space for a secondary exchange, and you could argue needs one, but it has to have a degree of liquidity higher than at the moment for it to be legitimately accepted by investors. If the CSE tie up does not lead to it, we think it is difficult to imagine what else will, but even this deal will take time to have its effect.

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