Canadian Securities Exchange (CSE): What it is, How it Works

What Is the Canadian Securities Exchange (CSE)?

The term Canadian Securities Exchange (CSE) refers to an electronic alternative stock exchange for small-cap and microcap firms and emerging companies in Canada. The exchange began operations in 2003 and was recognized and approved by the Ontario Securities Commission as a stock exchange the following year. The exchange operates electronically, which means there is no physical trading floor. Nearly 800 companies trade on the exchange, which operates during normal trading hours Monday to Friday, except on holidays. The CSE is based in Toronto with an office in Vancouver.

Understanding the Canadian Securities Exchange (CSE)

The Canadian Stock Exchange is among several major stock exchanges in Canada. It was established and began operations in 2003 as Canada’s New Stock Exchange or CNQ. It was designed to give companies alternative access to Canadian public capital markets. The exchange was officially recognized as a stock exchange in 2004. It was rebranded in November 2008 and was renamed the CSE. It is operated by CNSX Markets and is based in Toronto with a branch office in Vancouver.

The CSE operates electronically and does not have a traditional, physical trading floor. The trading system is based on price-time priority and does not take an over-the-counter market approach. It is fully regulated by the Ontario Securities Commission. The exchange is operations Monday to Friday except holidays. The trading schedule is as follows (all times are in Eastern time):

• Pre-open between 7 a.m. ET and 9:30 a.m.
• Normal trading from 9:30 a.m. to 4 p.m.
• Closing price session between 4:15 p.m. and 5 p.m.
• System shut down at 8 p.m.

As of June 2022, 791 companies were listed on the exchange. All listed securities trade in the Canadian dollar (CAD). Companies listed on the CSE come from a number of different industries, including mining, oil and gas, technology, life sciences, clean technology, government debt, and structured debt. According to the exchange’s website, all securities listed on the Toronto Stock Exchange (TSX) and TSX Venture Exchange are traded on the CSE as “alternative market securities.”

Companies must meet several requirements before they can list on the CSE. These include:

• Demonstrated liquid assets or a viable plan to show they can sustain their operations and achieve their goals
• A proven revenue stream or a plan outlining how they will develop their business and the financial resources
• An interest in or the potential for earning one in a property with a technical report for mineral or oil and gas exploration companies

Special Considerations

The purpose of the exchange was to strengthen investor confidence in emerging companies through enhanced disclosure and high regulatory oversight standards. The result is a stock exchange that maximizes liquidity and fosters an entrepreneurial spirit while also offering better protection to investors and their accounts.

As with most exchanges, indexes are used as a broad indicator of the CSE's market activity.

• The CSE Composite Index was launched in February 2015 and covers about 75% of all listed equities that trade on the exchange. As such, it is considered a gauge of the Canadian small-cap market. In order to be included, companies must trade in CAD and must have a minimum market cap of $5 million. There were 464 companies in the index as of June 2022 with a heavy weighting in the life sciences industry followed by the mining sector.
• The CSE also publishes the CSE25 Index, which is a subset of the larger composite index. It is composed of the 25 largest stocks on the exchange by market cap and contains over 52.75% of the total weight of the CSE Composite Index.

Both indexes are rebalanced on a quarterly basis. As of June 24, 2022, the CSE Composite Index returned -65.5% and the CSE25 returned -68.3% in a one-year period.

The Canadian Securities Exchange (CSE) vs. the Toronto Stock Exchange (TSX)

As noted above, the CSE is among several key exchanges that operate in Canada. The Toronto Stock Exchange (TSX) is the CSE’s primary competitor as a technology-focused Canadian exchange. The TSX is part of the TMX Group, which operates other Canadian exchanges, including the TSX Venture Exchange, the Montreal Exchange, and the TSX Alpha Exchange.

Exchange Type and Listings

Both the CSE and the TSX operate electronically. The latter had a physical trading floor until 1997 when it shut its doors and began entirely electronic trading. There are 1,640 Canadian and international companies listed on the TSX—more than double the number listed on the CSE. These companies represent a broad spectrum of industries in the Canadian economy, including oil and gas, mining, technology, retail, and financial services.

Reporting Requirements

While the CSE offers simplified reporting requirements and reduces listing barriers in order to remove the duplication of regulation between the exchange and the provincial securities commissions. This eliminates wait times for transaction approvals or reviews and cuts down on the cost and time for companies to get a listing.

The TSX, on the other hand, has more rigid requirements. Reports must be filed to one or more entities, including the exchange, investors, and the regulatory body. The recipient of these documents depends on the type of report being issued.