TSX Venture Exchange: What it is, How it Works

What Is TSX Venture Exchange?

TSX Venture Exchange is a stock exchange in Calgary, Alberta, Canada that was originally called the Canadian Venture Exchange (CDNX). It resulted from a merger between the Vancouver and Alberta stock exchanges. TSX Venture Exchange also has offices in Toronto, Vancouver, and Montreal.

Understanding TSX Venture Exchange

The Canadian Venture Exchange started on Nov. 29, 1999, as a result of an agreement among the Vancouver, Alberta, Toronto, and Montreal exchanges to restructure the Canadian capital markets along the lines of market specialization.

The focus of the CDNX was smaller companies whose assets, business, and market capitalization were too small to be listed on the Toronto Stock Exchange. A large number of companies on the exchange were resource exploration companies, but new high-technology ventures were also listed. The exchange had its corporate headquarters in Calgary, Alberta, and its operations headquarters in Vancouver, British Columbia, with additional offices in Toronto and Montreal. The Winnipeg Stock Exchange and the small-cap portion of the equities market of the Bourse de Montréal (MSE) were also later merged into the CDNX.

The goal of the TSX Venture Exchange is to provide venture companies with effective access to capital while protecting investors. This exchange mostly contains small-cap Canadian stocks. As with the Canadian Depository for Securities Limited (CDS) clearinghouse, the TSX is a wholly-owned subsidiary and operated by the TMX Group.

There are around 1,700 companies listed on the TSX Venture Exchange, with nearly 400 included in the S&P/TSX Venture Composite Index. Companies listed in the composite index are primarily mining (53%) and traditional energy (15%) companies, while the majority of them are located in British Columbia, Alberta, and Ontario, where these industries have prominent operations.

The TSX Venture–or TSXV–boasts a total market capitalization of more than CAD $78.3 billion for all of the companies listed. Market capitalization–or market cap for short–is the market value of a company's stock in dollar terms. Market cap is calculated by multiplying the number of outstanding shares by the company's current stock price. The C$50 billion market cap for the TSXV is the total of each company's market cap listed on the exchange. The median market cap for each company listed was CAD $11.5 million in 2022.

TSX Venture 50

The most popular stocks on the TSX Venture Exchange are grouped into an index known as the TSX Venture 50, a group of strong performers.

The requirements to be considered for the TSX Venture 50 include:

• A market cap of more than C$5 million
• A closing share price of greater than C$0.25 on Dec. 31 the prior year
• Listing for more than one year
• A share price of at least C$0.10 at the close of the year before

The strong performers that meet the above eligibility requirements are selected for this index based on market capitalization change, share price appreciation, and one-year trading volume over the past year.

Companies in the TSX Venture 50 are selected from five industries:

• Clean Technology and Life Sciences
• Diversified Industries
• Technology
• Energy
• Mining

Examples of companies that made the TSX Venture 50 in 2019 include:

• Aleafia Health Inc. of British Columbia had a market cap increase of 760%, a trading volume of more than 300 million, and a share price appreciation of 107%.
• Kraken Robotics Inc. is a technology company from British Columbia with a market cap increase of 218%, a trading volume of 51 million, and a share price appreciation of 111%.
• CGX Energy Inc. of Ontario had a market cap increase of 168%, a trading volume of 11 million, and a share price appreciation of 155%.

Investing in TSX Venture Exchange

There are two main avenues for American investors to invest in TSX Venture Exchange listed companies:

1. Investors in the U.S. can buy stocks listed on the TSX-V through their brokerage accounts as long as they support trading on foreign stock exchanges. Many online brokers in the U.S. allow investors access to foreign exchanges.
2. Some companies are dual-listed both on the TSX-V and in the U.S. as American Depository Receipts. The ADR listing allows U.S. investors to buy the stocks on U.S. exchanges. However, it's important to note that these ADR investments can come with less liquidity, meaning it can be difficult to get in and out of trades due to the lack of buyers and sellers in the market. Investors may need to wait to have an order filled, and as a result, the price of the stock could move adversely.