NEX Exchange: Understanding Canada's Alternative Trading Platform

The NEX trading platform – typically referred to as the NEX Exchange – is a subset of the TSX Venture Exchange in Canada. Companies that do not qualify to be listed on the TSX Venture Exchange (because of its extensive and ongoing standards for listing) can trade on the NEX. The platform is specifically designed for companies that are either not actively engaging in business activities or have extremely low levels of business activity.

The primary goal of the NEX exchange is to offer liquidity and visibility to companies that are ultimately struggling to conduct normal levels of business. By offering liquidityLiquidityIn financial markets, liquidity refers to how quickly an investment can be sold without negatively impacting its price. The more liquid an investment is, the more quickly it can be sold (and vice versa), and the easier it is to sell it for fair value. All else being equal, more liquid assets trade at a premium and illiquid assets trade at a discount., such companies obtain a certain degree of relief in the event financial issues emerge. Visibility on the platform offers a chance to attract potential investors. All companies on the NEX Exchange are characterized by an “H” or “K” extension next to their trading marker.

Summary

• The NEX trading platform is specifically designed for companies that don’t meet the growing requirements for listing designated by the TSX Venture Exchange.
• The NEX Exchange was created as a subset of the TSX Venture Exchange, as more and more companies failed to meet TSX Venture’s ongoing catalog of listing requirements.
• The NEX platform offers liquidity and visibility to struggling companies in the hopes that the support will allow them to restructure and rebuild.

History of the NEX Exchange

The TSX Venture Exchange is based in Calgary. The exchange is a marketplace for venture capital companies, enabling investors to purchase stocks in small-cap companiesSmall Cap StockA small cap stock is a stock of a publicly traded company whose market capitalization ranges from $300 million to approximately $2 billion., as well as brand new, promising companies slated to become popular.

The TSX Venture Exchange was established by the TSX (now the TMX) Group to engage and support smaller companies – those who were too small to list on the Toronto Stock Exchange. The TMX Group owns both the TSX Venture Exchange and the Toronto Stock Exchange.

After its formation, the TSX Venture Exchange began compiling and enacting a set of requirements that all companies had to meet in order to be listed. Companies that were unable to meet the requirements were ultimately labeled “inactive.” The TSX Venture Exchange would then give these companies a year and a half to meet the listing criteria or be taken off the exchange.

As more and more companies failed to meet the criteria, even after 18 months, the exchange created the NEX Exchange. The creation of the platform offered relief and a safe haven for the companies that weren’t qualifying to be listed on the TSX Venture Exchange. The companies, after three months of failing to meet the exchange’s standards, are moved to the NEX trading platform, offering them the chance to overhaul their operations.

Because the NEX platform supports minimally active and inactive companies, they can remain on the platform indefinitely. The only companies that cannot be listed on the NEX platform are those that have never been listed on the TSX Venture Exchange or the Toronto Stock Exchange.

Advantages and Disadvantages of the NEX Platform

Although the NEX platform was created specifically to assist small, low-activity companies, every business listed on the platform must still meet the disclosure standards that apply to every publicly-traded Canadian company and be on good terms with the Canadian Securities Commission.

The NEX Exchange imposes more simplified rules than the TSX Venture Exchange, and listing fees are lower. Factors are put in place to help companies that are on their last legs or are in a rut and struggling to turn their companies around.

Again, the goal is to help the companies by providing some liquidity and exposure to new and potential investors. It is all performed in hopes that such companies will restructure and grow.

However, the companies are public, meaning their numbers (which are often evidence of financial difficulty) can be viewed easily. Even with support from the NEX platform, some companies are unable to reassess and restructure their business strategies enough to become successful.

Additional Resources

We hope you have enjoyed reading CFI’s explanation of the NEX trading platform. CFI is the official provider of the global Financial Modeling & Valuation Analyst certification program, designed to help anyone become a world-class financial analyst. The CFI resources below will be helpful in furthering your financial education:

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• Vancouver Stock Exchange (VSE)Vancouver Stock Exchange (VSE)The Vancouver Stock Exchange (VSE) started operations out of Vancouver, British Columbia in 1907. The VSE continued to function as a standalone exchange