Consolidation and Concentration
Globally, IPO activity is declining and the universe of public companies is shrinking. In Canada, our private markets are currently insufficient to offset the decrease in our public capital, adding to the migration in the commercial value of our ideas. The consequences of this consolidation are far-reaching, with limited competition in capital markets, the consolidation of market influence into our largest financial institutions, and their homogeneous approach to risk management. Limited competition in capital markets has undermined Canada’s capacity to fund and retain its innovations. With targeted actions and incentives, this consolidation can be reversed, broadening the availability of risk capital to invest in our economy.
- Canada’s Bank Act of 1987 allowed commercial banks to enter the securities underwriting business.
- The Big Six chartered banks started or acquired investment banks by 1988, leading to a shift in the capital markets landscape.
- By the 1990s, the Big Six dominated public equity underwriting, with the TSX hosting an average of 35 IPOs per year.
The Rise of the Big Six
The Big Six chartered banks led the transformation of Canada’s capital markets. By the end of the 1980s, they had become the dominant players in public equity underwriting, with data showing that they led on average approximately 60% of public equity underwriting – including both initial public offerings and follow-on equity offerings – on the TSX.
| Year | Big Six Market Share |
|---|---|
| 1993 | 60% |
| 2001 | 70% |
| 2024 | 80% |
The Decline of the TSX
The TSX has seen a significant decline in the number of operating company IPOs over the years. In 1986, the TSX hosted 84 operating company IPOs, while by the early 2000s, this had fallen to an average of 35 per year. By 2024, just 13 operating company IPOs occurred over the past three years.
- Between 2002 and 2024, the number of public operating companies on the TSX was cut by about half.
- By the end of 2024, operating companies comprised only 37% of the total listings on the TSX.
The Impact on Technology and Innovation
The global economy has shifted toward intangible assets, with technology stocks accounting for 90% of the market value of S&P 500 INX-I companies. In contrast, Canada’s economic and investment policies, and the Big Six-dominated investment sector, remain fixated on physical industries and financials.
“Canada’s failure to nurture a thriving technology sector, despite global demand for innovative companies, has resulted in top tech companies exiting through U.S. listings or acquisitions.”
The Need for Reform
Financial-sector concentration has further entrenched regulatory advantages and market protections that prevent new players from emerging and competing on a level playing field. To restore Canada’s economic competitiveness, policy makers must confront the outsized influence the Big Six have secured over investment and capital formation.
- Targeted incentives, such as tax-free spinoffs of subsidiary shares, can encourage the de-consolidation of the financial sector.
- Equity tax credits, or modeling the United Kingdom’s successful Enterprise Investment Scheme, can catalyze regional investment and spur the formation of innovators and new competitors.
- Flow-through shares, as championed in Prime Minister Mark Carney’s electoral platform, could unlock fresh capital streams for the intangible sector.
A New Path Forward
Canada’s economy is not destined to decline – it’s simply at a crossroads. It’s time to rebalance our financial system, not by undermining the strengths of our banks but by ensuring that entrepreneurs, investors, and innovators across the country have access to the capital they need to grow.
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