The Big Six banks are to blame for the lifeless Toronto Stock Exchange
The Big Six have led on average approximately 60 per cent of public equity underwriting on the TSX, according to data collected from 1993 to 2024.Fred Lum/the Globe and Mail
J. Ari Pandes is an associate professor of finance and an associate dean at the University of Calgary’s Haskayne School of Business.
Colin Deacon is a senator and former entrepreneur. He advocates in Canada’s Upper Chamber for innovation and harnessing of the digital economy.
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.
Limited competition in capital markets, the consolidation of market influence into our largest financial institutions and their homogeneous approach to risk management have 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.
This period of consolidation began with an underappreciated change to Canada’s Bank Act in 1987, allowing commercial banks to enter the securities underwriting business. By July, 1988, all of Canada’s chartered banks (the “Big Six”) had started or acquired an investment bank. Within a few years, Canada was transformed from a market with no bank-owned public equity underwriters to one dominated by them. In the process, the capital markets lost much of the specialized, regionally focused and industry-specific expertise that the independent underwriters had long provided.
Data collected from 1993 to 2024 show that the Big Six led on average approximately 60 per cent of public equity underwriting – including both initial public offerings and follow-on equity offerings – on the TSX, peaking at an astonishing 80 per cent.
This rapid shift fundamentally reshaped Canada’s capital markets. What was once a diverse landscape of employee-controlled competitors became highly concentrated, with the Big Six dominating both lending and underwriting. Lost competitors included scrappy disrupters such as Gordon Capital, who pioneered “bought deal” underwriting in the early 1980s, and outcompeted established investment dealers by driving down fees and allowing companies to raise capital more quickly and with greater certainty. As a result, smaller issuers faced fewer options, less support and higher costs when accessing public markets.
The broader implications are more acute. In 1986, the TSX hosted 84 operating company IPOs. By the early 2000s, this fell to an average of 35 per year, and between 2001 and 2024, just 13 a year. Only one operating company IPO occurred over each of the past three years.
This remarkable decline has significantly contributed to the reduction of the number of public operating companies on the TSX. Between 2002 and 2024, their presence was cut by about half. By the end of 2024, operating companies comprised only 37 per cent of the total listings on the TSX. As one of us has written previously, no single factor explains this decline, but the increasingly homogenous and shrinking ecosystem is arguably a major factor.
Meanwhile, the global economy has shifted toward intangible assets, recently accounting for 90 per cent of the market value of S&P 500 companies. By contrast, Canada’s economic and investment policies, and Big Six-dominated investment sector, remain fixated on physical industries and financials, rather than supporting the intellectual property, tech startups and digital infrastructure that drive modern prosperity.
Indeed, technology stocks only account for roughly 10 per cent of the S&P TSX market value, while industries related to physical assets make up nearly 50 per cent and financials more than 30 per cent. This disparity illustrates Canada’s failure to nurture a thriving technology sector, despite global demand for innovative companies. Consequently, Canada’s top tech companies tend to exit through U.S. listings or acquisitions.
Financial-sector concentration has further entrenched regulatory advantages and market protections that prevent new players from emerging and competing on a level playing field. While recent amendments to Canada’s Competition Act promise to limit further monopolization, much more action is required. For example, Canada’s banking regulations grant systemically important banks special benefits based solely on size, shielding them from competition. Smaller customer-centric and technologically adept financial institutions, meanwhile, are regularly disadvantaged.
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To restore Canada’s economic competitiveness, policy makers must confront the outsized influence the Big Six have secured over investment and capital formation. Where independent investment dealers once took risks and fuelled growth, consolidation has limited the diversity of competition, and consequently access to capital for entrepreneurs, stalling innovation in key sectors. Deeper reforms in co-ordination with all levels of government are needed. We must unwind industrial policies that favour incumbents and strip away excessive regulations that entrench oligopolies, creating real incentives for Canadian companies to grow and seek public market capital at home.
Targeted incentives, such as tax-free spinoffs of subsidiary shares, can encourage the de-consolidation of the financial sector. Equity tax credits, or modelling the United Kingdom’s successful Enterprise Investment Scheme, can catalyze regional investment and spur the formation of innovators and new competitors. Additionally, flow-through shares, as championed in Prime Minister Mark Carney’s electoral platform, could unlock fresh capital streams for the intangible sector. We need to be bold and creative in bolstering pools of risk capital, new approaches to risk management and combatting the entrenchment of a status quo that has steadily eroded Canada’s capital markets.
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. Canada has the talent, creativity and resources to thrive in the modern economy, but doing so demands rethinking the structures that have eroded competition, innovation and business investment – and have all too often forced our innovators to seek financing elsewhere.