TSE image suffers on Wall Street

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TSE image suffers on Wall Street

Latest problems come as exchange tries to win U.S. institutional investors SUSANNE CRAIG

Friday, October 27, 2000

NEW YORK -- The Toronto Stock Exchange's credibility on Wall Street suffered yesterday as a result of the electronic problems that have crippled the exchange in recent days.

Embattled Nortel Networks Corp. caused huge headaches for the TSE for the second straight day yesterday, forcing the exchange to halt trading in its most valuable company while computers struggled to process the trades being pushed through the system.

Regardless, U.S. investors were able to buy and sell Nortel with ease because it is also listed on the New York Stock Exchange. As a result, the TSE's troubles didn't cause too many headaches south of the border.

But for the TSE, which is working hard to increase its profile on Wall Street, this week's events could prove to be a costly setback for two reasons.

Most U.S. market participants readily admit they don't pay much, if any, attention to Canada. In fact, the only time they hear about Canada is when something goes wrong. The TSE needs to win over this group if it is going to attract more foreign investors.

The other, albeit smaller, group is extremely knowledgeable about the Canadian market and is concerned about the liquidity problems the TSE has. The TSE can't afford to alienate this group either.

"Do investors in the States care about what is going on with the Toronto Stock Exchange? Generally, no. It only comes to profile when the TSE breaks down," said Patrick Bolland, a Canadian who is the stock editor at U.S. financial news network CNBC. "Sure, the TSE is bringing in a new system in a month, but investors in the states don't know about that. All they know is this is a Canadian company and the Canadians can't even handle their own stuff."

In fact, these latest computer problems come as the TSE is trying hard to win over U.S. institutional investors in an attempt to stem the increase in trading of interlisted Canadian stocks on U.S. exchanges. Mr. Bolland's comments played out yesterday in interviews with some of Wall Street's senior investment strategists.

Walter Murphy, senior international market analyst with Merrill Lynch & Co., has been watching Nortel and the Toronto Stock Exchange this week. He said it seemed almost inevitable that Nortel would take its toll on the exchange given that, until yesterday, it represented more than 25 per cent of the exchange's total value.

"For Canada, it becomes a question of investor confidence. Can they go in and get out when they want?" he asked. "But don't forget Nortel trades in the New York market. . . . The more important perception is with the people who trade in Canada and confidence will have to be repaired."

The comments from Alfred Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis, were similar to those made by many others in the market.

"I just don't even think about it, it is just not a factor in our market," he said.

Arthur Hogan, chief market analyst with Jeffries & Co., said exchanges all over the world experience computer problems. Given the market capitalization of Nortel in relation to the total value of the TSE, he wasn't surprised the activity caused problems for the exchange.

The TSE is in the process of replacing its computer system. Exchange president Barbara Stymiest said the so-called CATS order-entry terminals will be gone within a few weeks. The central trading engine will then be replaced, hopefully by the middle of next year. Until then, investors can expect more problems.


-- Martin Thompson (mthom1927@aol.com), October 28, 2000

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