MARKETABILITY OF COMMON STOCKS IN CANADA AND THE U.S.A.: A COMPARISON OF AGENT VERSUS DEALER DOMINATED MARKETS

THE RESULTS ARE PRESENTED OF AN ANALYSIS OF THE PRICE OF MARKETABILITY SERVICES ON THE TORONTO STOCK EXCHANGE - TSE - AND ARE COMPARED WITH PREVIOUSLY PUBLISHED FINDINGS CONCERNING THE PRICE OF MARKETABILITY ON THE NYSE AND THE OTC MARKET. THE STUDY EXAMINES THE DETERMINANTS OF BID-ASK SPREADS ON ALL THREE. THE ANALYSIS INDICATES THAT THE PRICE OF LIQUIDITY ON THE TSE IS HIGHER THAN ON THE NYSE AND OTS EVEN AFTER TAKING INTO ACCOUNT SUCH FACTORS AS LIGHTER TRADING VOLUME AND LOWER AVERAGE PRICES. WHILE THE REASONS ARE NOT COMPLETELY CLEAR, EVIDENCE SUGGESTS THAT THE HIGHER PRICE IS ATTRIBUTABLE TO A LACK OF WELL ESTABLISHED DEALER MARKET IN THE TSE. CONSIDERING THE SUBSTANTIAL NEGATIVE EFFECTS OF THE HIGHER PRICE OF LIQUIDITY, WHETHER MEASURED IN TERMS OF INTERNATIONAL CAPITAL FLOWS OR THE COST OF EQUITY TO CANADIAN CORPORATIONS, IT SEEMS REASONABLE TO SUGGEST THAT A CAREFUL RE-EXAMINATION OF THE CURRENT MARKET ORGANIZATION IN THE TSE IS IN ORDER. CHARTS.