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Canadian Finance Minister Jim Flaherty speaks at a news conference in Beijing, Monday. TSX parent company TMX Group has opened a Beijing office.


The country's largest stock exchange isn't about to let a series of scandals get in the way of pursuing business in China.

As regulators try to unravel the tangle of allegations against Chinese companies listed in Toronto such as Sino-Forest Corp. , TMX Group Inc. is opening up an office in Beijing, through which it plans to seek more Chinese listings.

The company, which runs the Toronto Stock Exchange and the TSX Venture Exchange, decided to find real estate in China's capital city more than a year ago, when Chinese stocks were hot investments. But it had to wait for local approval. Now the office is opening at a time when the value of Chinese companies on its exchanges has been decimated by scandal.

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Investors who've been burned say they are frustrated, and some of them want the TSX to stop accepting listings from companies based in China until some problems are corrected.

Sino-Forest is the most high-profile case. Once the largest forestry company on the Toronto exchange, its affairs are now the subject of an RCMP investigation and a probe by the Ontario Securities Commission. The securities regulator said in August it had found evidence of fraudulent activity at the company, which is accused of overstating revenue and assets.

"Canadians should be able to invest in China-based, TSX-listed companies with the assurance that if something goes wrong, wrongdoers both in Canada and China will be held accountable," said Steve Conley, a management consultant who invested hundreds of thousands of dollars of his family's money in Chinese companies. "The TSX should not allow any future China-based companies to list in Canada until structural changes have been made to enforce this accountability."

Shoe manufacturer Zungui Haixi Corp. was listed on the TSX Venture Exchange about two years ago. Its shares have not traded since August; its auditors have quit – as have its independent directors and its chief financial officer – and it has been unable to file up-to-date financial statements. Last week, the OSC said Zungui's chairman and its chief executive officer – both based in China – are refusing to co-operate with an investigation.

The OSC is conducting a broader review of the procedures for foreign companies that list in Canada. But a senior executive at the Toronto exchange suggested that it's business as usual for the exchange operator.

"We have not shut down listing [Chinese]companies," said Kevan Cowan, president of TMX Markets and TMX group head of equities.

"We apply the same level of due diligence now as before and between both domestic and international companies," he said. "Often for international companies, because we're not necessarily on the ground, we work with agents that provide us with an additional set of due diligence for those companies."

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Critics wonder whether the TMX Group has been properly balancing its role as a regulator in Canada's capital markets with its desire to attract new listings and earn a profit for its shareholders.

"If we had a more coherent securities regulatory framework, the TSX would probably be out of the business of regulation, because there is an inherent conflict," said Edward Waitzer, a lawyer who previously chaired the OSC and was a vice-president of the Toronto Stock Exchange.

TMX Group said this month that its markets had 318 new listings in the first nine months of this year, more than any other exchange group in the world. TMX attracted, and allowed, more new listings than China's Shenzhen Stock Exchange, which came in second with 201.

The TMX Group's exchanges have attracted the most new listings for three years in a row. The number of Chinese-based companies that listed on the TSX and TSX Venture exchanges grew from 35 to 53 between 2006 and 2010. At the end of last year they had a market value of $12.8-billion.

The company's new Beijing office is setting up education sessions and a mentorship program to make sure ambitious Chinese companies are fully versed in the legal requirements of listing in Canada, said Robert Fotheringham, senior vice-president of equities trading at TMX Group.

"We do have a responsibility and we do feel that responsibility, so we want to make sure we bring quality companies onto the exchange," Mr. Fotheringham said after the office's opening ceremony.

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"You have to be able to offer confidence to investors. It's critical to investors. So we have a very, very serious interest in making sure these companies are properly vetted."

Carolynne Wheeler is a freelance reporter based in Beijing.

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