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Octagon Capital becomes latest small brokerage to shut down

The CN Tower stands in the distance of a Bay Street sign displayed in Toronto, Ontario, Canada, on Tuesday, Feb. 5, 2013. Octagon Capital is the latest small brokerage to shut down amidst a Bay Street malaise.

Reynard Li/Bloomberg

Octagon Capital Corp. is the latest casualty of the malaise engulfing Bay Street brokerages.

The small Toronto-based independent broker and investment bank is being wound down and is expected to go out of business by the end of the year.

"We made a decision just to get out of the brokerage business," John Palumbo, Octagon Capital's chief executive officer, said in an interview.

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Octagon is far from the only small independent brokerage to run into recent difficulties. A ragged resources market, a choppy equities environment and widespread secular changes in investment banking have taken a heavy toll on many of the smaller shops on Bay Street, with some being swallowed up by larger competitors and others shutting down entirely. Over the past 3 1/2 years, more than 50 Canadian investment dealers have either gone out of business, merged or been acquired, according to data from the Investment Industry Association of Canada.

Mr. Palumbo said a host of stresses have put pressure on Octagon Capital in recent years.

Costs have been on the rise, particularly on the regulatory front, while revenue has been falling thanks to the rise of electronic trading and the crash in commodities prices. Meanwhile, the capital arms of the big banks have been muscling in on the smaller pieces of investment banking business that used to be the domain of Octagon and other independents.

"There's not as much business going around and not as much corporate finance because of what's happened in the resource sector," he said. "Firms like ours are being squeezed."

Octagon Capital was set up in 1993 and is a subsidiary of Octagon Capital Partners. It employs 17 people, including investment bankers and traders – down from more than 100 employees at its peak. Among its more high-profile executives is Bob Gibson, a well-respected research analyst. Once the Octagon wind-down, which will be done under the supervision of the Investment Industry Regulatory Organization of Canada, is complete, a new private-equity business will be created. Mr. Palumbo said it should employ five of the current employees.

Earlier this month, Quebec-based Industrial Alliance Securities Inc. announced it was buying Burgeonvest Bick Securities Ltd., a privately held Ontario brokerage and wealth-management firm, for an undisclosed sum.

In an interview with The Globe and Mail, Industrial Alliance Securities president Richard Legault said that Burgeonvest's motivation for selling was partly due to the "difficult environment for smaller independent firms."

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In September, Edgecrest Capital Corp., a Toronto-based independent investment bank run by David Beatty, went out of business. It had only been in operation since 2013.

The well-capitalized mid-sized independent firms, such as GMP Capital Inc. and Canaccord Genuity Group Inc., are also under pressure, with their share prices trading near all-time lows.

"Business conditions have changed a lot," Mr. Palumbo said. "It's just too challenging of a business environment for a lot of small dealers."

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About the Author
Capital Markets Reporter

Niall McGee joined the Globe and Mail in 2014 as a capital markets reporter. Previously, he spent a decade at Business News Network (BNN) as a reporter and segment producer. In 2016, he won a National Newspaper Award (NNA) in business alongside veteran reporter Jacquie McNish for an investigative series into alleged insider trading at online gambling company Amaya Inc. More

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