Investors Scrutinizing the Regulators

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Canadian regulators in talks with SEC


May 29, 2008

Four provincial securities regulators are in talks with the U.S. market watchdog toward a ground-breaking regulatory alliance, a deal that would be enormously important to Canadian banks and investment dealers.

The move comes a month after the U.S. Securities and Exchange Commission snubbed Canada by opening talks on what is known as “mutual” recognition with Australia's national regulator, due to concerns over the problems that come with trying to negotiate a deal with 13 Canadian provincial securities regimes.

Finance Minister Jim Flaherty has repeatedly pushed for closer integration with U.S. capital markets so the SEC decision to consider an Australian alliance was seen as a snub of the federal government. Until now, the Americans have never allowed unfettered access to their markets.

Alberta, British Columbia, Ontario and Quebec regulators are now in talks with the SEC aimed at settling on a process that can in turn be used to negotiate mutual recognition. This first round of discussions is expected to conclude by the end of June.

The mutual recognition treaty being negotiated with the Australian regulator would allow dealers in Australia to operate on Wall Street simply by satisfying Australian standards, which translates into cost savings and greater market access. Small to mid-sized Canadian companies and investment houses stand to reap the greatest benefits from mutual recognition with the U.S. regulator.

Under the current system, Canadian and other non-American investment banks that want to trade stocks or bonds in the U.S. market must set up U.S. subsidiaries, backed with capital and inspected by American regulators. U.S. dealers don't face these restrictions when doing business in Canada.