Finance Minister Jim Flaherty said Canada will set up a capital markets regulator with British Columbia and Ontario, following a seven-year effort to harmonize rules for the world’s sixth-largest stock market.
Canada and the two provinces will create a Toronto-based “cooperative” regulator to administer a single set of rules, Flaherty said today in Ottawa. Other provinces will be invited to join, he said.
“We came together, putting aside our differences to focus on a common goal,” Flaherty said in a statement released before a joint press conference with British Columbia Finance Minister Michael de Jong and Ontario Finance Minister Charles Sousa. The three parties want “to modernize our capital markets and to make them more competitive,” Flaherty said.
Canada is the only major country without a national securities regulator. Flaherty, arguing the current system of 13 provincial agencies is more costly and reduces the country’s ability to regulate, has been pushing for a single model in the face of opposition from provinces such as Quebec and Alberta since the Conservative government came to power in 2006 .
Quebec and Alberta officials said they weren’t consulted by Flaherty. Doug Horner, Alberta’s finance minister, said in a statement that he is committed to protecting the province’s “interests,” without specifying whether he supports the plan.
“I am only learning of this agreement now and will need time to review it,” Horner said. “I am surprised that all the provinces were not consulted on this proposal before it was announced.”
Quebec officials said they oppose today’s move and may mount a legal challenge.
“The current system that supports the presence of a large financial sector in Montreal and Quebec is jeopardized,” Finance Minister Nicolas Marceau said in comments broadcast by CBC Television. He said a common regulator may shift power from Montreal, the French-speaking province’s biggest city and home to the country’s derivatives market. “You can imagine those firms would be attracted by a common regulator in Toronto.”
Flaherty said he’s hopeful other provinces will “see the wisdom of participating.”
The federal finance minister’s original plan for a national regulator, released in 2010, suffered a setback when the Supreme Court of Canada ruled a year later the proposal was unconstitutional because it encroached on provincial jurisdiction. The case turned on whether the federal government has the authority to create a national regulator under a section of the constitution that gives Parliament the power to regulate trade and commerce.
Today’s announcement is “great news,” Bradley Meiers, head of debt syndication at Toronto-Dominion Bank’s TD Securities, said in an e-mailed response to questions. “It needed to be done. I think it might be tough to get every province to sign on.”
The piecemeal effort may be more successful than Flaherty’s previous attempt, said Ian Russell, chief executive officer of the Investment Industry Association of Canada.
“This is a completely different approach,” Russell said in a telephone interview. In the past, Flaherty was “trying to get the whole group inside the tent before they started, and we never started, we never got anywhere.”
The regulator will administer both provincial and federal legislation, according to the statement. A council of ministers will oversee the system. Sousa said the new body will eventually replace the Ontario Securities Commission.
“I think it’s needed,” said Thomas Caldwell, chairman of Caldwell Securities Ltd., whose firm manages about C$1 billion ($975 million). “I think it is a step forward, but the devil is in the detail and it’s how you implement.”
The value of all the listed stocks in Canada totals $2.07 trillion, according to data compiled by Bloomberg.