Ontario is bracing for a showdown with the federal government over the province's insistence that the head office for a proposed national securities regulator must be in Toronto, home to Canada's major industry players.
The head of a securities transition office created by federal Finance Minister Jim Flaherty has an altogether different idea, however.
The new regulator would not have a head office at all, according to a proposal made by Doug Hyndman, the former chairman of the B.C. Securities Commission in charge of designing it.
Instead, the regulator would operate from regional offices across Canada, regulatory sources said.
Mr. Hyndman declined to comment.
Mr. Flaherty said no decision has been made.
"Obviously, the Transition Office recognizes that Toronto is Canada's largest financial centre and will take that into account," Chisholm Pothier, a spokesman for Mr. Flaherty, said in an e-mail to The Globe and Mail.
But those assurances did little to allay the concerns of Ontario Finance Minister Dwight Duncan.
"I've heard some stuff about a virtual office, which in my view is just laughable," Mr. Duncan told The Globe.
"It would be an enormous slap in the face, both to Toronto and to the financial services community if it were not headquartered here."
Mr. Duncan and Premier Dalton McGuinty have recently stressed the importance of having the head office in Toronto.
It was mentioned in this week's provincial Speech from the Throne, where the government set out its vision for the future, including plans to make Toronto one of the world's "elite" financial centres.
Mr. Duncan said Mr. Hyndman has not discussed his proposal with him.
"But let me stress again: Toronto is the financial capital of Canada," he told The Globe. "I have the backing of the entire financial services community to have that head office here."
Mr. Duncan made the same point in a letter to Mr. Flaherty last week. But he said his federal counterpart has remained "conspicuously silent."
Mr. Flaherty is the chief architect of a single regulator, an initiative that has strong support from the Ontario government. But numerous attempts to create a national regulator over the past 40 years have failed amid staunch resistance from other provinces, notably Quebec and Alberta.
It is not clear whether the Ontario government would withdraw its support if the head office issue is not resolved, a move that would risk jeopardizing its close relations with the Harper government in recent months.
Toronto securities lawyer Phil Anisman, who led a commission in the 1970s that recommended creating a national regulator, said the idea of having no head office could work, but only if there is a concerted effort to have strong leadership with the organization spread out across the country.
"You really want to be sure the lines of authority for commission decision-making are clearly drawn so that the commission doesn't become dysfunctional," he said.
Former Ontario Securities Commission commissioner Glorianne Stromberg said it is most important to get a new national regulator off the ground, and the project shouldn't be allowed to fail because of political worries about a head office location.
"If people are going to get hung up on where the head office is, you don't have to designate one," she said.
With files from Bill Curry in Ottawa