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Boyd Erman

Toronto, get over it: It's efficiency that matters Add to ...

Toronto, relax.

We've been "snubbed," according to a city newspaper, which complains that Toronto has been left "in the cold."

All this because the chief executive officer of the planned national securities regulator won't be schlepping to an office in downtown Toronto every morning once the new body is up and running on Canada Day 2012. Instead, the lucky winner of the new job will inhabit some sort of undefined virtual head office, presumably floating between provinces and the main offices, which for starters will be in Toronto and Vancouver.

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Should a regulator be based in Toronto, home to most of the country's bankers and many of its companies? Sure, there is a good, logical case for that, but this is Canadian politics so logic isn't necessarily the guiding light.

Is not having a fixed address a fatal flaw? No, except perhaps when it comes to the chief regulator's family life.

For Toronto, and for Canada, what matters is that he country has a vibrant securities industry and a business community that has access to capital from investors who trust its regulatory system.

The argument from policy makers, and some key financial players, has been that the fragmented securities regulatory system of 13 separate provincial and territorial bodies leads to inefficient rule making and inconsistent enforcement. That gets in the way of investment, which, by extension, hamstrings growth and job creation. It's also a barrier to systemic oversight. There's only one seat for a securities regulator on the Financial Institutions Supervisory Committee, along with seats for the head of the Bank of Canada, the top bank regulator, and other key bodies.



The address of the office is a bargaining chip that can be played in the negotiations to fix that problem by potentially getting recalcitrant provinces such as Alberta and Quebec onside.


In the meantime, to hear federal Finance Minister Jim Flaherty tell it, the 13-commission system Canada has is an "international embarrassment." The Ontario Teachers' Pension Plan, a huge investor, says "Canada's reputation has suffered internationally," and that "directly affects decision making of investors and affects competitiveness generally."

The address of the office is a bargaining chip that can be played in the negotiations to fix that problem by potentially getting recalcitrant provinces such as Alberta and Quebec onside. It's a chip that should be played by Mr. Flaherty in what Toronto-Dominion Bank CEO Ed Clark has called a "reasonably sophisticated game."

After all, there's at least one prominent example of a big regulator based outside the country's main financial centre, and that's the U.S. Securities and Exchange Commission, which calls the financial backwater of Washington D.C. home. Pretty much the only markets there are of the farmers' market variety.

Yet, of the SEC's staff of 3,656 full-time equivalent people, almost two-thirds work in Washington, with the rest scattered among 11 field offices. One of those is in New York, home to the beast known as Wall Street; but there are also offices in significant secondary financial centres such as Chicago and San Francisco, and some further afield in cities such as Miami, Salt Lake City and Fort Worth, Tex., which have little financial clout.

For all that, the SEC manages to muddle along. As that illustrates, the point of the exercise is to centralize decision making in a group of people with one boss, not necessarily to centralize decision making in one particular financial centre.

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The goal of the planned Canadian Securities Regulatory Authority is to ensure uniform and responsive rule making and consistent enforcement, not to reward one city with a gold star as Canada's most important financial town.

The bleating from Toronto ignores the fact that much of the work will be done in that city, as Mr. Clark has pointed out. The Ontario Securities Commission is by far the largest in the country, and given the plan to build on the staffs of existing regulators, will be by far the biggest in the new CSRA.

Vancouver, Calgary and Montreal all deserve recognition for the unique character of their financial sectors, assuming Alberta and Quebec join the national regulator some day. Vancouver and Calgary are growth capital hubs. Montreal has a busy derivatives business and the added benefit of the other official language.



The other way to deal with this is to put the regulator on neutral ground, as the SEC is in Washington. Because Ottawa appears to be out of the running, a virtual office is a post-modern solution that seems very Canadian, in the best and worst senses of the word.


What's more, the CSRA isn't designed only to serve the investment dealers, which are concentrated in Toronto. It will also be there for investors big and small, who are scattered across Canada, and for the corporate issuers who have to report to regulators.

Fully 50 per cent of the companies listed on the Toronto Stock Exchange and the TSX Venture Exchange are located in Alberta and British Columbia, compared with 34 per cent in Ontario. By market value, Ontario's representation is bigger, but not by much.

The other way to deal with this is to put the regulator on neutral ground, as the SEC is in Washington. Because Ottawa appears to be out of the running, a virtual office is a post-modern solution that seems very Canadian, in the best and worst senses of the word.

All this huff over one corner office also obscures the bigger goal of the exercise - drawing many more corner offices to Canada, be they of securities firms, issuers or investment companies.

The aggrieved in Toronto say locating the CSRA anywhere but Toronto is pandering to regionalism. Deal makers and investors who believe in a single regulator but understand the realities of getting it done in Canada might call it something different: a good trade.

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