The best and the worst of Canada’s system of provincial securities regulation is all on display in the Maple Group deal to take over TMX Group Inc.
Four provincial securities regulators have to sign off on the plan by the 13 financial institutions that are calling themselves Maple to buy TMX Group Inc. and create a wide-reaching financial markets business.
On the best side of the ledger, you have provincial regulators showcasing their niche expertise, with Quebec weighing in on derivatives and British Columbia taking on small-capitalization stocks.
This is the kind of specialization that has always been a selling point for backers of the current, provincial system.
On the worst side, you have regulators in Quebec and British Columbia engaging in turf wars and empire building, going well beyond market regulation into playing at economic development for their home provinces.
Regulators who push such agendas “are implicitly agreeing to promote mediocrity,” argues Gary Stephenson, an experienced consultant on the plumbing behind markets. In his comment letter to the Ontario Securities Commission on the Maple situation, he expressed frustration with undertakings that show Quebec pushing hard to expand its hold on fixed-income clearing in areas where the expertise actually resides in Ontario.
“The best expertise and knowledge of both the processes and products should be used no matter where it exists in Canada,” Mr. Stephenson wrote.
Quebec’s list of demands included an undertaking that Montreal get any trading of over-the-counter derivatives, in keeping with the city’s long history as the centre of TMX’s derivatives business.
Quebec’s regulator also managed to get Maple to commit to developing the company’s operations in Montreal as a centre of fixed-income clearing, even though Mr. Stephenson argues that most of that business happens in Ontario.
The B.C. Securities Commission’s demands of Maple also show both sides of the coin. The commission is rightly demanding that the Maple plan do more to protect the unique TSX Venture Exchange, which has its roots in the west and is a crucial market for early stage companies. A key, and wholly appropriate, ask by British Columbia is to have a larger portion of the Maple board comprised of folks who have a background in the Venture market.
Then, however, the B.C. securities Commission goes on to demand that the Venture Exchange keep operations in Vancouver, including its executives and management, and to require that Maple make Vancouver the “centre” of TSX Venture’s efforts to grow.
This is where regulation stops and trying to increase your turf begins.
Ontario Securities Commission chairman Howard Wetston is said to be unimpressed by the moves other regulators are making to bundle up economic development with their mandates.
Mr. Wetston is too politically astute to speak out on this matter, but there’s one piece of evidence: The OSC isn’t making any such demands for Ontario.
But given that everybody else is, there’s bound to be a cost to such a stand, and it will be Ontario’s to pay. Jobs that are in Quebec are not in Ontario.
There’s a similar dynamic with Alberta and British Columbia.
British Columbia argues that what it is doing is in no way taking away from Alberta, but top executives for the Venture Exchange can’t live and work in two provinces at once.
The Alberta Securities Commission so far hasn’t said anything other than it will review what the other provincial regulators have done with an eye to ensuring that there are no regulatory hobbles put on Maple or TMX that “would unreasonably prevent the growth and development of the financial market in Alberta in the normal course.” One wonders whether B.C.’s demands will do just that.
Of course, the regulators pushing this agenda of fief building are doing it while pleading the public interest.
According to the BCSC, it’s “in the public interest that the Venture market’s presence and strength in British Columbia be preserved and that it operate in an environment that fosters its future growth and prosperity.”
It appears the public interest depends on which province you’re in.