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Finance Minister Joe Oliver takes questions from the media in Toronto on Monday, April 13, 2015.

Darren Calabrese/The Canadian Press

How far is Joe Oliver willing to go to get Canadian bond trading among U.S. banks exempt from the Volcker rule?

Although the federal Finance Minister invoked the North American free-trade agreement (NAFTA) when he spoke in New York earlier this month, implying the threat of a formal complaint in order to ease restrictions, for now he may just stick with making a sound argument to U.S. regulators.

In a prepared speech at the Canada-U.S. Securities Summit a little more than a week ago, Mr. Oliver called for the United States to change the Volcker rule and allow American banks to buy and sell Canadian government bonds for their own trading books.

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"I believe – with strong legal basis – that this rule violates the terms of the NAFTA agreement," he said, raising questions around whether the rule is a serious concern, as well as whether this is truly a NAFTA issue.

Ian Russell has some answers. The president and chief executive of the Investment Industry Association of Canada was with Mr. Oliver at the New York event, and believes that the arguments in favour of an exemption are strong enough to get action.

Mr. Oliver, he said, "is acting in a perfectly rational manner."

The Volcker rule was designed to prevent U.S. banks from taking unnecessary risks with government-backed deposits, ideally avoiding the type of financial crisis that nearly brought down the U.S. financial sector in 2008.

However, many observers believe the rule has gone too far. Mr. Oliver pointed out that if U.S. investment banks are forbidden from trading Canadian government bonds, they will be restricted from an investment that is actually higher rated – from a credit-rating perspective – than U.S. government debt.

Mr. Russell fleshed out the NAFTA angle. The U.S. would allow U.S. debt to trade in Canada, he said, but "the Volcker rule would impair the ability to sell a Canadian product" – government bonds – "to a U.S. investor. So the treatment is unfair by virtue of a barrier."

However, Mr. Russell noted that even if the rule contravenes NAFTA, a formal grievance is a long and difficult process, which is why he believes the Finance Minister thinks it is more efficient to work constructively with U.S. regulators rather than threaten action.

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There's more than fairness at stake. Mr. Russell pointed out that New York is a significant market for Canadian government bonds; losing it will affect the liquidity for the bonds. Although it is difficult to quantify the impact, he said it could ultimately increase interest rates and reduce the appetite for bonds as a financing vehicle.

He's optimistic the Finance Minister will prevail: "The arguments are strong."

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