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Bank of Canada Governor Mark Carney (Ryan Remiorz/Ryan Remiorz/CP)
Bank of Canada Governor Mark Carney (Ryan Remiorz/Ryan Remiorz/CP)

Streetwise

What did Bank of Canada really say about TMX-LSE? Add to ...

The Bank of Canada, long silent in the debate about the fate of TMX Group Inc., sent a cryptic message when it weighed in last week, but one that seems to favour Maple.

Central banks are rarely forthright, and the full text of Bank of Canada Governor Mark Carney's answer to a reporter's question last week requires a careful read. He doesn't declare either plan for the TMX - the London Stock Exchange Group PLC combination or the Maple Group bid - superior. But the only concerns he lays out are with the LSE plan, while the homegrown Maple plan gets a pass.

Mr. Carney cites the fact that clearing systems are generally to be considered systemic. In Canada, payment systems that are systemic are the bank's responsibility. He says a clearing system for bank funding transactions is likely to be declared systemic, putting it under the central bank's purview. Who is developing that system? The clearing unit of TMX.

Also, a new clearing system for derivatives could also be declared systemic, he says. TMX's clearinghouse is vying for that work too.

Now, when a clearing system is based in Canada, Mr. Carney said it's "easy" to understand how the bank would regulate it.

When there's a chance some functions would move offshore, it's different, Mr. Carney said. "If they are not in Canada, if they are managed from elsewhere, if critical components of them are resident elsewhere, if they are harmonized with other clearing system elsewhere for efficiency reasons, the Bank would need to decide the extent to which we could rely on other authorities as principal oversight, something we have not done in the past.

"We would also have to be satisfied that we could have that reliance, not just at the start, but also over time, and if that reliance went away over time that we could remedy the situation and that we had the mechanisms to remedy the situation."

To recap: Maple is "easy" while LSE might require the bank to do "something we have not done in the past."

It's cryptic, but it's there. That jibes with the perception behind the scenes that the bank prefers Maple.

The issue for the bank, as with any politician with a view, is how to make that view known without making Canada look opposed to cross-border transactions. The spectre of the government's veto of the Potash Corp. bid from BHP Billiton looms large.

Here's the full text of what Mr. Carney said, courtesy of the central bank:

"The Bank clearly has oversight responsibility for systemic payment systems in Canada. That is a legislative responsibility under the Payments Clearing and Settlement Act. We are developing a CCP for repo in Canada; in part learning the lessons of the crisis in the US, and it is our expectation that that would be designated a systemic payments system as early as later this year.

And as you well know, we, like others around the world are working on deciding how to fulfill the G20 obligation to centrally clear standardized over-the counter derivatives, such as interest rate swaps, and those markets are very complex, multi hundred billion dollar, multiple counterparty, cross border - all the characteristic of a systemic market. So it is reasonable, although, we haven't decided, it is a reasonable possibility that the clearing arrangements for those would also be systemic. And so we have to make a judgement on the extent to which obviously if the arrangements are in Canada, and all aspects of the arrangement are in Canada - management, risks systems, risk committee, and we have a direct line of sight and oversight to it, that's easy.

If they are not in Canada, if they are managed from elsewhere, if critical components of them are resident elsewhere, if they are harmonized with other clearing system elsewhere for efficiency reasons, the Bank would need to decide the extent to which we could rely on other authorities as principal oversight, something we have not done in the past.

We would also have to be satisfied that we could have that reliance, not just at the start, but also over time, and if that reliance went away over time that we could remedy the situation and that we had the mechanisms to remedy the situation, because in the end, the final analysis, we have a legislative responsibility that's absolute clear, if it's a systemic payment system we have to oversee it, and we have an obligation to Canadians to make sure its robust, and that's an obligation to Canadians."

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  • TMX Group Ltd
    $86.82
    -0.28
    (-0.32%)
  • Updated August 15 4:00 PM EDT. Delayed by at least 15 minutes.

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