Barclays has lesson for Canada

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(DALE CUMMINGS / WINNIPEG FREE PRESS)

A consortium of Canadian banks and institutional investors on Wednesday won regulators' approval to take over ownership of the Toronto Stock Exchange, which conducts most of the securities trading in the country. The dozen participants in the Maple Group Acquisition Corp. will become the masters of Canadian stock trading in an environment where no one will effectively regulate their activity to protect market integrity.

Protecting market integrity seemed like a theoretical issue until the London interbank credit market came under scrutiny in late June. Britain's Financial Services Authority investigated oddities in the London Interbank Offered Rate, a published interest rate index relied on around the world as a benchmark for pricing loans. The FSA found that bankers at Barclays, the U.K.'s second-biggest bank, had been submitting bogus reports so as to rig the published index and improve Barclays' position in derivative trades. Barclays' three top officers have quit, the bank paid hefty fines in London and New York and British Prime Minister David Cameron called a parliamentary inquiry.

The British scandal came to light because Britain has a Financial Services Authority. Canada has no such agency. Canada has a federal superintendent of financial institutions, who deals with banking and insurance, and a network of provincial bodies such as the Manitoba Securities Commission. None of these agencies is in a position to ride herd on market insiders or to whistle down skulduggery of the type that just came to light in London. Now that a group of banks and other insiders are about to take over ownership of the Toronto Stock Exchange, the need for a national securities regulator is more urgent than ever.

The Maple Group, which is buying the Toronto exchange, is made up of Alberta Investment Management Corp., Caisse de depot et placement du Quebec, the Canada Pension Plan Investment Board, CIBC World Markets Inc., Desjardins Financial Group, Dundee Capital Markets Inc., Fonds de solidarite des travailleurs du Quebec, National Bank Financial & Co. Inc., Ontario Teachers' Pension Plan, Scotia Capital Inc., TD Securities Inc. and The Manufacturers Life Insurance Co. These are all fine, upstanding Canadian institutions -- at least as fine and upstanding as Barclays Bank was in Britain until now.

Manitoba and other provinces have been resisting creation of a national securities regulator because they generate easy revenue by charging companies a stiff fee to offer their securities for sale in each province. Wielding the rubber stamp costs each province virtually nothing and provides no benefit to people of the province, but it creates a pretext for charging a toll to companies that want to issue securities to the public. The foot-dragging provinces won a Supreme Court of Canada decision in December showing that the federal government had no power to regulate securities trading in the way it then proposed.

The federal government still has a transition agency that is quietly paving the way for some kind of national securities regulator. The need grows greater every day. Manitoba and the other foot-draggers should join in the effort to allow their people the protection they need against the self-serving instincts of market insiders.

Republished from the Winnipeg Free Press print edition July 6, 2012 A12