It has been a vigorous but polite debate, conducted over the past 18 months in endless committee meetings and discussion papers. But the decision on whether to open up Canada’s protected stock brokerage and investment dealer business to wider ownership by foreigners, financial institutions and nonfinancial companies in Canada is finally about to hit Bay Street. Maclean’s has learned that Ontario’s Liberal government planned to announce in a throne speech this week that it is preparing new regulations to allow wider access to the business. For broker-dealers in Ontario—where most of the country’s major firms are based—the change will offer a better chance of competing in the increasingly competitive international money markets. But some executives fear that the business is on a slippery path to foreign domination. Said one influential Toronto broker: “It will turn our industry into a branch-plant business with a lot of the strings pulled by foreigners from abroad.”
That view, shared by most of the large, established broker-dealers, reflects another concern: the impact that new ownership may have on clubby Bay Street. At present, most investment firms are owned by their managing directors. But even before the likelihood of changes, some firms were already considering raising extra capital by offering stock to the public through share issues. Now, others are
exploring links with New York and European firms through partnership agreements or outright mergers.
The Ontario government is also considering allowing foreign investment firms to operate under certain restrictions. Said Stanley Beck, chairman of the Ontario Securities Commission (OSC): “The financial markets today are world markets and investors around the world look to the best markets.” Without change, he said, “we’ll become a financial backwater.”
The push to revamp ownership comes from an industry-wide need for more capital. Firms that have advocated change say an infusion of capital is required for the huge underwritings that Canadian companies increasingly demand. As well, they need additional capital to compete in foreign markets—especially the lucrative and highly competitive European market, where many Canadian companies are raising money. Ontario investment dealers are also faced with a rapid move toward worldwide 24-hour trading. To compete in that borderless market, domestic firms will have to upgrade their computer facilities and the expertise of their staff—all costly.
The Ontario government, which has jurisdiction over Canada’s most influential securities body—the OSC— “wants the investment business to compete in an international market,” said a principal adviser to Premier David Peterson. At present, the law al-
lows each investor—foreign or institutional—to own no more than 10 per cent of an investment firm. Total foreign ownership of a company may not exceed 25 per cent.
But in a controversial and much-studied 1985 report, thenOSC chairman Peter Dey argued for up to 30-per-cent ownership by any one investor, foreign or Canadian. Dey also proposed that up to 49 per cent of the ownership of any company be opened up to investors outside the investment industry. As well, the report suggested that foreign investment firms be permitted into the market. Bay £ Street, it said, should be forced 2 to increase the size of individ-
0 ual firms and face up to compe\ tition from chartered banks ^ and merchant bankers.
1 A spokesman in Peterson’s Ï office indicated that when the
new rules come into effect—
probably not until Jan. 1—they
will ease restrictions on ownership but will not incorporate all of the Dey recommendations. Industry executives say that smaller investment firms will benefit most from the expected changes by gaining access to more capital and links to larger, more sophisticated foreign firms.
Some firms are already raising new capital—which is needed to underwrite clients’ market financings—through public stock issues. Three Montreal firms, Geoffrion Leclerc Inc., Disnat Inc. and Levesque Beaubien Inc., recently announced plans to go public. And rumors persist that several major Toronto broker-dealers are also considering public stock issues.
The investment industry must also wrestle with the delicate problem of links with nonfinancial shareholders. Last week in Ottawa, Minister of State for Finance Barbara McDougall approved Montreal-based Imasco Ltd.’s takeover of Genstar Corp. and its Canada Trustco Mortgage Co., the country’s largest trust company, but she insisted on a ban on “self-dealing.” As a result, Canada Trustco will not be able to provide financial services to companies owned by Imasco. The same dilemma confronts the investment industry when a dealer-broker offers services to a company linked by ownership. Said the OSC’s Beck: “This is the classic Canadian dilemma in almost every situation: how do we create a sufficient opening to improve ourselves and at the same time protect ourselves?”
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