Canada's brokers in for a shift
Canadian investment dealers are going to grow, at least if the Ontario government has its way. The Province of Ontario has introduced legislation that would allow foreign individuals and companies to invest in the Canadian brokerage industry.Skip to next paragraph
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It would also allow the commercial chartered banks to take up to a 30 percent interest. The largest Canadian brokerage houses are now run by individuals, who usually own about 5 percent of the shares.
The province is getting involved because under Canadian law, financial institutions, apart from banks and some trust companies, come under provincial jurisdiction. Since the Toronto Stock Exchange does 75 to 80 percent of the equity trading in Canada, what Ontario rules is just about a national law for brokerages.
Canada's investment dealers -- there are about 100 members with seats on the Toronto Stock Exchange -- have until now had corporate and government finance and selling stocks and bonds all to themselves. It has been a tight little club, with the executives of the firms owning the shares. It can't last.
There is increasing competition from dealers in London and New York. For instance, provincial governments are big borrowers in bond markets. Many of them use New York- and London-based investment dealers when borrowing money. Houses, such as Salomon Brothers or S. G. Warburg of London do bond issues for Canadian provincial governments.
The same is true in the corporate world. Canadian dealers must grow to survive in global markets.
In recent years many firms have gone public as a way of increasing capital. This week, Montreal-based Nesbitt-Thomson announced it was selling shares to the public. Last week's merger of Wood Gundy and Gordon Capital brings on the biggest dealer in Canada. That firm announced it too will be going public after the merger is final July 1. Other Canadian dealers are discussing mergers. First Marathon Securities, a publicly traded firm, raised new capital this week through a private placement.
All involved agree on the need for more capital. The newly merged Wood Gundy will have $250 million (Canadian) in capital; Salomon Brothers in New York has more than 10 times that.
The Ontario government, realizing the importance of financial markets to Toronto, has decided to help the industry along.
``Increasingly, the securities market is becoming an international global market, and this is generating the need to adapt and compete,'' says Monte Kwinter, Ontario minister of financial institutions.
Here are some of the points Mr. Kwinter announced at a Toronto news conference:
Foreign investors will be allowed to own 30 percent of a Canadian investment dealer.
Canadian financial institutions will be allowed to own 30 percent of an investment dealer.
Foreign investment dealers will be limited to 30 percent of the total capital of the Canadian securities industry.
The proposals by Ontario have already caused friction with the federal government in Ottawa, which is in charge of the Bank Act. Ontario will have to ask Ottawa to amend the act so banks will be allowed to buy into brokerage firms.
The big chartered banks, however, are pleased with the proposed legislation. They have been trying to get into the business for decades and have been blocked in most cases. The five largest banks -- known as the Big Five -- do more than 83 percent of commercial banking in Canada. They are world-size banks and compete effectively on a global basis. But they have all but been shut out of the brokerage business.
The Toronto Dominion Bank runs a discount brokerage operation, and that is about the extent of the commercial bank's involvement in the brokerage industry. The chairman of the bank, Richard Thomson, says the proposed legislation will be good for business.
``I'm delighted that the Ontario government is taking action to open up the securities industry to Canada's major financial institutions,'' Mr. Thomson said. ``Without the major banks, Toronto is in danger of becoming a backwater to New York and London.''
Austin Taylor, chairman of McLeod Young Weir, one of the larger Canadian investment dealers, described the proposed legislation as ``excellent.''
Mr. Taylor said it would change the face of the investment industry in Canada. ``Those who wish to provide full service to their clients will have to raise more capital. You are going to see fewer and larger firms.''
The new rules would take effect Jan. 1.