Shift opens Canada to US brokerages

Americans are now in position to buy a big piece of the Canadian brokerage industry. Canadian regulators last week opened the doors suddenly, allowing foreign ownership of Canadian brokerages. The rules were to have changed somewhat next month, but now powerful Canadian chartered banks and trust companies as well as foreign firms will be allowed to buy brokerage firms outright.

Banking insiders say the rule change was done so Canadian banks could expand their American operations in exchange for US dealers and investment banks being permitted to move north. The changes are also seen as helping smooth the free-trade talks between Canada and the United States; until now, the Canadian brokerage business has been a model of protectionism.

Under the new rules, foreign firms or individuals may own 50 percent of Canadian brokerage houses by next June 30 and 100 percent by June 30, 1988. At present, no foreign interest can own more than 10 percent of a brokerage house.

The Toronto Stock Exchange has greeted this news with glee. Shares of publicly traded brokerage houses have risen sharply in anticipation of takeovers by foreign (mostly US) firms.

But the way the new rule was announced shows the Byzantine workings of Canada's federal system. The federal government is in charge of banking, but provincial governments regulate the securities industry as well as most of the trust companies.

Because Toronto is the financial capital of Canada - as well as the capital of the province of Ontario - the Ontario Securities Commission is more powerful than many federal agencies. The commission makes the rules for the member firms of the Toronto Stock Exchange and handles about 75 percent of the stock trading in Canada.

That makes the provincial commission almost as powerful as the Securities Exchange Commission is in the US. But there's a catch. The federal government in Ottawa dictates what banks can do.

The announcement was made in Toronto at the Ontario provincial legislature. But no one doubts that the rule changes were forced by Ottawa. The banks were already lobbying to be allowed to get into the brokerage business.

The federal Bank Act could have been changed and Ontario would have been left with no bargaining chips. In a showdown, federal law would prevail.

The Bank of Nova Scotia had already jumped the gun and opened a small brokerage office in Montreal, where the Quebec Securities Commission has taken a more laissez faire attitude to attract financial business from Toronto to Montreal. Ontario officials were eager to move to prevent a minor exodus from Toronto.

In annoucing that banks, trust companies, and foreign firms could buy into the investment industry, the Ontario government indicated the move will enable Canada's investment industry to get the capital to compete with the giants of the US, Europe, and Japan.