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U.S. regulators threaten to reach into Canada

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Canada's investment dealers are up in arms about new U.S. securities legislation that would impose U.S. rules north of the border.

If enacted, the proposed changes would affect the U.S. arms of Canadian investment dealers. Historically, if Canadian-traded shares were sold to a U.S. client, execution and settlement of that trade would be routed back through Canada. That meant Canadian regulators had to watch out for the U.S. client's best interest while the trade was processed.

But under new Dodd-Frank rules, FINRA, the U.S. self-regulator, has proposed subjecting Canadian clearing to U.S. standards. The Canadian investment dealers have no problem with U.S. regulators monitoring the actual sale of securities south of the border, but they don't like the idea of additional U.S. oversight once the deal is routed back into Canada.

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A second, less severe, proposal would require registering more back-office people who are involved in the clearing and settlement of Canadian securities sold south of the border. By requesting increased registration, FINRA is asking for more people to take the Series 7 exams, the U.S. equivalent of the Canadian Securities Course.

That may not seem like such a big deal, because it's just a few exams, but ask anyone around you who has written the Series 7 exams how long they procrastinated before they finally sat down to write. There's a good chance it was months, if not years.

To push back on the reforms, the Investment Industry Association of Canada has started a dialogue with U.S. regulators. IIAC was even in Washington, D.C. last week to sit down at the same table as FINRA and explain that there haven't been any problems with the current system, which has been in place for 20 years. Under the existing model, the Securities and Exchange Commission simply trusts that Canadian Securities Administrators were on the ball, and IIAC is arguing that not much has changed.

However, the U.S. is pushing for much stricter guidelines in the aftermath of things like the Bernie Madoff ponzi scheme.



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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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