A major deregulation of Canada's securities industry begins today, opening the way for foreign entry into the country's financial markets and supposedly making it easier and cheaper for corporate and individual consumers to acquire stocks and loans.
But the new system, nicknamed the "Big Bang" after a similar deregulation in Britain last year, has been viewed with caution in the days just before the changeover. The predicted rush of foreign acquisitions and mergers of banks, brokerages and other financial institutions allowed under the new rules has not materialized, nor has there been any large-scale purchase of seats on the Toronto Stock Exchange, Canada's largest.
An exception to the rule was First Chicago's announcement Monday that its Canadian subsidiary, First National Bank of Chicago, had agreed to acquire a 35% stake in Wood Gundy, Canada's second-largest brokerage. First Chicago, the 11th-largest U.S. banking firm, said its subsidiary will invest $203 million (U.S.) in a combination of newly issued common stock and convertible debentures of Wood Gundy.
But even though the relaxation of some of the capitalist world's most restrictive and protective financial regulations is having little immediate effect, in the long run it is expected to result in major changes in the way business is done in Canada.
"These are realistic guidelines," said Allan Taylor, chairman of Canada's largest financial institution, the Royal Bank of Canada, who added that they will give the country's financial community "the flexibility to meet the expectations of their customers at home and to compete vigorously abroad."
The new rules, which were worked out in extensive negotiations between federal officials and the government of Ontario, do away with the traditional "four pillars" system of regulations that kept stockbrokers, banks, trust companies and insurance firms confined to their narrow areas of business.
Now a consumer will be able to buy stocks from a bank, get a car loan from a trust company and arrange a business loan from an insurance firm.
Furthermore, cross-ownership will be permitted in financial services. Banks, for example, will be allowed to own insurance companies, and stock brokerages can buy trust companies. Banks, trust firms and insurance companies will be allowed to sell stocks and bonds.
Another major change, one with important international ramifications, allows foreign firms to buy up to 50% of a Canadian investment company immediately and 100% in the course of a year. The old rules limited overseas investment to 10%.
According to Monte Kwinter, Ontario's minister of commercial and consumer relations, the new regulations will benefit Canadian executives and consumers and make Canada--particularly Toronto--a major force in international financial markets.
It was the area of international investment that was most controversial. Canada traditionally has been touchy about high levels of foreign ownership of its businesses and industries.
Brian J. Steck, a prominent investment broker, reflected these continuing concerns when he wrote recently in the Toronto Star: "During the next five to 10 years, there is a high probability that the Canadian securities industry will be foreign dominated. Is sovereignty no longer the issue? Is it simply survival of the fittest?"
Andrew Kniewasser, president of the Investment Dealers' Assn. of Canada, complained that the new rules were designed to fix something that wasn't broken.
"Canadians in the years ahead will look back on our present financial system, the separation of function system, with considerable nostalgia," he said. "It served Canada well for decades and in its last year, in 1986, it outperformed financial systems anywhere."
Other objections centered on the lack of international reciprocity to the liberalization of Canadian rules. For example, despite Canadian proposals, the United States has refused to waive regulations that prevent a Canadian commercial bank that invests in a similar American institution from doing investment banking. Canada has no such regulations.
Still, at least for now and for various reasons, except for the First Chicago investment in Wood Gundy, there has not been the flurry of foreign invasion that so worries Steck.
A number of prospective mergers have either fallen through or been put on hold pending a shaking-out process. Part of this is due, experts say, to overvalued companies and a lack of a common business culture.
Some overseas investment houses have bought seats on the Toronto Stock Exchange, but high prices have caused many others to hold back. Currently, a seat costs $273,600 (U.S.), compared to about $32,000 at the start of the year.