TSX Group CEO Barbara Stymiest took a swipe at U.S. regulatory imperialism Thursday while outlining a proposal for linking Canadian and European exchanges.

Speaking to the Federation of European Stock Exchanges in London, Stymiest said that Canada offers the opportunity for Europeans, Asians and others to gain a toehold in North America. “The perception that the only trans-Atlantic opportunities are American and the only solutions are bilateral hides the real and positive potential that lies in other dimensions of the relationship,” she said.

She complained that the U.S. regulators are unfair in their stance that foreign exchanges can’t find their way onto Wall Street trading desks. “Securities, in other words, are basically another example of a generalized approach taken by the U.S. Its basic argument is that the only valid rules are American rules,” she said. “That has led to Canada and Europe drawing a blank, so far, on the issue of access to American trading screens. And it has pretty much kept free trade in securities out of either bilateral, multilateral or global trade negotiations in past, and seems likely to do so on this WTO trade round as well.”

Stymiest said that the SEC has, fairly recently, signalled that it’s looking the market access and screen issues. “But it is at least a strong possibility that you can’t get there from here. Certainly, the extra-territorial applications of Sarbanes-Oxley suggest that Americans have not weakened in the slightest in their commitment to the belief that American rules must prevail. I do not believe that free trade in securities can take place under those conditions. If we were to negotiate it, it would have taken so long that a whole new set of problems would have arisen in the interim.”

She reiterated her call for mutual recognition of exchanges between Canada and Europe. “This allows different regulators in different jurisdictions to deal directly and quickly with the different problems that arise in different ways. It is in such uneven processes that best practices evolve,” she said. “The genius of what Europe has done is to recognize that is it extremely difficult — and perhaps impossible — to reconcile every difference in every jurisdiction. Moreover, achieving such a Utopian solution might well serve, as a cost, to ossify and bureaucratize the on-going processes by which we constantly improve markets by evolving better practices.”

“I think it is a fair analysis of the American approach that it’s very complexity and comprehensiveness, and its over-dependence on the capacity of regulators to keep up with the ingenuity of market players, contributed in no small way to the extraordinary series of ethical and governance failures that have revealed themselves in the last year,” she argued. “Whether Sarbanes-Oxley has solved that problem or simply created the basis for its repetition later is something on which the jury is out.”

She said that the TSX has spent considerable effort translating the mutual recognition concept into “what we believe is a solid business plan”. It will be proposing, in general terms, that major companies on each participating exchange (for example, stocks included in the S&P/TSX 60) be able to trade on all the participating exchange under home market standards and reporting requirements. “This would have the effect, in the first phase at least, of broadening the market for these listed companies while concentrating liquidity for each company in its home market.” The TSX would charge a premium annual listing fee to reflect the added value of this arrangement. In the second phase of this plan, recognition would be extended to other exchanges including those in the Asia Pacific region. And, over time, it might be extended to include smaller issuers too. “What I hope will transpire tomorrow morning is that FESE or a group of, let us say, a half dozen interested exchanges establish with us a working group to do the spadework that is required and break the ground in terms of regulatory, legal, accounting and other issues,” she said, proposing a deadline of the fourth quarter.

“We want to accelerate progress toward freer trade in securities and especially between the two biggest markets on the planet — the United States and Europe. We believe we have a contribution to make, given our familiarity our affinity for U.K. and European approaches and our proximity to American markets. We believe we can create tangible value for all the participating exchanges and we can do so with minimal investment, risk and complexity. Most of all, we can create tangible value for the increasingly sophisticated investors and issuers that characterize our markets — investors and issues that are not served by the existing protectionist barriers that exist in all national markets,” she concluded.

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