The Investment Industry Association of Canada (IIAC) is applauding the proposed revisions to the U.S. foreign broker rule, noting that they will benefit market players on both sides of the border, while also leading towards mutual recognition.

In a comment letter to the U.S. Securities and Exchange Commission, the IIAC, “commends the SEC for taking this important step to liberalize cross-border securities regulation.” It notes that the SEC’s proposed revisions “will enhance the ability of U.S. investors to access non-U.S. securities markets, such as the Canadian capital market. “

The IIAC indicates that “the institutional business in Canada where broker-dealers are selling Canadian securities to U.S. clients, would benefit from a more liberalized regulatory regime, particularly in terms of improved efficiencies. The IIAC is of the view that the benefits are wide-ranging and would result in benefits for not only Canadian broker-dealers and other foreign broker-dealers, but also for U.S. clients, regulators and the industry as a whole.”

Nevertheless, it proposes a few tweaks to the SEC’s proposal, most notably, that the proposed reduction of the threshold asset level for institutional investors from $100 million to $25 million could be lowered to $10 million.

Whether the SEC agrees to lower the threshold even further or not, the IIAC notes that if the proposed reforms are approved, many Canadian firms would be able to consolidate their operations in their Canadian registered firm. “This would relieve Canadian firms of the bifurcation of capital between their Canadian and U.S. registrants, the need to comply with two sets of registration requirements, dual books and records, two sets of trading tickets, dual written supervisory procedures, two compliance regimes in areas such as opening clients accounts and client documentation requirements, compliance training, and dual net capital requirements and monitoring.”

The result will be reducing inefficiencies and doing away with excessive costs as a result of this duplication. “Clients in the U.S. will also benefit from the reduction of these costs and inefficiencies. As more Canadian broker-dealers enter the U.S. institutional market, institutional clients will be presented with greater investment choice. Further, U.S. institutional clients will gain greater insights into the Canadian markets and Canadian investment opportunities by drawing on the full range of professional resources within the firm, instead of restricting access only to dually-registered traders,” it points out.

For the larger Canadian bank-owned firms, the IIAC says that they will likely continue their operations in the U.S. as these firms also deal with U.S. retail clients. “However, they have indicated that many of their Asian and European operations that conduct transactions with U.S. institutional investors would greatly benefit from the relaxed requirements,” it notes.

In addition, the IIAC reiterates its support of the SEC’s efforts towards mutual recognition arrangements with foreign jurisdictions. “We share the SEC’s view that regulatory recognition of foreign jurisdictions can reduce costs in obtaining foreign securities in the U.S., without jeopardizing protection for U.S. investors,” it concludes, adding that immediate efforts to reform the foreign broker rule “can operate in conjunction with the longer-term efforts to implement mutual recognition.”