J.P Morgan Securities LLC cleared to begin trading bonds of Canadian businesses with Canadian institutional investors
Source: The Globe and Mail
The Ontario Securities Commission published a decision Thursday allowing international securities dealer J.P. Morgan Securities LLC to start trading certain bonds of Canadian businesses with Canadian institutional investors.
The exemption, the first of its kind, will loosen restrictions that prevented foreign dealers from buying and selling the debt of Canadian companies that had previously been issued in foreign currencies, such as the U.S. dollar or euro, or the debt of any issuer that was initially distributed outside Canada without a prospectus being filed in Canada.
Securities regulations had permitted these international dealers to extend new foreign issues into Canada but did not allow the Canadian investors who bought them to sell the bonds back to the same U.S. dealer. This constraint spurred most foreign banks, including Goldman Sachs Group Inc. and Citigroup Inc., to cease trading these Canadian bonds with Canadian investors in the secondary U.S. market.
Thursday’s order paves the way for more dealers to seek a similar exemption, which would widen access to these Canadian bonds for large Canadian investors.
In August, the Canadian Bond Investors’ Association (CBIA), which represents 48 asset managers that together hold $850-billion in bonds, filed a letter with the regulators describing how the restriction, put in place back in 2015, had decreased liquidity across the bond market and increased their trading costs, spurring loud calls for reform.
The Canadian Securities Administrators, an umbrella group of provincial securities commissions, first signalled a willingness to revisit the rule change less than a month later.
The provincial securities regulators did so by publishing a September staff notice saying they saw no reason “an international dealer should be permitted to sell a debt security to a Canadian institutional investor but not be permitted to act for the institutional investor in connection with the resale of the security.”
In the notice, the commissions’ staff suggested the foreign banks submit an application requesting to be exempt from the rule. These applications, which carry a fee of $4,800, would allow the regulators to measure the size of the problem and start the process of resolving it.
A spokesperson for the OSC declined to say how many of these applications have been filed to date.
“We expect most of the [international] dealers will be applying for and getting the same relief,” said one lawyer who advises dealers in the United States and asked to remain unnamed.