Manitoba voices its objection to national securities regulator again

It took 16 pages but when there is any doubt that Manitoba was not in favour of a national securities regulator the message came through in the final paragraph.

“The existing regulatory scheme has capably met the requirements of investors, market participants and businesses in Manitoba by managing risks throughout the 2008 global financial trouble,” said Donald Murray, chair of the Manitoba Securities Commission.

Murray made those comments within an affidavit filed with the Court of Benefit of Quebec. It had been filed there because that province is preparing a constitutional challenge to the draft federal legislation. Included in Murray’s filing would be a 127-page paper, titled Securities Regulation and Systemic Risk, prepared by Eric Spink, an Edmonton-based lawyer

In Murray’s view, since the 2008 crisis, the provincial securities regulators in co-operation using the CSA has placed “a renewed focus on identifying and managing potential systemic risk.” He points, for example, towards the 2009 CSA decision to set up a Standing Committee on Systemic Risk, an organization that identifies and monitors “systemic risk” in capital markets.

While the proposed federal regulations have yet to be drafted, what bothers Murray is that when they are, they will inevitably “replicate” exactly the same day-to-day regulation and control over risks within the securities industry. Which entry “is currently within the ambit from the Commission along with other provincial securities regulators across Canada.”

With a hearing scheduled for November, Canada and Bc are scheduled to file for their evidence by early May with factums due within the summer. By then there will be thousands of pages of documents.

THE RATE RESET RUSH

It’s been an area day – or more specifically a field couple weeks – for banks trying to raise non-viable contingent capital in the form of five-year rate-reset preferred shares as well as for investors wanting to purchase them.

Since Jan 1, seven financial issuers have started to the market and left with $2.95 billion in proceeds with most from the deals having being upsized. Here’s the roll call: National Bank ($400 million up from the planned $250 million); Royal Bank ($750 million up from $300 million); TD Bank ($700 million vs $300 million); Laurentian Bank ($100 million using the chance of an additional $50 million); and Bank of Nova Scotia ($500 million vs $300 million.) The other issuer is Manulife Financial which raised $400 million compared with a preliminary goal of $300 million.

Canadian Western Bank is the latest to raise capital within this form: on Thursday it found the market seeking $100 million of five-year money at 6.25 %. That yield consists of a base rate (the five year Canada bond rate) along with a spread of 5.47 percent. If demand is enough the underwriters will sell another 600,000 pref shares and lift $15 million. This is CWB’s third deal with its most recent being in February 2014 when it raised $125 million at 4.4 percent along with a spread of 276 basis points.

So what’s the attraction of those securities?

First, the current type of rate resets is different from the earlier version: the new structure matches the new rules laid down by global regulators and convert to common shares in a so-called trigger event. While this kind of event is recognized as unlikely, there’s still a danger.

Second, the yields are attractive with spreads being in the 450 C 550 basis points range.

bcritchley@nationalpost.com