This form of integration, rather than requiring companies to list in every market where they raise capital, could reduce investor costs for cross border trading by more than half, sharply increasing trading volumes and reducing the costs of capital. The potential benefits are enormous for the U.S. and European markets, which together represent 80 per cent of the world's market capitalization.
But Ms. Stymiest, in a speech to the France-Canada Chamber of Commerce in Paris today, said that "the U.S. may be reluctant to consider such a change and abandon traditional protections which significantly increase costs for foreign companies wanting to raise money in the U.S." She went on to say that "Canada and Europe may be ideally situated, especially given Canada's strong economic performance in recent years, to provide a demonstration of the workability" of the advantages inherent in such a proposal.
With such a demonstration, the U.S. may be more amenable to accepting that investor protection and corporate governance in Canada and Europe is every bit as strong as the highly detailed rules and regulations that the U.S. relies on. "Canada and the European Community, at a summit in December, have already agreed to ask their negotiators to come up with new ways to increase investment flows," she said.
Ms. Stymiest believes that Canada might be ideal as a demonstration of the feasibility of mutual recognition proposals because Canada's "principle oriented" approach to governance is more akin to that in the UK and Europe than the rules-oriented approach of the U.S. Sarbanes-Oxley Act (SOX), passed last year. Canada is less likely to encounter the internal resistance to such an initiative, which may help expedite discussion and interest in a mutual recognition regime.
Economically, "Canada has been consistently outperforming the United States and every other country in the G7. Canada has also changed from being net importers of capital to net exporters." And while the US share of global capitalization has fallen, Canada's, according to Morgan Stanley, has risen bringing it to a rank of seventh in the world - at 2.2 per cent - just behind Germany at 2.3 per cent.
Canadian real growth in gross domestic product has exceeded American growth in 16 of the last 18 quarters. In the past year, Canada's economy generated 580,000 jobs - 60 percent of them permanent - while the United States lost 180,000 jobs.
Despite our continuing reliance on the North American market, Ms. Stymiest said, "we are bound by the wisdom of hedging our bets to the broader worlds that global markets represent."
Ms. Stymiest refers to a new U.S. report by Dr. Benn Steil of the U.S. Council on Foreign Relations. Entitled, "Building a Transatlantic Securities Market", the report contends that SOX is an expansion of American protectionism, increasing the cost for US investors of buying and selling shares of companies listed overseas.
"Dr. Steil's proposal is that we stop trying to harmonize rules or standards," Ms. Stymiest said.
Mutual recognition of stock exchanges, the report estimates, would produce a 60 per cent decline in trading costs in Europe and the United States, a 50 per cent increase in trading volumes between Europe and the United States and a 9 per cent decline in the cost of capital in these two markets.
"I can only do what the International Securities Market Association has done - urge governments, regulators, stock exchanges and others to examine [Dr. Steil's work] thoroughly," added the TSX CEO. "The potential benefits are too great to ignore. The need to reinvigorate the transatlantic relationship is too important."
A Canada-EU pilot project would generate different results, she said, but nonetheless demonstrate the workability of the idea of mutual recognition of stock exchanges on a larger scale.
She noted that at a Canada-EU summit in Ottawa last month, Canadian and community leaders agreed, in fact, to instruct their trade ministers to design a "new type of forward-looking, wide-ranging bilateral trade and investment enhancement agreement." Another summit is planned for this year.
This summit, Ms. Stymiest believes, should consider the recommendations of Steil's report. "Before they meet again, I believe trade ministers - and I would add finance ministers - should examine the potential for Canada and Europe providing a living demonstration of what Steil's proposal might achieve."
Copies of Ms. Stymiest's speech are available on tsx.com and a copy of Dr. Benn Steil's report is available at isma.org/surveys/latest.
About TSX Group
TSX are the initials attached to the core operations of the TSX Group: Toronto Stock Exchange, TSX Venture Exchange, TSX Markets and TSX Datalinx. TSX Group operates Canada's two national stock exchanges serving the senior equity and public venture equity markets. TSX Group is headquartered in Toronto and maintains offices in Montreal, Winnipeg, Calgary and Vancouver.
