Canada’s largest banks could be at risk of losing access to a key European foreign-exchange trading platform after Ontario’s securities regulator deemed it at odds with its regulations.
Last Monday, the Ontario Securities Commission (OSC) warned Thomson Reuters, a global provider of news and information, that it would have to disable Canadian banks’ access to its Multilateral Trading Facility (MTF), an electronic platform that facilitates roughly $300-billion in global trading of foreign exchange derivatives each day.
Thomson Reuters relayed the OSC’s directive to its Ontario-based clients on Friday, catching the banks by surprise, according to two sources familiar with the situation. Over the weekend, trading desks faced the prospect that they might be cut off from an important channel for trading in European currency markets as early as Monday morning. That, in turn, could mean missing out on trading revenue.
The MTF provides banks with an important source of liquidity for trading in forward contracts and other derivatives and to lose access would be expected to have an immediate impact on the liquidity and pricing Canadian banks can offer to clients. There are other trading venues available and the immediate impact might vary depending on the size of each bank’s European footprint. But there is lingering uncertainty about the nuances of the regulatory issues at play and the overall impact on financial institutions in Ontario is still to be determined.
Thomson Reuters is aiming to find a remedy with the OSC that would avoid a disruption. “In support of customers and an orderly FX market, Thomson Reuters is in active discussions with staff at the Ontario Securities Commission and will work closely with them to ensure continued access to the market for our customers in Canada in a manner compliant with Ontario securities law,” a spokesperson for the company said in an e-mailed statement.
An OSC spokesperson confirmed in an e-mail that “we are in discussions with Thomson Reuters,” but declined to specify “the nature of these discussions."
The Woodbridge Co. Ltd., the holding company for Canada’s Thomson family and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
As of Monday morning, Canadian banks still had access to trade normally on the Thomson Reuters MTF, as discussions between Thomson Reuters and the OSC continue.
To comply with sweeping new European rules governing financial markets – known as Markets in Financial Instruments Directive II, or MiFID II – which took effect in early January, Thomson Reuters was required to convert its existing FXall electronic trading platform into an MTF. A multilateral system brings together third-party buyers and sellers in financial instruments to match and settle trades.
It’s unclear how those changes may have put the trading platform out of step with Ontario regulations. But on Jan. 4, a day after the MiFID II regulations came into force, the Canadian Securities Administrators published a notice advising trading venues including MTFs, which give access to Canadian firms, to contact local regulators and discuss how the regulatory frameworks in those jurisdictions would apply.
Spokespeople for the country’s five largest banks – Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce – declined comment. But the banks appear intent on pressing the OSC to reconsider: A source said Candace Pallone, a lawyer specializing in derivatives at McCarthy Tétrault LLP, has been retained to represent the banks. Reached via e-mail, Ms. Pallone declined to comment.
The Thomson Reuters MTF is offered through its financial and risk division, which is in the process of being spun out from the company as a separate entity after the company struck a US$17-billion deal with Blackstone Group LP to form a joint venture. The deal is expected to close before the end of the year, subject to regulatory approvals.
Thomson Reuters also announced in May that it would move its foreign-exchange derivatives trading business from London to Dublin in anticipation of Britain’s planned exit from the European Union.
James Bradshaw
Eric Reguly