Briefly:

(September 23, 2005) Northern Financial has taken the unusual step of admitting that is subsidiary, Northern Securities, is under investigation by market regulators for allegedly failing to meet internal trading supervision obligations.

Northern says it has been given until October 11 to settle the case or RS will issue a notice of hearing. In a statement, Northern says that compliance is an “inextricable part of the firm’s culture,” and has raised concerns with RS about the specific requirements of universal market integrity rules related to trading supervision obligations at boutique investment dealers.

RS conducted a trade desk review of Northern Securities in August 2005 and said it found some improvements in the firm’s testing procedures and other compliance and supervision issues since a similar review in 2004.

“However, RS alleged that many of the same issues relating to alleged inadequate internal policies and procedures, testing methodologies and documentation of such testing remained as findings in the 2005 trade desk review.”

Northern says the issues raised by RS are mostly technical, and do not involve fraud, dishonest or unethical trading or business practices. “As a result, Northern believes it is incumbent upon RS to exhibit an appropriate level of fair dealing, good faith and cooperation in resolving these matters, especially as a one size compliance system does not fit all boutique securities firms such as Northern Securities.”

Northern says if the matter cannot be resolved, it intends to raise the issue in the context of contested proceedings against RS.

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CVCA names new president

(September 23, 2005) Canada’s Venture Capital & Private Equity Association (CVCA) has named Rick Nathan, Managing Director of Goodmans Venture Group division, as president of the association.

“It is an exciting and challenging time for our industry,” said Nathan, “Investments are up, as is membership in the CVCA, which has clearly become the leading voice of Venture Capital and Private Equity in Canada. I look forward to building on CVCA achievements to date as we move forward in the years ahead.”

Before joining Goodmans, Nathan was one of three founding partners of Brightspark, an early-stage investment fund and software development group formed in Toronto in 1999.

He replaces Dr. Robin Louis, who will assume the post of CVCA chair.

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RBC offers three new LEOS notes

(September 23, 2005) RBC Financial Group has issued three new series of Liquid Equity Option-linked noteS (LEOS) aimed at risk-averse retail investors looking to gain access to the international marketplace.

The three principal protected notes offer exposure to the S&P 500, the Nikkei 225 and a global basket containing the S&P 500 Index, the Dow Jones Euro STOXX 50 Index and the Nikkei 225 Stock Average.

RBC Principal Protected S&P 500 LEOS Series 2 US$ Denominated matures on October 15, 2015. The RBC Principal Protected Nikkei 225 LEOS(TM) Series 1 matures October 25, 2012. The RBC Principal Protected Global LEOS Series 4 matures November 7, 2013.

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TD expects oil prices to drop, eventually

(September 22, 2005) Hurricane Katrina sent oil price above $70 US a barrel. Her sister Rita is larger and has already shut down refineries and could wreak havoc on the Texas oil industry. Yet TD economists say we can expect oil to drop back down to $45 US a barrel by early 2007.

Storms aside, the current rally has been a product of robust demand for crude globally, but a report released Thursday by the bank paints a grim picture of the U.S. economy, which will ultimately soften demand for oil. In the report entitled Crude Oil Squeeze to Ease Next Year: But Era of High Prices Here to Stay, TD economists say they expect U.S. GDP growth by the second half of 2006, to be just over 2%, down from its current 3.5% to 4% range.

While the notion of oil at $45 US a barrel is attractive, especially at the gas pumps, TD economists say we can still expect prices to climb to $75 US or $80 US a barrel in the short term. Although the higher prices rise, the more they’ll drop according to Derek Burleton, senior economist with TD Financial Group. “The more oil prices increase in the short run, the more significant the downward adjustment is likely to be over the next 12-18 months,” notes

Nevertheless, the authors of the report add that even if oil prices ease off in the next year, they believe the world has entered a new era of high crude oil prices. “When the U.S. economy gets back on track by 2008 and the oil market tightens again, investors will once again get nervous about inadequate supply,” Burleton adds. Let’s hope it’s a quiet hurricane season that year.

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Montreal exchange to offer currency options trading

(September 22, 2005) The Montreal Bourse will introduce currency options trading on Monday, September 26, 2005, starting with contracts on the U.S. dollar. The basic trading unit for the contracts will be $10,000 US.

Contracts will be “European style” according to a press release from the Bourse, meaning they can only be exercised on the maturity date. Currency options are eligible for registered accounts, including RRSPs and RESPs.

A limit of 40,000 contracts has been set by the Bourse.

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Manulife to expand operations in China

(September 22, 2005) Manulife-Sinochem Life Insurance, a subsidiary of Manulife Financial, has received approval from the China Insurance Regulatory Commission to open a sales office in Shenzhen, Guangdong Province.

The addition of Shenzhen — China’s wealthiest city with a population over six million — means Manulife-Sinochem now has one of the most extensive foreign networks on the mainland. It’s the company 10th city licence in China. The company plans to be operational in Shenzhen by the first quarter of 2006.

Manulife has established operations in Ningbo, Foshan and Dongguan, and will be opening in the coming months in Hangzhou, Nanjing and Zhongshan. Further expansion is planned close to the company’s three major operations in Shanghai, Beijing and Guangzhou.

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Quebec freezes Argentum

(September 21, 2005) Quebec’s regulator has ordered a freeze on activity at Argentum Management and Research Corporation, Conseillers en valeurs Chabotpage and the family of Argentum funds.

In issuing the order, l’Autorité des marchés financiers (AMF), the Bureau de décision et de révision en valeurs mobilières (BDRVM), cited various regulatory filing omissions, including the failure to file financial statements for the period ending December 2004.

Regulators also pointed to an unexplained “substantial decrease in the net assets of Argentum Funds from $8.6 million on June 30, 2004 to $5.3 million on September 13, 2005” and a significant increase in management expense ratios.

BDRVM has ordered Argentum Management and Research Corporation and Conseillers en valeurs Chabotpage not to withdraw, convert to their own use or dispose of any funds, securities or other assets that are in their possession or are under the control or safekeeping of Merchant Capital Group Incorporated, Canadian Imperial Bank of Commerce (Toronto), CIBC Mellon Global Securities Services Company or BMO Bank of Montreal. As well, BDRVM has ordered the family of Argentum Funds not to dispose of their funds, securities or other assets.

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Feds announce $1.6 billion surplus

(September 21, 2005) The federal surplus for the fiscal year 2004-05 came in at $1.6 billion, about what Finance Minister Ralph Goodale had predicted.

It’s the eighth straight time the feds have posted a surplus. “This surplus was particularly gratifying given the numerous challenges affecting our bottom line at the end of the year,” Goodale said. “It clearly demonstrates the benefits of prudent, long-term fiscal planning.”

The extra cash has been applied to reduce Canada’s debtload, which now stands at $499.9 billion.

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Canadians favour locked-in mortgages

(September 21, 2005) When it comes to financing their homes, Canadians exercise caution, locking in mortgages while interest rates are low, according to a study conducted by Mortgage Intelligence.

In fact, 69% of mortgage-holders have opted for a fixed rate, over a variable rate, suggesting a widespread opinion that interest rates will rise over the term of their mortgage. Almost half of the survey’s 600 respondents said they have taken advantage of pre-payment options as well, either in the form of a lump sum or by a regularly scheduled overpayment.

“These findings certainly paint Canadians in a positive light when it comes to fiscal responsibility,” says Karl Wondrak, president of Mortgage Intelligence. “Peace-of-mind plays a major role in the purchase, as indicated by the preference for fixed-rate mortgages. Although most lock in for a five-year term, longer terms of 10, 15, 20, and 25 years are increasing in popularity.”

The survey also found that 48% of primary mortgages were under $100,000, and the residential mortgage arrears rate is about 0.25% — its lowest level since 1990.

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RBC names new regional presidents

(September 21, 2005) RBC Royal Bank has realigned its national customer and sales management structure, naming regional presidents to oversee its operations.

“Over the past nine months, we have redirected 300 employees to client facing roles,” said Jim Westlake, head of RBC’s Canadian personal and business clients division. “Now, placing more of our most senior leaders closer to our clients and the employees who serve them will help lead to clearer accountabilities, quicker decision making, less duplication and most importantly, an increased focus on our clients.”

The presidents of each region will be: Graham MacLachlan, British Columbia; Bruce MacKenzie, Alberta and the Territories; Kirk Dudtschak, Manitoba, Saskatchewan and NW Ontario; Jennifer Tory, Toronto; Laura Gainey, South Western Ontario; Rod Schaaf, East and North Ontario; Micheline Martin, Quebec; and Greg Grice, Atlantic Provinces.

The bank also announced the appointment of Gay Mitchell, head of RBC’s Ontario personal and commercial division, as executive vice-president, strategic business development.

Wayne Bossert, currently responsible for RBC’s personal and business clients in the Atlantic provinces, will move to Toronto to become senior vice-president of service delivery.

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Fed hikes key lending rate to 3.75%

(September 20, 2005) Despite concerns about Hurricane Katrina and its impact on the economy, the U.S. Federal Reserve decided to stay the course, raising its key overnight lending rate 25 basis points to 3.75%.

Some Fed-watchers thought a pause in rate hikes was in order, given the possibility that higher energy costs caused by Katrina could slow down consumer spending.

In a statement, the Fed noted that the U.S. economy was growing at a good pace pre-Katrina, but conceded that the devastation in the Gulf region will be a setback for spending, production and employment in the near term.

Still, the Fed added that such developments do not pose a persistent threat. “Rather, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.”

“Higher energy and other costs have the potential to add to inflation pressures,” the Fed added. “However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.”

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Van Arbor launches European equity fund

(September 20, 2005) Van Arbor Asset Management today announced the launch of its third equity fund; the Van Arbor Euro Advantage Fund.

Stocks for the funds will be selected using a proprietary quantitative investment methodology intended to identify European securities with low price volatility and positive earnings growth, the Vancouver-based company says.

“After successfully managing this fund internally since February 2005, we believe that this fund will offer our current clients and new investors the opportunity to diversify their portfolio holdings,” says Van Arbor portfolio manager Andrew Parkinson. “Van Arbor’s proprietary investment strategy has resulted in strong performance amongst the industry leaders for both our Canadian and U.S. funds and we believe that this discipline is well suited for the European equity market as well.”

The fund is being offered on a private placement basis only to certain qualified individuals by offering memorandum. Sales will be made directly by Van Arbor.

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Weinberg resurfaces to create private equity fund

(September 20, 2005) Former Assante CEO Marty Weinberg is teaming up with three other prominent Winnipeg businessmen to form a new private equity fund.

Leonard Asper, David Asper and Bob Silver will be Weinberg’s partners in the new firm, known as Canterbury Park Capital.

“We know the lion’s share of [private equity] firms are in the east and have done their hunting in the east. We believe there are opportunities in Western Canada because it’s underserved,” said Weinberg said in an interview with the Winnipeg Free Press.. The partners are kicking in about $70 million to get the fund started and hope to attract institutional investors.

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G7 countries urged to lower corporate tax rates

(September 20, 2005) Effective corporate tax rates have been creeping higher among most G7 countries, to the point that all are facing pressure to restructure their systems to improve growth prospects, according to a report from the C.D. Howe Institute.

China has the world’s highest effective corporate tax rate, according to C.D. Howe’s annual tax competitiveness study, followed by Canada, Brazil, the U.S. and Germany.

“Heavy taxes on investment discourage business from buying the latest technologies that improve labour capital,” the report says. “A dose of pro-growth tax reform would give a healthy boost to the world’s leading economies and, in a world that is dependent on trade and global capital flows, to other nations as well.”

Lowering taxes on capital investment is the key to growth, the report argues, noting that the U.S.’s corporate income tax rate applied to profits is 35%, compared to Ireland’s 12.5%, making that country own of the most favourable tax regimes for investment.

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OpenSky Capital launches new series of notes

(September 20, 2005) OpenSky Capital today launched its fifth series of principal-protected notes linked to a basket of commodities.

The notes are guaranteed by Société Générale.

According to OpenSky, they offer investors 170% of the upside return, if any, of a weighted portfolio of five commodities; crude oil (25%), natural gas (25%), copper (25%), aluminum (15%) and nickel (10%). There is no cap, no averaging of returns over time and no foreign currency exposure.

The new notes are available to investors until October 25.

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New Brunswick joins Principal Regulator System

(September 19, 2005) New Brunswick has joined most other Canadian provinces in adopting the Principal Regulator System Rule. Under this rule, market participants need only satisfy the regulatory requirements of their home jurisdiction to be allowed access to the capital markets of other signatory provinces.

“We have an effective system of national regulation which is run provincially,” said Donne Smith, chair of the New Brunswick Securities Commission (NBSC). “The Principal Regulator System Rule provides a single window of access for market participants in areas where securities laws are already highly harmonized throughout Canada, or where harmonization can be achieved quickly. We expect to see further advancements in this area.”

The rule covers registration, prospectus review and continuous disclosure requirements. Ontario is now the only jurisdiction in Canada that has not signed on to the new system, with the OSC maintaining its preference for a single national regulator.

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Think tank calls for higher productivity

(September 19, 2005) The Canadian economy needs to improve productivity if it is to remain globally competitive, according to the Canadian Chamber of Commerce. A report from the think tank says small and medium sized businesses in particular need to catch up. “Improving productivity is a means to an end, to improve the quality of life and standard of living of all Canadians,” said Nancy Hughes Anthony, president and CEO of the Canadian Chamber of Commerce. “Canadian companies must strive to be more innovative if we are to successfully compete in the global marketplace. Standing still is the fastest way of moving backwards in a rapidly changing world.” The organization is calling on the federal government to improve education and infrastructure, maintain “prudent” fiscal policies and adopt more aggressive policies aimed at encouraging innovation.

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Canadian securities attracting foreigners

(September 19, 2005) Canadians continued to take advantage of the elimination of the foreign ownership limitations in July, but in the hunt for attractive investments abroad, the grass isn’t always greener on the other side of the fence.

According to Statistics Canada, Canadians snapped up foreign stocks at a torrid pace for the sixth consecutive month, acquiring $3.7 billion in foreign stocks and bonds following $5.6 billion in June. But as Canadians bought abroad, foreign investors saw buying opportunities here. Foreign investors grabbed $3.3 billion in Canadian securities after selling off $2.4 billion worth a month earlier.

Foreign investors chased after Canada’s hot natural resources sector, which has been the main factor driving a 5.3% up tick in the S&P/TSX Composite Index in July. Demand for Canadian debt instruments continues to be tame, with foreign investors acquiring only $600 million in July.

Statistics Canada reports that foreign investors have increased their holdings of Canadian bonds by less than $1 billion so far this year, compared to $9.5 billion over the same period in 2004. A significant reduction in new issues, particularly corporate bonds, is partly to blame for the change.

Canadian investors continue to favour U.S. stocks versus overseas equities, buying $973-million worth of equities from our southern neighbour compared to purchases of $689-million abroad.

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