Canada's financial services industry is about to undergo a sea change that will put it in the forefront of the global deregulation revolution.

The jockeying for position by financial institutions is well under way as Canada prepares for its own version of the Big Bang, which opened up London's

financial markets last fall.In such other countries as Australia and Japan, expanded powers for

financial services have already been granted. The process is moving forward, but more slowly, in the United States where investment dealers are strongly opposing attempts by banks to move into securities trading and the underwriting business.

Foreign banks are generally delighted, if not surprised, by the radical transformation that will be taking place in the Canadian financial system.

It will make Canada one of the freest financial markets anywhere, remarks one foreign bank er.

At the urging of the country's financial services institutions, federal and provincial governments have proposed sweeping changes to eliminate the traditional separation of the four pillars - banking, trust services, brokerage services and insurance services.

Virtually unlimited competition in Canadian capital markets, which would have been regarded as heresy among financial circles not many years ago, will be a reality in the near future.

Taking its lead from Quebec, which in 1983 decided that banks and other

financial institutions could register as brokers, the Ontario government recently announced far-reaching reforms.

As of June 30 this year, domestic banks, trust companies and other non- financial companies will be permitted to control 100 percent of securities firms.

Ontario has also agreed to allow foreign interests to hold up to 50 percent of investment dealers by the same date and to wholly own any Canadian securities dealer by June 30, 1988.

Though the changes still have to be approved by the federal government, this remains a formality - with the possible exception of the regulations concerning foreign bank ownership of Canadian securities dealers. Under Canadian law, provincial governments regulate the securities industry, while the Ottawa authorities oversee the banks.

According to Monte Kwinter, Ontario's minister of financial institutions, the deregulation measures will enable Canada's investment industry to compete with investment houses in the United States, Europe and Japan.

In addition, Mr. Kwinter feels they will attract foreign investment and strengthen Toronto's role as Canada's leading financial center and as a growing international financial center.

The Toronto Stock Exchange accounts for about three quarters of all equity trading in Canada in value terms. In another development illustrating Toronto's financial muscle, a Lloyd's-type Canadian insurance exchange is expected to be operating in Toronto by this summer.

The upcoming changes have provoked an intensive rush for Canadian securities dealers - by foreign as well as Canadian financial institutions.

For one, the New York investment bank, Shearson Lehman, has raised its stake in McLeod Young Weir from 10 percent to 30 percent.

Canada's biggest bank, the Royal Bank of Canada, with C$96 billion in assets, is seeking to acquire the second-largest securities dealer in the country, Wood Gundy Inc. The Royal isn't alone in its interest for Wood Gundy: the list of possible bidders reportedly includes U.S. giants Chase Manhattan and Kidder, Peabody.

Speaking the other day to a group of young businessmen in Montreal, John Cleghorn, the Royal Bank's young, dynamic president, threw out the gauntlet in no uncertain terms.

We, he declared, are Canada's largest bank. We intend to be Canada's leading financial services enterprise.

Among the other major Canadian chartered banks, the Bank of Nova Scotia was first off the mark last fall to set up a wholly owned securities subsidiary in the province of Quebec.

More recently, the Toronto Dominion Bank announced last week that it will be the first Canadian bank to buy a seat on the Toronto Stock Exchange.

The Toronto bank was the first in Canada to get into the retail end of the securities business when it opened its Green Line discount brokerage operation three years ago.

The seat cost Toronto Dominion a princely sum - C$195,000 - but bank president Robert Korthals considers it a good investment. It will allow Green Line to have traders on the exchange floor to execute trades directly rather than relying on other TSE member firms to carry out its transactions.

Mr. Korthals says the Toronto Dominion Bank has no plans at present to expand its Green Line into a full brokerage service (selling and recommending securities) but it is also interested in buying seats on the Montreal and Vancouver stock exchanges.

TSE president Pearce Bunting has indicated that a number of firms have shown interest in pur chasing a seat since the Ontario government decided to remove ownership restrictions on the securities industry.

Very much in the hunt, meanwhile, for opportunities are the insurance companies, some of which could become financial conglomerates as a result of the new rules.

The insurance industry, in fact, pulled off a competitive coup by convincing Thomas Hockin, the federal Minister of State for Finance, to prevent all other types of firms from retailing insurance to the public.

Big cash reserves and a pent-up rage to flex their economic muscles put certain Canadian life insurers in a good position to elbow in on areas traditionally reserved for banks, trust companies and securities dealers. Deposit-taking and an extensive branch network make the trust industry an attractive diversification option for insurance firms wanting to spread their wings.

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