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© Copyright 2000 Rogers Media. The following article first appeared in the July 2000 edition of
BENEFITS CANADA magazine.
Industry
By Andrea Davis
Toronto Stock Exchange goes global
The Toronto Stock Exchange (TSE) is partnering with the New York Stock Exchange (NYSE) and eight other
stock exchanges around the world to create a round-the-clock trading system. The proposed alliance, dubbed
the Global Equity Market (GEM), represents over 60% of the world's market capitalization. In addition to
the TSE and NYSE, it includes bourses in Paris, Amsterdam and Brussels and stock exchanges in Tokyo, Hong
Kong, Australia, Mexico and Sao Paolo, Brazil.
"We've been investigating alliances for some time," says Barbara Stymiest, president and chief executive
officer of the TSE. "This alliance will help maintain our leadership capabilities and greatly enhance
shareholder value."
The electronic trading systems of each GEM exchange will be linked, within and across time zones, to
provide continuous trading for high market capitalization stocks.
Specific details--such as what currency the stocks will trade in, how many stocks will be included and
regulatory issues--have yet to be worked out.
"When the [money] managers are investing more globally, when everyone's looking at the world through global
sectors, not countries, it allows the managers to do their jobs better for institutional investors through
better executions and reduced costs," says Barry McInerney, national investment consulting practice leader
with William M. Mercer Limited in Toronto. "I don't think it will revolutionize the industry. It's just one
of those small things that should incrementally help investment managers investing money for Canadians from
a gloal perspective do a much better job for them."
The TSE and NYSE were quick to emphasize that GEM is not the acquisition of one stock market by another.
"The end objective is to recognize the great partner markets around the world and create a platform for
those who have worldwide demand for their stocks," says Richard Grasso, chairman and chief executive
officer of the NYSE. "It's an open partnership."
While gaining access to better, and perhaps cheaper, execution of trades, investors may also witness
increased volatility with GEM. "The only concern about doing this is that it might increase the day-to-day
volatility," says McInerney. "Those investors that are more focused on daily trading will have greater
ability to invest and act on a short-term horizon. But if you're a long-term institutional investor, it
just means a few more bumps along the road but with the end result the same."
GEM will be a direct competitor to global initiatives undertaken by Nasdaq, which recently announced plans
to open Nasdaq Canada in Montreal. "Competition is always good so we should be happy about that," says
Richard Neault, president and chief operating officer of Montreal-based money manager Canagex.
Nasdaq has also reached deals with the London Stock Exchange and the Deutsche Bourse to create iX, a
globally linked, pan-European exchange. The TSE had also been in talks with Nasdaq, but those discussions
have ended, says Stymiest.
The deal comes at a good time for the TSE, which has been plagued by technical glitches in recent months.
When asked if he was concerned about the TSE's record of technical problems, the NYSE's Grasso said it
wasn't a consideration. "In any technologically driven market, there will be glitches. We're going to lock
arms to make sure all partners [in GEM] have the same access to technology we have in New York," he says.
SEI exits performance measurement
SEI InvestmentsCanada is selling off its investment performance measurement business, probably to Royal
Trust. SEI plans to wind up the operation by March 31, 2001.
"This is no longer a core part of our business," explains Patrick Walsh, senior vice-president at SEI
Investments in Toronto. SEI's new "manager of managers" approach to asset management is the focus now. The
firm has over $100 billion in assets under management.
SEI's Funds Evaluation Service currently serves more than 300 institutional investors and employs about 30
people. No jobs will be lost in the move.
"I'm not suprised to see it," says Barry McInerney, national investment consulting practice leader with
William M. Mercer Limited in Toronto. "From a business strategy perspective, I think it's consistent with
SEI focusing more on money management, risk management and other areas of the business. Performance
measurement is a labour-intensive, system-intensive business where critical mass is very important. If it
doesn't fit into your overall business strategy, it's probably best to look for someone else to take that
over."
José Placido, senior vice-president of Royal Trust Global Securities Services in Toronto was on-hand
for the announcement. He told benefits canada he is "pretty confident we can wrap this [deal] up
completely." The purchase, if it goes ahead, will increase Royal Trust's client base in this business
considerably.
"This solidifies our own performance measurement products," says Placido. "It gives us access to over 300
clients." Royal Trust currently has 82 clients.
"The custodians are doing a really good job in the performance measurement area," says Mercer's McInerney.
"It links in better to their business strategy. Consolidation in performance management is not a bad
thing."
SEI's asset management business operated under the name Primus Capital Advisors Co. until this past
February. That name, along with the rest of the organization's, was changed to SEI Investments,
Canada.--Kevin Press, with files from Andrea Davis
Canagex partners with U.S. firm
Montreal-based money manager Canagex has entered into an exclusive partnership with U.S.-based investment
manager Sanford C. Bernstein & Co. The deal gives Canagex access to Bernstein's investment research and
global investment management expertise.
Canagex currently manages almost $12 billion, nearly $7 billion of which is mangaed on behalf of
institutional clients. As part of the deal, Bernstein will manage Canagex's U.S. and international assets.
Canagex will eventually hire about 20 people to build its own U.S. and international investment teams, at
which time the assets will be transferred back to Montreal. The company has also closed its Toronto office,
home to six analysts, as part of the deal.
The partnership with Bernstein was spurred on by a number of factors, says Canagex's president and chief
operating officer, Richard Neault. Globalization is a growing trend. "It seems every month there is a large
U.S. or international money manager that comes to Canada, either through an acquisition or a merger," he
says, citing Trimark Investment Management Inc.'s recent acquisition by U.K.-based Amvecap and Perigee
Inc.'s merger with U.S. asset manager Legg Mason.
Secondly, says Neault, the portion of Canagex assets invested outside of Canada is growing and the firm was
looking for a partner with international expertise. And finally, he adds, "even to manage Canadian
portfolios these days, you need to have access to global research. It's very difficult to assess Nortel or
Alcan if you don't have a good view on their competitors elsewhere in the world."
Canagex will change its name and logo in the coming months to reflect its new international focus. The
partnership with Bernstein will continue for five years, with an option for two additional years. Founded
in New York in 1967, Bernstein currently manages assets in excess of US$90 billion.
Healthy workforce key
Canadian plan sponsors stand to lose as the public healthcare system continues to flounder. This was one
message that emerged from a recent conference on healthcare management, Pulse 2000.
"A healthy population is a major contributor to a vibrant economy," says Dr. Joel Kettner, chief medical
officer of health for the province of Manitoba. Targeting his remarks at the financial community, Dr. Hugh
Scully, president of the Canadian Medical Association says, "if you don't have a healthy workforce, you
don't have a healthy business. I believe we must address that."
According to Terry Sullivan, president of the Institute for Work and Health, the public healthcare system
is a major strategic advantage for Canadian businesses. "It's worth about 7% of payroll," he says, adding
public pensions rank second among employers in terms of the advantages of doing business in Canada.
Ironically, the success of health promotion and disease prevention programs (many initiated and conducted
by plan sponsors in the workplace) has resulted in a growing elderly population, which is regarded as a
"burden to society," says Dr. Michael Gordon, vice-president, medical services at the Baycrest Centre for
Geriatric Care in Toronto.
All experts agreed that a stable source, or sources, of funding is crucial to maintaining the existing
system. There was also a call to rethink medicare, with the acknowledgement that coverage for homecare,
eldercare and pharmacare needs to be addressed.
Scully adds that the controversial Bill 11 in Alberta "has spurred a useful debate on the overall balance
of private and public funding." He also stresses the importance of preventing "an agency from gaining
access to sensitive medical information that can affect whether or not you get a job or insurance."
This is already occurring in the U.S. Dr. David Himmelstein, associate professor at Harvard, says two years
ago, 42 U.S. companies reported that they test potential employees for HIV. Several employers specified
that they were testing for markers for breast cancer, colon cancer and Huntington's Disease. Employees were
also unwittingly tested for pregnancy, sexually transmitted diseases and sickle cell trait.
Himmelstein, who praised Canada's public system, bemoans the fact that in the U.S., insurance company CEOs
who earn multi-million dollar salaries control the majority of the managed healthcare services. He adds
that despite high unemployment, one-third of Americans are currently inadequately insured for medical
coverage
Numerous plans for reducing Canadian healthcare costs were also discussed at the event, including allowing
nurse practitioners to take on a greater role. "Much of what I did--50% to 60%--[as a family physician]
could have been done by a well-trained nurse," says Dr. John Savage, former premier of Nova Scotia and a
retired family doctor.--Kathryn Dorrell
ODB study
A recent study of the Ontario Drug Benefit (ODB) program contains some lessons for plan sponsors. The
analysis of the public program, conducted by pharmaceutical firm Glaxo Wellcome and research firm Brogan
Inc., reveals that while ODB program costs increased between 1992 and 1998, the number of claimants didn't
change that dramatically. An aging population, significant advances in prescription drug therapies and a
shift from hospital to community care are cited as the key factors responsible for cost increases.
"The working population is getting older as well as the population covered by the ODB," says Jennifer
Bowman, senior manager, public policy with Glaxo Wellcome in Mississauga, Ont. "As you move into your 40s
and 50s, people tend to be on more medications and costs will go up. The same trends will be seen in
private plans as well as public plans."
Key findings of the report include:
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The average annual cost per claimant increased by 67% from $390 to $653 between 1992 and 1998.
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13% of all claimants accounted for 50% of total ODB costs.
"It's apparent that the role of drugs in the healthcare system is changing," says Bowman. "That's a good
thing from a cost perspective because providing drugs to the patient in a community setting tends to be
much less expensive than providing care in a hospital."
Ontario stock option tax exemption
cant weeks after the federal government introduced a new tax deferral opportunity for certain employee
stock option benefits, the Ontario government has upped the ante by proposing a tax exemption on up to
$100,000 per year of income related to a more restricted category of stock options. Because the provincial
proposal differs dramatically from the earlier federal measure, plan sponsors who offer stock options
should bear some of the following distinctions in mind:
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Timing. While the federal measure will apply to any qualifying options exercised after the Feb. 28,
2000 budget date, the Ontario proposal will cover only options granted after the necessary enabling
legislation is approved. Such approval is not expected for at least several months.
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Coverage. The federal proposal covers any employee holding qualifying options, but the Ontario proposal
is restricted to employees who spend at least 30% of their time undertaking, supervising or supporting
scientific research and experimental development in Ontario in the year the options are awarded.
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Characterization. The federal deferral applies only to the stock option benefit deemed to be incurred
on the exercise of an option. It has no application to any capital gain which may be realized on the
subsequent sale of the optioned shares. By contrast, the Ontario exemption will apply to the deemed
benefit and/or any capital gain, up to a maximum of $100,000 per year.
Some might consider it churlish to complain about any measure exempting income from taxation. However, at
first glance, the Ontario proposal comes up short on two fronts. First, the restriction of the exemption to
employees involved in research activities strikes one as discriminatory, difficult to apply in particular
cases, or both. Second, the absence of harmonization with the federal rules will likely complicate plan
sponsors' administrative burden and reporting obligations. It remains to be seen whether either of these
concerns will lead to a revision of the Ontario proposal.--Gary Nachshen is a partner with the law firm
of Stikeman Elliott in Toronto.
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