Anti-oil pendulum could swing too far
Warning from Alberta at Carr conference
• Federal efforts to build greater consensus on a long- term energy strategy for Canada met provincial reality Thursday, as Alberta warned about the dangers of “the pendulum swinging too far” against oil and gas, and British Columbia stuck to its guns in opposing the proposed Trans Mountain oil pipeline while the province pivots toward green energy. In a panel discussion at a conference convened by Jim Carr, the federal natural resources minister, Alberta Energy Minister Marg McCuaig- Boyd urged caution about how a green transition is managed.
“It’s important for us to keep people working and have a strong economy,” McCuaig- Boyd told the meeting. “This is important for us because good jobs and economic opportunity underwrite our ability to transition to a low carbon economy. A strong economy gives us capacity to invest in renewables, funds green infrastructure and funds innovation.”
Alberta’s NDP government is doing its part to help with the energy transition by putting a price on carbon, phasing out coal, capping oilsands emissions while still growing production, said McCuaig- Boyd, one of the few voices at the meeting defending Canada’s oil sector and its workforce. Carr is hosting a two-day conversation to “create a long-term vision for Canada’s energy future" with heavy input from academia, indigenous communities, the public and green advocates. “Looking forward, it’s important to not let the pendulum swing the other way, overburdening industry, creating uncertainty,” McCuaig-Boyd said.
Those conditions have resulted in a long list of oil and gas projects being canceled, i ncluding TransCanada Corp.’s Energy East pipeline last week after Ottawa expanded its review to include upstream and downstream climate change impacts.
In less than three months, on Jan. 3 to be exact, the Markets in Financial Instruments Directive ( MiFID 11), a series of changes that will dramatically affect the i nvestment management business, goes live in Europe and Britain.
At this stage there are no plans to implement a MiFIDlike system in North America.
A recent column in the New York Times noted that the big investment banking firms are generally resistant to the goals of MiFID while institutional investors are supportive. The Securities & Exchange Commission is yet to rule on the matter.
As for Canada, given the length of time it took to implement CRM2, and the still- to- be- decided matter of embedded commissions — both retail investor matters — a decision is not expected any time soon. But there will be more action if the SEC follows what the Europeans have done.
The new MiFID directive — which follows more than six years of study and a planned one- year delay — seeks, according to a report by HSBC “to make financial markets in Europe more resilient, transparent and investor-friendly.”
The directive, part of a series of measures enacted in response to the global financial crisis, comes in many parts, and will affect all market participants given that at the core, the goal is to unbundle the slew of services provided by the sell- side firms: from early 2018, those services will be offered and priced separately.
As part of the MiFID’s investor protection framework, PricewaterhouseCoopers said in a report “investment firms need to make explicit payments for investment research in order to demonstrate that they are not being induced to trade.”
The PWC report noted the regulatory obligation will pose “significant challenges” for the industry as sell- side firms “must disclose the associated costs and charges to buy-side firms in order for them to demonstrate that they are acting in their best interests.”
As with any change — and what’s at work in Europe is the overthrow of the current model where institutions pay for research through directing commissions to the firm that provides the research — there will be winners and losers.
“The world will change,” said Ed Pennock, founding partner of the Pennock Idea Hub, a Toronto-based standalone equity research firm that doesn’t trade securities. Under the new regime, sellside research will be broadly defined to cover more than reports prepared by analysts.
Pennock’s firm, which is home to five analysts, sells its research, either on the sector or on the individual company, to institutional clients which either pay directly or via commission sharing agreements. “The institutions can pay us direct or they can direct business to a brokerage firm, who then sends us a cheque ( for the agreed- upon amount),” said Pennock who believes MiFID 11 will have “some influence” on the way things get done in Canada.
“If the banks think they can turn this into a profit, they will bring it over in a second. The U. S. institutions want their brokers and bankers to do the same because it will lower their costs and improve transparency, accountability and ( the) audit trail. It ticks every single box,” said Pennock, who argues the research produced by his firm would be way cheaper” for institutions compared with what they’re paying now.
Aside from Pennock Idea Hub, Veritas Investment Research is another firm that sells its research but doesn’t provide trading.
But Pennock isn’t waiting for MiFID to come here: his firm’s research reports are posted on five electronic research hubs set up in London. ‘ If institutions like the work, they pay you accordingly,” he said. “We’ve gone from push research to pull research.”