The Canadian stock market slid more than 500 points in early trading Thursday, as spooked investors dumped stocks following news that the U.S.’s decision to freeze Iran-linked investments in the United States will hurt Saudi Arabia and other oil producers in the Middle East.
The sell-off comes as regulators in the U.S. and Canada made changes in proxy voting rules for all major financial stocks, after a critic complained that the rule was shortchanging shareholders against those who favored controversial settlements such as those recently reached with firms including the former banks Citigroup, J.P. Morgan Chase and Bank of America over charges relating to the 2008 financial crisis.
Wall Street and Toronto’s benchmark S&P/TSX Composite Index were both down more than 2 percent at the opening bell, while all three major U.S. indices were also suffering losses as the selling rampage started.
The COVIDE variant, published to the Securities and Exchange Commission’s website on Tuesday, has sparked concerns that shareholders who vote for it may have received biased proxy materials, after being told their votes would have no bearing at that point.
“It’s horrendous, and it’s dangerous,” said one observer who spoke on condition of anonymity, per Bloomberg.
The SEC voted in February to include a single proxy access option in all of its filings, an effort to make it easier for shareholders of publicly-traded companies to cast their votes through electronically sent proxies. That had worried some in Canada’s financial industry who worried it could encourage second-rate proxy firms, as well as competing Canadian banks and other firms.
Critics of the proposal were split over whether it had gone far enough to block corruption. Complaints ranged from excesses in letters sent by proxy solicitors to disgruntled shareholders, or outright fraud by proxy solicitation firms.
The CBC reports that Canadian officials responded on Wednesday with a directive from Prime Minister Justin Trudeau’s office that said the law could be amended with consent from the government, but only after a public consultation process.
Amid the ongoing sell-off, Wall Street’s Trump administration managed to complete the last component of its three-pronged tariffs on goods from China on Wednesday, and pull off another victory for President Donald Trump with a deal to avoid a government shutdown. On Thursday, the financial stocks that will be most affected by the COVIDE voting rules are also falling in sympathy.
Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Barclays, UBS and Morgan Stanley, stocks seeing the most recent selling on Thursday, all lost more than 2 percent. Stock exchange specialist OTC Markets Group said Canadian banks were the worst performers on its indicator because of the new proxy access rules.
One research firm, Height Securities, has pointed out that Canada’s deposit insurance regulator, the OSC, and the SEC share the same director, John McCabe, who has commented on the Canadian regulatory approach to voting. Several other analysts have criticized the changes as “unenforceable” and have called for the SEC to rescind its vote.
Moody’s Investors Service said it was “concerned by the lack of transparency surrounding the effect that any changes in SEC proxy access rules will have on U.S. and Canadian companies.”
“Unless there is more formal public debate and stakeholders are given more specific information, it is hard to see how effective the proposed changes to U.S. proxy access rules will be in preventing fraud,” according to Moody’s.
While some experts have called for Canada to put pressure on the SEC to change the rules, it seems unlikely that the Canadian government could persuade the SEC to take back its vote. The Canadian government appointed former regulators to both the SEC and the OSC, and Canadians have claimed they’ve never seen a black box work better as a regulation.