Let's give them credit. The Harper government exhibited strong political courage and foresight to finally push forward with a single national securities regulator.

But now they are in danger of accepting advice on the proposed new agency that could render the whole operation pointless.

In an apparent bid to placate those provinces infected with a strong case of Ontariophobia, Ottawa's advisors are reportedly recommending that the new national agency not be set up in Toronto, the obvious financial capital of the country.

Instead, it would somehow be made to work from some kind of "virtual" office that would have a foothold in all the big regions.

If true, the upshot would be a pitiful national securities regulator competing with a powerful Ontario Securities Commission. Not to mention an OSC that would hold sway over all or most of the financial and financial services industries that count.

Years of effort and political capital would be wasted.

Enough is enough

The quest for national securities regulation has been a federal dream for nearly 40 years now. But strong opposition from several provinces, Quebec and Alberta in particular, has always made Ottawa back down.

Former B.C. securities commissioner Douglas Hyndman follows Finance Minister Jim Flaherty into a press conference to announce the launch of the Canadian Securities Regulator transition office in June 2009. Hyndman is said to be recommending a "virtual" head office for the new regulator, with a foot in several provinces. (Sean Kilpatrick/Canadian Press)

To most people, particularly in the corporate and investment community, the advantages of a single national regulator are obvious and override the constitutional claims that it is the provinces alone that regulate trading in corporate shares, indeed in all commerce within their boundaries.

The costs of establishing multiple listings across the country, and the time it takes to complete the process, is an obvious reason why businesses and investors want a single regulator, just as every large developed country has.

At the moment, Alberta and Quebec are the two big holdouts, partly to protect their securities commissions and partly because they fear any national regulator would increase the already huge financial clout of Toronto and the Ontario Securities Commission.

But despite its minority situation, the Harper government rightly said enough is enough.

To make sure it is on strong constitutional ground, Ottawa is now planning to refer the draft national securities legislation to the Supreme Court of Canada later this year to make sure it has the authority to proceed.

If nothing else, that should also cut off the court challenges that Alberta and Quebec have already launched in their own jurisdictions.

But the Harper government is already moving quickly on other fronts as well.

First it appointed Tom Hockin, a former Mulroney-era cabinet minister, to draft legislation for what a national securities commission would look like. Then it appointed Douglas Hyndman, a former chairman of the B.C. Securities Commission, to propose how a national securities commission might work.

Right now, it is Hyndman's proposals that are mucking up the works.

Virtual regulation

As a sop to the dissenters, Ottawa said that any province that didn't want to sign on would be free to keep its own securities regulator for companies that wanted to be traded solely or primarily within provincial boundaries. But Alberta and Quebec realize that this isn't much of a trade-off.

Indeed, one of the reasons they oppose a national regulator is because they know that logic dictates it would be located in the heart of the biggest financial city in the country — Toronto. Where virtually all of the international banks, trading houses and insurance companies operating in Canada are also based.

But in an effort to lure Alberta and Quebec into signing on, Hyndman is reportedly proposing that the new agency have no actual headquarters.

Instead, it would be run from a series of regional offices, apparently to be tied together by the internet and other virtual technology.

The classic Canadian compromise?

Except that aside from the obvious inconsistency of appearing to duplicate the diffuse system of provincial regulators a national plan is meant to replace, there is another reason why the proposal is a no-go: Coupled with Flaherty's opt-out pledge, a regionalized national security regulator would render a national securities regulator meaningless.

That is because the same proposal that would let provinces like Alberta and Quebec opt out if they don't like the plan, would allow Ontario to opt out if it is not satisfied either.

And that is just what any self-respecting Ontario government would do.

Toronto

Globalization is eroding the manufacturing base of Canada's most populous province. But that same globalization has transformed Toronto into an international financial centre.

Finance and financial services are becoming to Toronto and Ontario what the auto industry used to be.

In the same way that it is a no-brainer that the National Energy Board is located in Calgary, it is an equal no-brainer that the national securities regulator should be in Toronto.

And if it isn't, Toronto and Ontario won't be in the new agency, which wouldn't make it much of a national regulator.

In his budget earlier this month, Finance Minister Jim Flaherty laid out a plan to have what he calls the Canadian Securities Regulator up and running within three years.

But to make that timetable, many believe Flaherty has to sign off on Hyndman's transition plan by this summer.

If that plan comes through with some pie-in- the- sky, virtual head office, that part of it at least should be rejected.

The headquarters of a new Canadian Securities Regulator should be where the securities action is — Toronto.