While newer short-term paper markets around the world are flowing freely, the Canadian commercial paper market is silting up. Of 175 formal commercial paper programmes, only 105 are still active. In midyear, according to McLeod Young Weir, the Toronto brokers, domestic corporate issuers had 17.1% less commercial paper outstanding than the year before.
Yet this is one of Canada's most protected markets. Pension fund managers are prevented by law from buying foreign commercial paper, and Canadian corporations are dissuaded from issuing commercial paper internationally by the government's withholding tax - which can reach 15 % on international borrowings of less than five years.
And issuers are delighted with the market. "It's not a tough business selling commercial paper here," chortled one company treasurer. "People clamour for our paper and brokers are calling us all the time."
So why aren't there more issuers'? Domestic sluggishness is matched by lukewarm foreign interest. The Can$9 billion market is rarely tapped by the major international credits who, dealers say, use it only for the occasional short-term private placement, or sometimes for arbitrage or hedging plays by heavy users of Euro-Canadian long-term markets.
Issues of more than Can$50,000 and under one year do not require a prospectus except for retail issues.