Canada outlines list for stock market recognition

TORONTO (Reuters) - The Canadian government released guidelines on Wednesday for stock exchanges that are seeking "designated" status for Canadian income tax purposes.

Company stocks that trade on designated exchanges are eligible to be held inside Canadian tax-sheltered accounts, such as registered retirement savings plans (RRSPs) and a new tax-free savings account that will be available next January.

Canadians are increasingly looking for foreign securities to enhance investment returns and diversify their portfolios, while new domestic exchanges are being created as well, the finance department noted.

"This has contributed to a rise in the number of requests from domestic and foreign stock exchanges to be qualified under the Income Tax Act," the department said.

About three dozen established stock and futures markets are already considered "designated exchanges" including TMX Group's Toronto Stock Exchange and junior TSX Venture Exchange, plus larger players such as Nasdaq and the Tokyo, New York and London exchanges.

It was not immediately known how many others have applied for designated status.

Canadian Trading and Quotation System Inc, a small Canadian exchange known as CNQ that trades micro-cap stocks and was recognized as an exchange in 2004 by the Ontario Securities Commission, does not appear on the department's list.

CNQ President Rob Cook said the matter was "under discussion" with federal finance officials.

The department said it will consider "all relevant information" when assessing exchanges' applications including the bourse's listing standards, its regulatory framework, management's experience, and whether it has "a range of listings and adequate liquidity" for investors.

Stock exchanges in foreign countries face additional criteria. Their host countries must have commercial, legal and tax relations with Canada, as well as "a low risk of imposing capital restrictions" or other impediments on foreign investors' sales of investments or repatriation of funds.

(Reporting by Lynne Olver; Editing by Frank McGurty)