Canada showing its chauvinism in fuss over Dubai and TMX

This time Dubai can call the shots in the face of Canadian chauvinism and British complacency.

WHISTLER, BC - FEBRUARY 14: A fan holds up a Canadian flag on day 3 of the 2010 Winter Olympics at Whistler Sliding Centre on February 14, 2010 in Whistler, Canada. Richard Heathcote/Getty Images/AFP=Show more

My brother-in-law is Canadian. I can't say he's especially in-the-know about financial affairs such as the proposed deal between the London Stock Exchange (LSE) and Canada's TMX market - he's a chef who part-times as a rock musician - but he has one characteristic that has already come to the fore in the reaction to the deal, and which I think will become more apparent the longer the wranglings go on.

He is proud of his country and quickly goes on the defensive when any slight is perceived against its reputation or standing in the world. He will react quickly and protectively, even angrily, to any jokes or jibes about Canada.

This patriotic, protective strain seems to be a significant part of the Canadian psyche, especially when the country is compared with its bigger and richer neighbour to the south. The US has traditionally been the Canadian love-hate figure, simultaneously disliked for its brashness while admired for its wealth and dynamism.

One Canadian put it like this: "Americans are benevolently ignorant about Canada, while Canadians are malevolently well informed about the USA."

In recent months, though, a strange and unexpected rival to the Americans has emerged as the target of Canadian animosity: the UAE. It's a bizarre phenomenon, really, that what appeared to be a blossoming relationship has soured so quickly, but sour it certainly is.

First we had the row between the Canadian company Research In Motion, the maker of BlackBerry smartphones, and the UAE's telecommunications authorities over access to BlackBerry data. Then there was the stand-off with Etihad Airways and Emirates Airline over landing rights at Canadian airports.

We now have the trouble over the London-Toronto-Montreal stock exchange link-up. Announced only a few days ago, the deal has already provoked strong words in Canadian business and political circles.

Dwight Duncan, the finance minister for the province of Ontario, said he wasn't happy at the prospect of Dubai owning a chunk of the new exchange, considered the TMX market a "strategic" asset that needed special protection, and promised a thorough review of the deal by Canadian state and federal regulators, all of whom have to approve it before it can take effect.

Proving that not all Canadians are well-informed about their foreign antagonists, not even malevolently, Mr Duncan went on to question whether foreigners would be allowed to buy a Dubai exchange - forgetting that Nasdaq OMX, the leading exchange in that big city south of Buffalo called New York, used to own one third of the Nasdaq Dubai exchange.

You can expect other inaccuracies to creep in as the debate hots up. Already Borse Dubai is being described in the Canadian media as "owned by a sovereign wealth fund", when in fact ownership is split between Dubai Holding and Investment Corporation of Dubai, neither of which are SWFs. Before long, we might even hear from Canada that Dubai is an "oil rich emirate".

Wherever the hyperbole leads, it is certain that, as currently structured, the LSE-TMX deal, and Dubai's role in it, will have to run the gauntlet of Canadian regulators. This is in an election year when Canadian conservatives will almost certainly play the protectionist card to be seen to be safeguarding domestic industry and jobs.

One Canadian financial observer who also knows the Gulf put it to me like this: "It's not just about Dubai. They are asking why any foreigner should own their stock exchanges. But the fact it's a mysterious country from the Arab world makes it a much easier target." No wonder Dubai is thinking about selling some or perhaps all of its stake in the LSE to avoid all the fuss.

In Canada, they are calling it the "potash" factor. Last year, the Anglo-Australian mining giant BHP Billiton was blocked by the government from taking over Canada's natural resources group PotashCorp on the grounds it was a "strategic asset", just like the TMX.

From a Dubai perspective, this episode has shades of the infamous P&O affair of 2006. Dubai World, it will be remembered, agreed a deal with the British-owned ports operator, only to run into opposition in the US. On spurious and obviously political grounds, an alliance of American right-wing politicians, union representatives and so-called security experts (co-ordinated by Hillary Clinton, the current US secretary of state, when she was just a plain senator) blocked the sale of the US ports involved in the deal.

As is the case in Canada, the P&O row was fuelled by the fact of imminent congressional elections in the US that year. Dubai diplomatically and gracefully backed away from the controversy by agreeing to exclude the US ports from the deal, but with a justified sense of grievance.

In the current situation, Dubai finds itself in a stronger position. If it wants, it could sell down some of its shares to get below the 10 per cent level and avoid regulatory intrusion. However, nothing Dubai has heard so far from London or Canada has convinced it of the overriding benefits of the proposed deal. London, in particular, seems to have taken its leading shareholder for granted.

Instead, Dubai has the option of acting as deal-maker in the latest round of global stock exchange consolidation. Its 20 per cent stake in the LSE would be a useful strategic platform for any other exchange that wanted to gate-crash the Anglo-Canadian party with a bid of its own.

This time, unlike the P&O case in 2006, Dubai can call the shots in the face of Canadian chauvinism and British complacency.