Canada’s Bank of Nova Scotia could become the second issuer to sell SEC-registered covered bonds in the US after having received a “no-action” letter from the regulator on Friday in connection with an SEC registration filing.

The bank filed a registration statement on Friday and received a positive response from the division of corporation finance, office of capital markets trends at the Securities & Exchange Commission, which said that it “will not recommend enforcement action” in relation to BNS’s plans to issue fully SEC registered covered bonds in the US.

Royal Bank of Canada in September last year became the first issuer to sell SEC registered covered bonds in the US, tapping the market with a $2.5bn (C$2.59bn) five year some four months after having received a “no-action” letter from the US regulator in May. This was followed by an effective notice issued by the SEC at the end of July. RBC followed up its deal in November, with a $1.5bn three year.

Besides RBC’s deals all US targeted dollar covered bond issuance has so far been in the 144A private placement format, which restricts the investor base because many accounts face limits on purchases of such bonds and because 144A offerings are not included in major indices. SEC registration is therefore seen as providing access to a broader pool of demand, with positive implications for pricing.

“The Bank believes that covered bonds would provide an attractive investment alternative in the United States, and therefore believes that conducting a covered bond offering on a registered basis under the Program would greatly facilitate the availability of the product in the United States,” said BNS in a letter to the SEC.

Canadian banks have in the past been a major source of US dollar covered bond supply, but they have been away from the market for some time due to the implementation of a Canadian covered bond legislative and regulatory framework. Under legislation introduced in April 2012 eligible Canadian financial institutions cannot issue covered bonds unless they are registered with Canada Mortgage Housing Corp (CMHC), which will administer the new regime and act as registrar. The legislation also prohibits use of insured mortgages as collateral, which hitherto formed all Canadian issuers’ cover pools save RBC’s.

Canadian issuers are understood to be busy setting up new programmes satisfying the requirements of a CMHC Guide, with many taking advantage of this transition period to contemplate new issuance formats, such as SEC-registration or 3(a)(2) issuance. (See here for previous coverage.)

As of this (Monday) morning there were no issuers or programmes listed in CMHC’s covered bond registry.

Bank of Nova Scotia could not be reached for comment by The CBR’s deadline.

Allen & Overy are acting as legal counsel to BNS, and Morrison & Foerster to the dealers – Barclays and Scotia Capital.