Proposal for a Single Securities Commission in Canada: Comment and Discussion

54 Pages Posted: 8 Mar 2009 Last revised: 29 Mar 2009

See all articles by Jean-Marc Suret

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Date Written: March 7, 2009

Abstract

This report analyzes and comments on the principal arguments put forward by the Crawford Panel to support the establishment of a single securities commission in Canada.

One argument advanced is that the current rules-based regulatory structure should be replaced with a principles-based approach similar to that of the United Kingdom's Alternative Investment Market (AIM. We concur fully with the opinion expressed by one of the experts enlisted by the Panel, namely, that adopting a system similar to the AIM model in Canada is neither feasible nor desirable. The Panel expressed concern about the conditions for the financing of junior issuers. We show that, in general, the direct costs of such financings are lower in Canada than in the United States. The Canadian markets seem to have developed strategies that are well suited to the characteristics of an economy heavily dependent on small-cap companies and on the resource sector. An analysis of all financings, including traditional and non-traditional stock exchange listings as well as subsequent financings clearly shows that financings are very small and are carried out locally and, in 77% of cases, by issuers from outside Ontario. The Panel also expressed concern about the level of competitiveness of the Canadian market. We show that the principal challenge faced by the Canadian market is the gradual shift of transactions involving cross-listed securities to the U.S. market. The Panel has argued that establishing a single commission is necessary for improving enforcement of securities laws in Canada. In this regard, Canada is often compared to the United States. An analysis of data on sanctions shows, firstly, that the SEC is far from being the source of the majority of sanctions imposed on financial market participants. It initiates less than 10% of proceedings involving financial matters and imposes less than one quarter of all monetary sanctions. Secondly, there has been an increase in sanctions imposed in Canada in this area. Thirdly, there are major differences between Canada and other countries. This explains the differences observed and perceived as regards enforcement. The experts enlisted by the Panel have, in fact, recommended a series of eight actions and have suggested, in the eighth item, pan-Canadian enforcement of the law. Consequently, these experts have not concluded that centralization of the securities commissions is an indispensable condition for enhancing the enforcement of securities laws.

Three elements appear from our analysis. First and foremost, the principal arguments put forward by the Panel to justify the urgency of centralizing securities commissions in Canada do not stand up to analysis. Secondly, the major challenge faced by the Canadian market - the shift of enterprises and transactions to the U.S. - does not seem to have been perceived as such or even discussed. Finally, we believe it is essential to recognize and preserve the distinctive characteristics of the existing market. It is a market that welcomes growth companies and small-cap companies, is highly decentralized and is apparently very favourable to issuers.

Keywords: securities regulation, securities exchange commission, small business

Suggested Citation

Suret, Jean-Marc and Carpentier, Cécile, Proposal for a Single Securities Commission in Canada: Comment and Discussion (March 7, 2009). Available at SSRN: https://ssrn.com/abstract=1355283 or http://dx.doi.org/10.2139/ssrn.1355283

Jean-Marc Suret (Contact Author)

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Cécile Carpentier

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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