Securities Regulation in Canada
202 Pages Posted: 14 Nov 2009 Last revised: 17 Jan 2010
Date Written: July 23, 2003
The idea of setting up a national securities commission in Canada has recently returned to the forefront. In October 2002, the Deputy Prime Minister and Minister of Finance of Canada asked Harold MacKay to define a process for determining the best securities regulatory system for Canada’s needs. After an investigation which indicated “a range of problems with the present system”, Mr. MacKay’s recommendation was accepted: a committee was set up “to conduct the necessary review and to make recommendations to policy makers”. The report is severe: “The current system, as presently operated, must be improved significantly, and in a prompt fashion”. Similarly, the five-year report of the Ontario Securities Commission begins by recommending the creation of a single securities commission in Canada.
Most arguments put forward to support the idea of the inefficiency of securities regulation are not supported by regulatory and finance theory, and are generally based only on unsupported statements. It is disturbing to realize that some are considering reforming a system which has not been analyzed carefully, on the basis of assertions made primarily by pressure groups. As a result, it was necessary to provide the basic components for a structured analysis in order to respond to the proposals and assertions made with respect to securities regulation in Canada.
We will begin by discussing one of the main arguments of the proponents of centralization, which relates to the existence and lack of agreement of the 13 securities commissions. Secondly, we will analyze the arguments and evidence respecting inefficiency of the Canadian securities market in terms of trading costs in the primary and secondary markets. We will also present our own estimates of comparative costs for initial offerings in Canada and the United States. An analysis of various other arguments generally raised to justify an in-depth overhaul of the securities regulatory system form the subject of the third part. They are: Canadian weakness on the international level, jurisdictional conflicts, response times, accounting manipulation and the ineffectiveness of harmonization efforts. In Part four we compare regulatory centralization with regulatory competition, which prevails in company law in the United States. We also present the intermediate solution of reciprocal delegation on which the European passport system is based.
Keywords: securities regulation, Canada, regulatory competition
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