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Quebec Questions Ontario Opposition
Should provincial securities commissions be replaced by a single national body?
MONTREAL - With provincial securities commissions putting the finishing touches on the harmonization and mutual recognition process called the "passport system", are the Ontario and federal governments correct in opposing this system and seeking to replace it with a single national body?
In an Economic Note published by the Montreal Economic Institute, vice
president and chief economist Marcel Boyer explains that it is important to
-choose the system that best enables investors, issuers and consumers to
express and reconcile their preferences and to balance them effectively, at
the lowest cost.
Arguments for a single body
The main arguments in favour of a single body are as follows:
- To ensure uniformity of standards and their application on the Canada-
wide market.
- To establish a balance between guaranteeing efficient financial markets
for issuers and upholding adequate protection for investors.
- To avoid a race to the bottom that could lead to competition between
provincial bodies.
- To benefit from economies of scale, evaluated in one study at 36.5% of
the operating budgets of the provincial regulatory bodies.
- To reduce inefficiencies that undermine investor confidence, lead to
high compliance costs, increase the cost of capital and potentially
undermine Canada's international competitiveness.
- To facilitate transactions with the other OECD countries, which each
have a single body for securities regulation.
Arguments for decentralization and competition
The opposing arguments assert that it is preferable for securities
regulation to be subject to competition rather than entrusted to a monopoly:
- Competition generates incentives for efficiency, stimulates the
discovery of regulatory formulas more appropriate to local conditions,
and promotes a race to the top in a field where participants have a
high level of expertise.
- Financial markets work well in Canada without a single national body.
The Toronto Stock Exchange is the world's seventh biggest, and nothing
indicates that investors really lack confidence in Canadian financial
markets.
- Competition generally leads to harmonization to the extent that the
market demands it.
- The principle of mutual recognition has already been adopted in the
European Union.
- The risk of over-regulation is greater with a regulatory monopoly that
enjoys a captive market.
- The performance of the existing provincial bodies appears to be good,
with issuing costs substantially lower in Canada than in the United
States for issues of comparable size. It is far from certain that a
single Canadian body would cost less.
Events on March 18 and 20
The Montreal Economic Institute is presenting luncheon speeches on
March?18 in Toronto and March 20 in Montreal on the regulation of securities
trading, in the company of Pierre Lortie, Senior Business Advisor with Fraser
Milner Casgrain, and Ian Russell, President and CEO of the Investment Industry
Association of Canada.
The Note, titled Canadian Securities Regulation: Single Body or
Decentralization?, was prepared by Marcel Boyer, vice president and chief
economist of the Montreal Economic Institute. Mr. Boyer also holds the Bell
Canada Chair in industrial economics at the University of Montreal.
The Note is available at www.iedm.org.
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