It's about time

National securities regulator is an idea that is long overdue

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The Gazette, Saturday, May 22, 2010

The Conservatives are about to introduce legislation establishing a national securities regulator, to a chorus of boos from Quebec and Alberta, which want to maintain their own authority over the Montreal and Calgary exchanges.

To which Jim Flaherty, the federal finance minister, will reply that provinces opposed to a national regulator can simply opt out, or rather not come in.

Quite mischievously, Flaherty noted last week that a national regulator might have prevented Earl Jones from defrauding his investors of up to $100 million.

Quebec Finance Minister Raymond Bachand jumped furiously into the fray, saying a federal regulator would have fared no better than the Quebec Securities Commission in detecting the Ponzi scheme.

"Earl Jones was not registered," Bachand pointed out. "Here's someone who exploited his friends, and defrauded them. He was not registered anywhere."Quite right.

But then Bachand endorsed a conspiracy theory. "This is a Toronto-driven effort," Bachand said, "to concentrate everything in Toronto."

Perhaps someone needs to remind Bachand that Montreal Exchange is already concentrated in Toronto, having been sold to the Toronto Stock Exchange, now known as the TSX, for the princely sum of $1.3 billion in 2007. To say that the TSX overpaid is to understate the case, but that's another story.

Quite conveniently, Bachand has a consulting report that alleges that the establishment of a national securities commission in Toronto will cost Quebec jobs. As if there were a lot of jobs in that business in the first place.

But Quebec is not alone in opposing Ottawa's move as, among other things, an invasion of its constitutional jurisdiction over markets. Alberta is equally adamant in its opposition. The Calgary-based TSX Venture Index features start-ups and junior oil and gas companies, and the culture is more like Vegas than the staid confines of Bay St.

The two dissenting provinces are threatening to take the feds to court with the legislation sight unseen. Flaherty might oblige them by referring the bill to the Supreme Court before it becomes law.

This should be quite a case. The question is, how did we wind up with 13 provincial and territorial regulators in the first place?

Well, it's a constitutional issue, one that goes straight to the division of powers in the British North America Act of 1867.

Had the fathers of confederation determined that markets be listed under trade and commerce, they would have ended up in federal jurisdiction under Section 91 of the BNA Act.

Instead, they decided that market regulation fell under property and civil rights, in provincial jurisdiction under Section 92.

You can just imagine Sir John A. Macdonald and his colleagues having a late night drink over that.

In any event, when the Montreal Stock Exchange was created in 1873, it fell under provincial regulation, even though it was the country's premier stock market until the mid-20th century, when Toronto began to assert the dominant position it enjoys to this day.

And there's no going back. The vocations of Canadian exchanges were streamlined in the late 1990s, with the Montreal Exchange focusing on derivatives and options, Toronto on large-cap equities, with the Canadian Venture Exchange in Calgary having offices in Montreal, Winnipeg and Vancouver and trading in junior stocks. This made a lot of sense at the time. The TSX later bought out Montreal and Calgary.

Quebec and Alberta are not wrong in fearing that a Canadian Securities Commission would be located in Toronto. That's where it should be - at the heart of the Canadian financial services industry. Besides, as Flaherty has made clear on many occasions, neither province is under any obligation to join, and might be given a specific opting out.

But when the rest of the world thinks of Canada as a place to invest, it doesn't think of a country with 13 regulatory jurisdictions, it thinks of Canada, a big country with a lot of oil, gas, a strong banking system and a sound currency.

Even at that, the world has only so much money to invest in markets. Canada accounts for about two per cent of all the equity in stock markets, about the same as our share of global output.

Flaherty has called the present system antiquated and inefficient, and it might even be the laughingstock of the financial world. How about those 13 Canadian regulators!

Surely this is an idea whose time has finally come. Nevertheless, the Supreme Court has its own ideas about interpreting the constitution. This one's going to be fun.

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