The battle over securities regulation comes down to striking the right balance between guaranteeing efficient financial markets for issuers and maintaining protection for investors, says the Montreal Economic Institute, in an economic note released today.

The big question is: Should provincial securities commissions be replaced by a single national body?

“Canadian Securities Regulation: Single Body or Decentralization?”,written by the Institute’s vice-president and chief economist Marcel Boyer, asserts 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.”

Easier said than done, it seems. The note questions whether the Ontario and federal governments correct in opposing the “passport system” (a harmonization and mutual recognition process) and seeking to replace it with a single national body.

Boyer lays out the main arguments for either side of the debate and

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.



    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.



    The Montreal Economic Institute is presenting luncheon speeches on March 18 in Toronto and March 20 in Montreal on the regulation of securities trading.

    Pierre Lortie, senior business advisor with Fraser Milner Casgrain, and Ian Russell, president and CEO of the Investment Industry Association of Canada will be in attendance.