The cost of market regulation is heading lower, according to Market Regulation Services Inc.’s new annual report for the year ended Feb. 29, 2004.

In the report, RS says that full-year revenues came in at just over $20 million, as did expenses. Both were about 10% lower than was budgeted. It says that operating expenses were $2,281 below budget primarily as a result of lower information technology expenses. RS also lowered its general and administrative expenses during the fiscal year.

For 2005, operating expenses are forecast at $19.4 million, down 3.0% versus 2004. Again, the regulator expects expenses to shrink due to lower IT costs. RS also forecasts operating revenue recovery of $18.8 million in 2005, which is 8.2% lower than in 2004. The revenue decrease is facilitated by a planned operating deficit and lower operating costs as RS operates on a cost recovery basis, it says.

“Next year, we will remain focused on increasing the effectiveness of our regulatory program by directing our
resources toward priority risks to market integrity. This involves a number of regulatory projects, including
reassessing the significant risks to market integrity,” says RS president & CEO, Tom Atkinson, in the report. “In anticipation of the continuing introduction of new marketplaces, we will conduct a strategic review of [the market integrity rules] to ensure that the rules are fair and neutral to all forms of marketplaces. To remain as cost-efficient as possible, we will continue to ensure the benefits of any new initiative outweigh the costs.”

“RS is undergoing a technological evolution in our post-trade analytics capabilities,” he also notes. “In the coming year, we will implement new technology and new regulatory tools for faster and more cost-effective post-trade analysis. Building our analytical strengths will allow RS to be more efficient and focus our resources on the areas of greatest risk to market integrity.”

He also reports that it is working with the Canadian Securities Administrators on streamlining the rule change approval process and the completion of the electronic audit trail project. It also plans to implement the recommendations of the Insider Trading Task Force that will enhance regulators’ ability to prevent, detect and deter illegal insider trading.