When the merger of the Investment Dealers Association of Canada and Market Regulation Services Inc. was announced in the spring of 2006 — more than a year ago now — no one disputed the wisdom of putting the two self-regulatory organizations together — and no one realized how difficult it would be to pull off.

Six months after she was hired to head the merged SRO, Susan Wolburgh Jenah admits she didn’t know what she was in for when she agreed to take the job. Now, she’s seeing light at the end of a long and winding tunnel.

On its face, the merger is a no-brainer. After all, reducing the number of regulatory mouths to feed should lead to lower regulatory costs or, at least, slow the escalation. There isn’t a great deal of overlap between the primary jobs of the two organizations, market and dealer regulation, but there are tasks that are better done once rather than twice, such as trade desk reviews.

Unlike a corporate merger, however, executing a regulatory deal isn’t just a matter of banging the two SROs together, squeezing out the synergies and getting on with business. The IDA and RS have different ownership structures, governance models, rule-making practices and fee models. Such elements complicate the usual merger headaches of consolidating staff, rationalizing technology and operations, and reconciling human resources practices.

Participants have discovered the hard way just how tricky such a merger can be, as evidenced by the length of time the deal has taken to complete. When the merger was unveiled in early 2006, it was expected that the new organization would, by last fall, have its information circular ready for a vote by members and consideration by the provincial regulators that give the SROs authority.

But putting the two groups together proved much more difficult than expected. Toward the end of last year, it became apparent the deal would not happen quite as fast as expected. January 2007 was then targeted for the information circular, in the hope that the transaction would close by the end of the first quarter. Such revamped timelines are now also a distant memory, and things haven’t become much easier.

At the time, it was apparent that the key element missing from the transaction was a CEO to drive the entire process. The fact the IDA and RS historically appeared to be rivals made them uncomfortable bedfellows and, while internal candidates from both sides were considered for the job, the boards wisely brought in an outsider as president and CEO in February.

Wolburgh Jenah had effectively spent her whole career at the Ontario Securities Commission, which she joined in 1983. She later took a big jump up the ranks at the OSC, moving from the general counsel’s office to the role of vice chairman in 2004. She also served as acting chairwoman in 2005 between the departure of David Brown and arrival of David Wilson.

Upon taking over as head of the new SRO, which has yet to be named, Wolburgh Jenah has been careful not to play favourites between the IDA and RS, taking offices at both regulators and spending alternating days at each. But that practice ceased at the end of June, when former IDA president and CEO Joe Oliver completed his term (he is pursuing a political career), and she took over as IDA head. RS also bid adieu to its president and CEO in early August, when Tom Atkinson left and was replaced by Maureen Jensen.

Now that Oliver and Atkinson have moved on, Wolburgh Jenah has settled on an executive team to run the new SRO. RS’s Jensen will become senior vice president, member and market compliance and market surveillance. The IDA’s Paul Bourque will become senior vice president with responsibility for member and market regulation policy, enforcement and registration. Steve Rostowsky, the IDA’s senior vice president, finance and administration, will take the same job at the merged SRO, with oversight responsibility for finance, IT services, human resources, and office services and administration. Finally, RS general counsel Rosemary Chan will be named senior vice president, general counsel and corporate secretary.

Wolburgh Jenah maintains that coming up with the right organizational structure is key to the success of the merger. “You can have the best strategic plan in the world,” she says, “but if you don’t have a structure that is focused on how you implement that plan, at the end of the day it doesn’t really mean much.”

@page_break@Her goal in devising a structure for the combined SRO is to come up with something that preserves the expertise of both member and market regulation, but not at the expense of identifying areas that can be consolidated. “Because that’s the purpose of the merger,” she says. “You have to have a structure that enables you to squeeze out the efficiencies that are expected from this process.”

With her executive team named, Wolburgh Jenah has the second major piece of the puzzle in place, along with the new body’s proposed corporate structure and governance model. The new SRO will be run as a member organization with no ownership, and governed by a 15-person board comprising seven public directors, seven industry directors and the CEO.

Despite the recent progress, Wolburgh Jenah cautions against any hope that the merger will be completed shortly. The Canadian Securities Administrators must approve the combined SRO structure through new recognition orders because the entity aims to be recognized in every Canadian jurisdiction. A draft of the recognition package has gone to the CSA, which has received comments on the plan and is preparing a response.

Assuming the new SRO can deal with the CSA’s concerns, Wolburgh Jenah hopes the information circular will be issued to the IDA’s membership for a vote in the fall. If members give their blessing, the regulators’ approval will have to be issued for public comment. In all, she does not foresee the deal closing before the end of the year. Indeed, it may be the end of the first quarter of 2008 before that happens, assuming the process doesn’t run into major roadblocks.

“There may have been some pretty aggressive, frankly overly optimistic expectations with regard to timing,” she says. “But I’m not overly troubled that it’s going to take a few months longer.” Some of the delay was inevitable, given the process such a merger requires, and she maintains it’s worth the extra time to get things right.

Still, she acknowledges there is execution risk associated with the transaction, and the longer the merger and integration process drags on, the greater the potential for risks such as deal fatigue to materialize and derail momentum. “Any merger distracts people,” she says. “So, a big part of what I’ve been trying to do is insulate people from that so the organizations are not negatively affected by anticipation of the merger.”

While lining up necessary approvals is key, numerous other issues are still being ironed out. The new SRO still has to be named. A lesson has been learned from the brain trust behind the merger of the NASD and the NYSE Regulation Inc., which picked a name it later had to drop because its acronym was deemed offensive to Muslims. The Canadian SROs are working with a branding consultant to ensure they get it right the first time.

The organizations are also undergoing a compensation review, and have retained a consultant to set compensation bands and to craft job descriptions.

Other initiatives will continue long after the merger’s completion. For example, there’s an ongoing project to rewrite the IDA rule book with an eye to making it consistent with the approach used by RS.

Wolburgh Jenah concedes the whole process has been somewhat tougher than she expected, but she’s very pleased with the progress that’s been made so far. “Compared with a few months ago, we’re light-years ahead,” she says.

She hopes the result will be a more efficient and responsive SRO. “SROs need to focus on investor protection — that’s part of our mandate ,” she says. “But we also have to consider what role we play in ensuring the market as a whole, the regulatory system as a whole, is as competitive as it can be.”

One way Wolburgh Jenah hopes to do this is with a new rule-approval protocol, which aims to alleviate the regulatory logjam that often occurs among SROs and securities commissions by establishing clear escalation procedures. She doesn’t believe the SROs necessarily need the ability to self-certify their rules, but there needs to be “rigorous timelines on both sides to move things forward.”

Wolburgh Jenah says her regulatory vision will be guided by a focus on the biggest risks and practical solutions.

“I believe you have to set your objectives in a way that focuses on the really risky issues and areas,” she says. “You don’t have to have perfection. Sometimes it’s better to have a 60% solution you can achieve in a reasonable time than a 100% solution that takes five years.” IE