Should blanket orders be allowed?

The OSC’s recent proposal, issued in April, would allow the OSC to issue exemption orders that apply generally to market participants rather than to just one firm. So far, Anisman’s submission is one of just two the OSC has received regarding the proposal; the other submission also opposes it.

Whether blanket orders should be permitted has been debated for more than a decade, with some comments calling for greater enforcement power for the OSC while others caution against undue expansion of those powers.

The roots of the controversy extend back two decades. When the OSC was given the power to make its own rules in 1994, the provincial government removed the commission’s ability to grant industrywide exemptions. As a result, the OSC is not allowed to make blanket orders – exemption orders that apply to not just the specific firm seeking an exemption but which then can be relied upon in general. This amounts to ordering new rules without going through the usual rule-making process.

Although blanket orders are allowed in the rest of Canada, the view in Ontario has been that provincewide policies should be subject to public comment and ministerial approval to preserve public transparency and accountability.

Constraints

The OSC has long viewed this rule as a hindrance to its efficiency. For example, the OSC’s policy proposal notes that in cases in which the OSC is attempting to harmonize its response to an exemption application with the rest of the Canadian Securities Administrators, the OSC is “challenged” in its efforts to provide a uniform response.

The OSC has tried, from time to time, to get the ban on blanket orders lifted. The 2003 report of the province’s five-year review committee (which reviews the OSC’s legislation every five years to assess whether changes are required), recommended that blanket exemptions should be allowed, stating that it would “complement rather than undermine the rule-making process.”

That report concluded that it would be more efficient to allow the OSC to grant general exemptions rather than requiring it to issue a string of identical exemptions in situations in which there’s an apparent need for general relief. The government never adopted that recommendation.

The ban on blanket orders was supported in the 2004 report from the SCFEA, which examined the recommendations of the five-year review committee. That report cited concerns about unduly broadening the OSC’s power by allowing general exemptions from investor-protection rules without public input.

As the Ontario government has not revived the five-year review committee, the issue hasn’t been revisited until the OSC proposed lifting the ban back in the spring. The OSC’s proposal sets out the criteria the commission will consider when deciding whether a proposed exemption order constitutes a “prohibited blanket order.”

Accountability

Now Anisman argues, once again, that “the thrust of the guidelines in the proposed policy is to permit the commission to adopt blanket orders and rulings” – which, he maintains, would be inconsistent with the prohibition in securities legislation and shouldn’t be adopted.

Anisman’s recent submission asserts: “The accountability mechanisms enacted by the Ontario legislature with respect to rule-making, namely, openness, an opportunity for comment and ministerial approval, must govern the commission’s activities.”

The fact that other Canadian securities regulators aren’t subject to the same constraints is not relevant to whether these sorts of orders are prohibited in Ontario, Anisman maintains. So, while this inconsistency may represent an argument in favour of a national securities regulator, it doesn’t, in his view, justify an end to the legislative prohibition on the use of blanket orders by the OSC.

According to Anisman’s submission: “My concern is… that the proposed policy, if adopted, could provide a basis for making orders that are of general application without following the rule-making process under the act and the openness, public participation and accountability requirements it mandates.”

The only other submission received to date regarding the OSC’s proposal is from securities lawyer Paul Findlay, partner with Borden Ladner Gervais LLP in Toronto. Findlay’s submission also questions the OSC’s move, and notes there is a provision in the Securities Act that gives the OSC powers to make a rule without going through the normal public comment process in certain circumstances – for example, in situations in which there is the urgent need and a material risk of harm to investors or the markets. Findlay’s submission suggests that this provision could be used instead of blanket orders in most cases.

It’s odd that these two criticisms of the OSC’s proposal are the only submissions to date. Back when the five-year review committee recommended giving the OSC the power to issue blanket orders, many comment letters supported the move.

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