IIROC and MFDA call off merger talks

That’s not to say that the idea is dead for good. Executives at both SROs have long said that a merger is inevitable at some point. So much like the debate over a national securities regulator in Canada, the prospect of creating a single SRO will probably continue to crop up until they finally decide to do a deal. But, for now, both have concluded this isn’t the right time.

“I’ve always thought [a merger of IIROC and the MFDA] made sense,” says Susan Wolburgh Jenah, president and CEO of IIROC. “To the extent that you’re trying to streamline the system, does it really make sense for there to be two different SROs? Probably not. But, at the same time, the system’s working reasonably well. There’s no urgency to this; it’s a matter of timing.”

Wolburgh Jenah knows the importance of timing in a regulatory merger: she had taken the helm of IIROC’s predecessor, the Investment Dealers Association of Canada, just as its regulatory arm was preparing to merge with Market Regulation Services Inc. to create IIROC. Reflecting on that experience, Wolburgh Jenah says: “You need a strong commitment, and you have to respect the decision if people feel it’s not the right time.”

When Wolburgh Jenah joined the soon to be created IIROC, she says, the boards of both the IDA and RS were convinced that it was the right thing to do. “That commitment at the board level is essential,” she says. “You can’t have one side that’s convinced that it’s the right thing and the right time, and the other side feeling half-pregnant. It doesn’t work.”

The support of the member firms of both organizations is also essential, she notes, which is why both SROs surveyed their respective memberships to gauge the level of support for a possible merger earlier this year.

“Frankly, to go down this road, and try to impose it [on the dealers], makes no sense, either,” Wolburgh Jenah says. “You’d need two-thirds of the membership of both organizations to support it — so, [the surveys were done to] see if there’s a mandate for us to have a discussion about it.”

In IIROC’s case, it appears that mandate has been granted. Last month, the SRO reported that its survey found its members were generally in favour of a merger with the MFDA, with 63% of the IIROC firms that responded saying they support the idea of continuing merger discussions “in principle.” Another 30% indicated that they were neutral on the idea; and just 8% of respondents explicitly opposed the notion of a merger.

The MFDA hasn’t revealed the results of its member survey. Waite indicates that those results, including the merger question, will be published in a bulletin, which is likely to be released by the end of the month.

The MFDA board has surely seen the results of the survey and concluded that now just isn’t the right time — whether that’s because of a lack of membership support or due to other factors.

One issue that may affect the timing is the proposed national securities regulator, which has long been cited as a factor in the merger discussions. The securities industry is waiting for the decision of the Supreme Court of Canada on the constitutionality of a national regulator, which is expected in the next few months.

Wolburgh Jenah says the outcome of the national regulator debate doesn’t necessarily weigh heavily on a possible SRO merger: “The immediate question, really, for the two organizations is: does it make sense? These are two organizations that would have to decide that it would be in the public interest, that it would make sense and that it is the appropriate time.”

In the meantime, she stresses that the failure of merger talks this time doesn’t change anything between the two organizations, and IIROC and the MFDA will continue to collaborate wherever possible. However, the decision to remain separate inevitably limits how close that collaboration can be.            IE