The Canadian Securities Administrators published their proposal for implementing the second phase of the regulation passport for Canada on Wednesday. However, the Ontario Securities Commission published a notice of its own, explaining that it will not participate in the system.

The CSA says that proposed national instrument is a major step toward meeting the commitments set out in the memorandum of understanding regarding securities regulation among the governments of all provinces and territories, except Ontario.

The passport will allow market players to clear a prospectus, register as a dealer or advisor, or obtain a discretionary exemption from the home province regulator and have that clearance, registration or exemption apply in all other provinces and territories, it explains. It also ensures that public companies are subject to only one set of harmonized continuous disclosure requirements.

“The passport will give market participants faster and simpler access to Canada’s capital markets by allowing them to deal only with one regulator and one set of harmonized requirements,” said Jean St-Gelais, chairman of the CSA and president & CEO of the Autorité des marchés financiers. “We look forward to discussing the proposed rule with industry and then moving ahead to implement it as soon as we can.”

However, the OSC issued a notice of its own outlining reasons for not taking part in the second phase of the passport system.

The OSC says it believes that securities regulatory reform should: strengthen Canada’s capital markets and improve its competitive position by eliminating fees, costs and duplication arising from 13 provincial and territorial securities regulators; promote consistency in regulatory decision making to ensure fairness and a level playing field for all market participants; and, lead to better and more effective enforcement across Canada resulting in greater investor protection.

“The passport proposal does not sufficiently address these objectives,” it maintains. “Although the proposal may add incremental administrative improvements and efficiencies to our current regulatory processes, it does not resolve the need to modernize Canada’s securities regulatory structure.”

“The Ontario government has indicated that it is not prepared to participate in the passport system without a roadmap, with reasonable timelines, to get to a common securities regulator,” it adds. “OSC chair David Wilson says the commission supports a common securities regulator that would interpret, apply and enforce securities laws consistently for all market participants in Canada.”

The CSA’s proposed rule would be finalized by the end of 2007 and implemented in stages starting in early 2008 as the proposed new national rules on prospectus requirements and registration requirements are finalized.

“The passport we propose is a pan-Canadian system that will simplify regulation and benefit businesses and investors in all provinces and territories,” said St-Gelais. “Although the Ontario Securities Commission is not participating in the proposal, we have designed it so Ontario can join if it makes the necessary legislative changes.”

Later in the day, the Council of Ministers of Securities Regulation talked up the benefits of the second phase of the passport model. It also notes that even though Ontario has rejected the model, there’s a standing invitation for the holdout province to join the system.

The Council stresses that market participants can look forward to a true single window of access to Canada’s capital markets with the second phase of the securities passport system.

The ministers, which have been the driving force behind the passport model, said phase two will produce significant benefits for Canada’s securities industry and represents unprecedented intergovernmental co-operation to harmonize securities legislation.

“This is a tremendous step forward in making Canada’s markets more efficient,” said Lyle Oberg, Alberta’s Minister of Finance and co-chair of the Council of Ministers. “The provinces and territories worked hard to develop legislation that harmonizes the regulation of securities and implements the passport because we know Canada must remain competitive in a global marketplace.”

The first phase of the passport system was implemented in September 2005 and gave participants certain exemptions when dealing with different securities jurisdictions, except Ontario. Beginning in early 2008, phase two will enhance the single-window concept of securities regulation by allowing participants to access capital markets across Canada by dealing only with the regulator in one jurisdiction.

“We are working to keep Canada on top,” said Greg Selinger, Manitoba’s Minister of Finance and Council of Ministers co-chair. “The passport system goes a long way to make Canada’s markets more efficient and provides significant benefits for the securities industry.”

@page_break@The Council of Ministers noted Purdy Crawford, the chair of Ontario’s blue-ribbon panel on securities regulation, recognized the benefits of the passport system and encouraged Ontario to adopt it when they met with him in June 2006.

The proposed rule and related documents are available on various CSA members’ Web sites. The comment period on both the proposed rule and the OSC’s dissent are open until May 28.