The head of the Investment Industry Regulatory Organization of Canada stresses that tough market conduct regulation is essential to the stability of the financial system.

In a speech to the Canadian Corporate Counsel Annual Spring Conference in Montreal earlier this month, IIROC president and CEO Susan Wolburgh Jenah says that while much of the regulatory reform effort has focused on developing macro prudential regulation, this “is not a substitute for robust micro prudential, market conduct and consumer protection regulation.”

“We need to maintain our focus on robust standard setting and oversight in the areas of business practice, market conduct and overall consumer protection,” she said. “Regulators need to set the bar higher — both for ourselves as well as those we regulate.”

That said, she noted that regulators, by themselves, can’t create sound corporate cultures. “Both market discipline and the private sector have a role to play in building and sustaining a safe and sound financial system,” she said, adding that, “The right ‘tone at the top’ has never been more important. Regulation alone cannot rebuild and maintain investor confidence and trust in the financial system without it.”

Wolburgh Jenah also touched on a couple of other issues in her remarks: short selling regulation, and the supervision of the emerging multi-market environment in Canada.

She noted that earlier this year the U.S. Securities and Exchange Commission adopted a new version of a short sale tick rule, which is projected by the SEC to cost the industry about US$1 billion to implement and about the same amount annually on an ongoing basis. We are optimistic that Canadian regulators will be able to identify an appropriate but more cost effective short sale framework for the Canadian markets,” she said.

Additionally, she noted that the Canadian trading environment has changed a great deal in recent years, challenging regulators to oversee higher volumes of activity, more complex systems and strategies, and a variety of novel products.

“Currently, we electronically monitor trading on each equity marketplace. We are, however, building a new surveillance platform that will enable monitoring on all equity marketplaces simultaneously, in effect creating a virtual multi-market place,” she said.

“This major technology initiative will allow us to more efficiently and more cost-effectively conduct surveillance of trading activity on and across Canada’s rapidly evolving multiple market venues.”

IE