The Investment Dealers Association of Canada and Canadian Securities Administrators are publishing a survey of the regulation of debt markets that recommends better regulation and transparency for the retail fixed-income market.
The IDA and CSA commissioned Deloitte & Touche to conduct a survey of Canadian debt market participants and regulators to identify whether any problems or issues exist in trading practices in the unlisted debt markets. They say that the survey results will be used to identify any major regulatory issues, and will serve as a basis for developing field examination modules for the debt market.
The report recommends that:
- the IDA’s rules and policies should only apply to its members, although institutional investors should agree to observe them;
- a process should be established to review the rules on an ongoing basis;
- there is no need for real-time market surveillance;
- the IDA should address the need for a rules and policies regarding debt pricing and mark-ups for retail investors; and
- the CSA and IDA should address the need to improve transparency in the retail debt market.
The survey found that many market players think retail markups are excessive, but that the lack of market transparency makes it impossible for investors and retail brokers to assess the fairness of prices.
The survey also said that many market players want the IDA to clarify its role in the fixed income markets. It said that many respondents on the buy side commented on the conflict of interest inherent in the IDA’s dual roles as regulator and lobby group. On the regulatory side, the survey recommends that the IDA expand its oversight of fixed income; and that it should establish a clear complaints process for the debt market.
Finally, it recommends retaining the principles-based approach to regulation, without introducing a load of new rules. It also says that the regulators should engage in broader consultation when considering changes to debt market regulation, and that it consider the cost of new rules.