The federal government needs to do more to promote market liquidity and ensure Canada’s economic resurgence, Investment Industry Association of Canada president and CEO Ian Russell told the House of Commons Standing Committee on Finance on Thursday.

“Authorities must remain vigilant in monitoring and identifying pockets of illiquidity that may disrupt the normal functioning of important sub-markets, or the market as a whole, and continue to assess what could be done to address such situations,” Russell said, participating in the committee’s discussion on boosting credit availability in capital markets.

He commended federal authorities and provincial securities regulators for the various policy initiatives that have had helped to stimulate financing activity and promote market liquidity, but added that more needs to be done.

“Canadians are fortunate that the Bank of Canada and the federal government have acted promptly and effectively throughout this financial crisis to improve trading and financing conditions in corporate credit markets, particularly in the securitized marketplace,” said Russell. He pointed to such examples as the Insured Mortgage Purchase Plan.

But some capital market products have not benefited substantially from this liquidity, he noted. Many corporate debt issuers, for instance, remain on the sidelines.

“A significant factor in this development is lack of robust market liquidity,” he said.

He emphasized that the Canadian economy is suffering significantly from the crisis. “It took a while for the contraction to hit Canada. But it is hitting us hard, and the worst may be ahead.”

Russell also called for greater policy coordination between federal authorities and provincial securities regulators, including consultations with markets participants to identify current and emerging market problems to determine effective, flexible and targeted solutions. A single Canadian securities regulator is needed now more than ever, Russell added.

Russell said one of the key problems revealed by the financial crisis was a lack of transparency in derivatives, such as the complex asset-backed commercial paper. Regulators need to focus on improving disclosure without hampering the “dynamism of the marketplace,” he said.

He also reiterated IIAC’s calls for changes in RRSP and RRIF programs to give Canadians the time and opportunity to rebuild retirement savings devastated by the recent market collapse.

IE