The Ontario Commodity Futures Act Advisory Committee has issued its interim report, recommending a new legislative regime to modernize regulation in that market segment.

The advisory committee was appointed by Minister of Government Services Gerry Phillips on May 26, 2005 to review the Ontario’s Commodity Futures Act, with a view to ensuring that Ontario benefits from a modern regulatory regime with strong investor confidence and protection.

The committee notes that the CFA has not been reviewed comprehensively since its inception in 1978 and, as a result, it may not have kept pace with market innovation and evolution, and regulatory changes in other jurisdictions, including the United States, which overhauled its commodity futures regime in 2000.

The report concludes that, “the CFA has become so outdated that reforming it through amendments to the regulatory scheme of the CFA and its existing provisions is not practical.” It recommends that the CFA should be repealed and replaced with a new legislative structure.

“The committee does not expect this recommendation to be controversial. The more difficult issues are whether the new legislation should be separate legislation or a scheme of regulation integrated into the OSA, and what the broad content of that legislation should be,” it says.

It reports that the preliminary view of the committee regarding an appropriate regulatory framework is that it should be based on core principles, rather than prescriptive and specific rules. It also believes that the core principles could be set out in the legislation without compromising flexibility. “They could be sufficiently general to accommodate change in the markets under regulatory oversight without giving the regulator an unnecessary degree of autonomous jurisdiction,” it says.

“The committee’s view is that the core principles should be set out in the new legislation. Ontario should work with Quebec and other Canadian jurisdictions to endeavour to define a set of common core principles. In doing so it should consider core principles which have been adopted in other jurisdictions, such as the United States,” it notes.

The interim report is intended primarily for the purpose of soliciting further comment on commodity futures legislation and the regulation of derivatives trading in Ontario. Comments are requested by July 14. The final report is expected to be filed by September 30.