A few weeks ago, the investment Dealers Association of Canada board took the historic step of unanimously approving the formal division of the IDA’s functions into a self-regulatory organization and a separate trade association for the Canadian securities industry.

There are important advantages to the move. A free-standing SRO will enhance confidence in self-regulation among our many stakeholders, including investors. It will bolster credibility with the commissions and governments, and provide a better focus to its activities. When advancing public policy positions, it will be better placed to argue its case, without having to explain a dual mandate.

Crucially, the SRO will preserve input to policy development by industry practitioners who serve on the 10 regional district councils and numerous industry committees. Reorganization will also open the possibility to consolidation of Canada’s other SROs, a highly desirable initiative for the securities industry and capital markets generally.

Last week, the board of Market Regulation Services Inc. decided to explore whether a merger with the IDA SRO should be pursued. This follows an important development in the U.S., where the New York Stock Exchange and the National Association of Securities Dealers talked publicly about the possibility of a regulatory joint venture to deal with the significant overlap of member regulation oversight.

For a capital market smaller than 3% of global markets, one with a uniquely decentralized regulatory system, Canada has a remarkable number of organizations with self-regulatory responsibilities: the Bourse de Montréal, Canadian Depository for Securities Ltd., Canadian Investor Protection Fund, the IDA, the Mutual Fund Dealers Association, RS, TSX Group, the Winnipeg Commodities Exchange. Somehow, saying our structure is without precedent in the world does not seem to trouble many Canadians. It should, because fragmentation undermines efficiency and competitiveness, confuses investors and erodes public confidence in the regulatory system.

Finally, separating the IDA’s functions means a new trade association can aggressively represent the commercial interests of its members, unfettered by the public interest mandate of the SRO and its close relationships with the securities commissions. It is healthy and fair for the industry to advance its case robustly with governments, regulators and the public, who can then assess it on its own merits. The SRO will doubtless receive representations, as well, from the new trade association and will make independent judgments.

Observers of the regulatory scene will note there is not much precedent for an organization to hand over part of its turf. I will leave it for another occasion to comment on whether that has been a problem in achieving regulatory reform. In our case, while the environment has been changing and the move is clearly indicated, the decision to opt for change was a voluntary one, not imposed by others, so it is still a decision that must be confirmed by our 208 member firms. I hope they will do so.

The IDA SRO will continue to pursue the mandate it shares with the securities commissions — investor protection and the efficiency and competitiveness of Canadian markets. It will accomplish that by drawing on the expertise of market practitioners in the development of policy that is effective, balanced and justified in terms of cost. And that is a key value added by self-regulation.

Membership approval of the board decision will preserve and strengthen self-regulation in an environment of change and challenge. It will also result in an opportunity for the securities industry to promote its legitimate commercial and business interests as it sees fit.

Since 1916, the IDA has served investors and the Canadian capital markets. It is time to choose change that preserves the advantages of self-regulation, creates an effective industry advocate and responds to the requirements of today’s demanding environment.



Joe Oliver is president and CEO of the Investment Dealers Association of Canada.