Canada’s self-regulatory system is fragmented, with multiple self-regulatory organizations pursuing a variety of functions, some distinct, others related, all costly, and together highly confusing.

Last December, members of the Investment Dealers Association of Canada voted overwhelmingly to end the organization’s historic dual mandate as an SRO and as the securities industry’s representative. Throughout the IDA’s 90-year history, it pursued its public-interest mission, enriched with expertise by industry participation in policy development. In practice, it worked effectively. But, even though we always put the public interest ahead of the interests of the industry, our dual mandate created a perception problem. So we decided to act, and the IDA’s focus is now exclusively on self-regulation. A separate and independent trade association has been launched to represent the Canadian securities industry, unfettered by the public interest mandate of the SRO.

This historic decision to focus our mandate opened the door to SRO consolidation, an objective we have been advocating for several years. I am pleased that four months after our members approved our historic reorganization, we moved to advance that critical goal. The IDA and Market Regulation Services Inc. will now join forces in a national SRO that will regulate the securities industry as well as equity and fixed-income markets.

This is a transformation with a vengeance, but it was built on a decade of evolution and years of planning. To quote Eddie Cantor, “It takes 20 years to make an overnight success.”

The consolidation of the IDA and RS is a highly significant initiative that will make a real difference to investors and to the industry itself. In the end, we will be able to offer higher-quality, more effective and more transparent national regulation.

The rationale for establishing RS was to address the conflict that exists when a for-profit stock exchange regulates the marketplace it owns as well as those of its competitors. That conflict, by the way, is why both the New York Stock Exchange and Nasdaq have come under the Security and Exchange Commission’s intense scrutiny. It is also why some U.S. regulators are looking at the Canadian experience as a possible guide. But the RS structure was a Canadian compromise, with TSX Group Inc. retaining 50% ownership and the IDA acquiring the other 50%. Consolidation would represent the final step in eliminating this conflict of interest.

Assuming approval of the two boards — IDA membership and TSX Group — we will then request formal approval from the Canadian Securities Administrators. Our position is that a single member and market self-regulator will be a real achievement in the public interest because it will strengthen self-regulation. It will allow us to take advantage of synergies, deal with regulatory gaps and overlaps, reduce investor confusion and bolster public confidence in the regulatory system.

We will draw on the strengths of both organizations. Key strengths at the IDA are its long track record and experience, rich policy input from members and deep regional roots through district councils and offices in Vancouver, Calgary, Toronto and Montreal. Our risk-based approach to compliance ensures effective regulation, while alleviating unnecessary and onerous regulatory burden. We use technology extensively and effectively to track complaints, investigations and prosecution. The IDA has an important role globally with strong relationships with our counterparts in the U.S., Europe and Asia, and in international organizations — such as the International Council of Securities Associations, of which we are the incoming chair, and the SRO Consultative Committee of the International Organization of Securities Commissions, of which we are past chair.

For its part, RS plays an important role with the Intermarket Surveillance Group — an international organization of stock exchanges. RS conducts real-time surveillance of Canada’s listed equity markets using sophisticated electronic tools and analysis of trade patterns. In addition, it can respond quickly to corporate events to ensure full public disclosure or halt trading when appropriate. RS has specialized expertise in the Universal Market Integrity Rules that govern the conduct of individuals and institutions with direct access to listed equity markets.

I’ve been asked whether the Mutual Fund Dealers Association is next. The rationale for integration is clear: currently, investors buying an identical mutual fund are protected differently depending on which firm sold it to them; costs are also higher for firms that operate on both platforms; and the system is unnecessarily confusing to investors. So my answer is that further consolidation is desirable and indeed inevitable, but for the moment our focus is on completing the IDA/RS transaction. When the MFDA is ready, there’ll be an opportunity to complete the task of consolidating self-regulation in Canada.

@page_break@In the meantime, we will continue to fulfil the mandate we share with the securities commissions: investor protection, market integrity and the efficiency and competitiveness of Canadian capital markets. IE



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