EDITORIAL PAGE — Matkin and the market

On the face of it, it’s odd that the Vancouver Stock Exchange should be scrutinized by a government-appointed commission in the very year it posts all-time records for both volume and value ($6.7 billion).

If a private-sector firm posted record revenues and sold an unprecedented number of units, would the board of directors launch an investigation into what went wrong?

And yet, Commissioner James Matkin, the 1-man band who drew up the “Report of the Vancouver Stock Exchange & Securities Regulation Commission,” says nothing less than “significant restructuring will improve public confidence” in the VSE. If $6.7 billion worth of trades is representative of a crisis in public confidence, then the VSE must be salivating in anticipation of the boom awaiting it, once Matkin’s reforms restore investor trust. Having made that point, however, we do recognize the VSE has a problem. (If the board of the private-sector firm, noted above, discovered record sales were attained by underhanded, perhaps even illegal, means, it would indeed have to act.)

As for the VSE, the media have, over the years, feasted on documented cases of abuse by VSE promoters. This has led to a general perception that all VSE listings are tainted and that the rules favor promoters, not investors. Thus the Matkin inquiry.

In Matkin’s report, he concedes the resource sector is less of a problem than other venture-capital sectors. To quote Matkin, there have been “significant successes, particularly in the resource sector.”

But to eliminate abusive practices, Matkin recommends, among other things, the VSE’s jurisdiction over member regulation and broker misconduct be transferred to an independent, self-regulating agency under the auspices of the Investment Dealers Association of Canada (IDA).

He also recommends the British Columbia Securities Commission (BCSC) be restructured along the lines of an “independent, self-funded administrative board system” (much like the Securities and Exchange Commission in the U.S.). In terms of board membership, the bias should favor “investor, professional and public interests.” The new Securities and Exchange Board (SEB), with its independent administrative adjudication system, could conduct hearings and render decisions. The SEB should also have the power to make rules. Matkin also recommends promoters be registered and exempt from registering as professional traders if they undertake to restrict their activities relating to market-making in their stocks.

To our way of thinking, having the IDA oversee the VSE is more a symbolic move than anything else. It might convince some that a less partial body is overseeing the brokers. However, with some reworking, the current system could achieve the same results.

The recommendation to alter the BCSC, however, is important. It seldom has pursued with vigor the cases handed it by the VSE. Nor have many of its appointees demonstrated a true grasp of the venture-capital market. An overhaul in this area is clearly needed.

We also welcome a computerized real-time insider trading system and registration of promoters.

However, what eventually becomes of the Matkin report will be decided by the government. Let’s hope it keeps in mind the need to protect investors and maintain a vital venture-capital market.