EDITORIAL PAGE — Prevention = protection

In recent years, the Vancouver Stock Exchange has shouldered a mountain of criticism over a few well-publicized scams and trading abuses.

In some instances, this criticism has been warranted. In other cases, the British Columbia Securities Commission (BCSC), as senior regulator, was found to have fallen short in its mandate to protect investors.

One of the surprise findings of the Matkin Commission report, an inquiry into the province’s securities industry launched by the British Columbia government a few years ago, was that regulators had a backlog of 500 cases which the VSE had turned over to them for investigation.

The lack of action on these files was attributed, in part, to a lack of financial and human resources, but some market-watchers felt that investigators lacked sufficient “street smarts” for understanding the complexities of the securities market and how it can be manipulated for personal gain at the expense of investors.

In all fairness, the VSE had some trouble in this area too, particularly in the non-resource sector, as the perpetrators of scams have become more technologically and financially sophisticated in their efforts.

But one thing is certain. In the aftermath of the Matkin Commission, both the VSE and the BCSC appear to be fully committed to putting an end to these abuses and improving the climate for investors. We hope they will work together more co-operatively than in the past, and place more emphasis on enforcement.

The changing of the guard at the VSE — including Michael Johnson’s recent appointment as president — is seen as a positive step in that direction.

These efforts to improve B.C.’s regulatory climate come at a time when a task force of the Ontario Securities Commission (OSC) is proposing to deregulate that province’s junior capital markets.

Both the VSE and BCSC have expressed concern that this move may lead to a wave of stock market scams and abusive trading practices. In particular, they have warned the OSC that many more companies delisted from, or unacceptable to, the VSE will opt to trade on the Canadian Dealing Network (CDN).

This warning ought to be taken seriously by the OSC. Granted, there are competitive issues here, in that both CDN and the VSE are seeking to attract junior companies interested in raising venture capital. But the primary concern ought always to be investor protection, and that is why we urge the OSC to take seriously the warnings of B.C.’s regulators, who, after all, have the weight of many years of experience in such matters.

Among the more contentious proposals of the OSC task force is that underwriters should no longer be required to certify that each prospectus of a junior contains “full, true and plain disclosure” of all material facts. B.C.’s regulators feel that underwriters have a role to play as gatekeepers, and we fully support this position. The VSE has learned, the hard way, that a few bad apples are all it takes to spoil the barrel. An ounce of prevention is truly worth a pound of cure.

Venture markets are an important part of Canada’s mining industry, and of the economy as a whole. But it is important to remember that they are highly vulnerable to a loss of investor confidence.