EDITORIAL PAGE — Squeezing securities dealers

Securities dealers, those orphan stockbrokers in Ontario that aren’t members of either The Toronto Stock Exchange or the Investment Dealers Association (IDA), have few friends these days. The Ontario Securities Commission (OSC) is trying to put them out of business, and the reaction of many otherwise staunch champions of the entrepreneurial spirit seems to be “good riddance.”

The OSC, which oversees securities trading in Canada’s largest market, recently came out with its policy statement 1.10. It singles out these securities dealers when it comes to buying and selling stocks worth less than $5, and would make them so uncompetitive it would shut them down. In the world of high finance, one might ask: Who cares? Securities dealers account for perhaps $100 million of business a year compared with Canadian underwritings that can total $25 billion or more. But they do play the vital role as broker of last resort, raising money for high-risk ventures when no one else is willing to give it a try.

What the OSC and others who would get rid of these securities dealers seem to be concerned about are high pressure telephone sales practices that were common in the 1950s and ’60s. To be sure, the OSC still gets a fair number of complaints about these securities dealers — promises not kept, misrepresentations made and stocks that went down in price instead of up. But the OSC gets far more complaints about members of the TSE. Being blue chip doesn’t provide immunity from financial woes. Just ask shareholders of Campeau Corp., Air Canada, Denison Mines or dozens of others. In 1992, securities dealers aren’t preying on helpless widows and orphans. They may be optimistic about individual stock plays but, in line with the already heavy load of regulation in Ontario, are entirely clear about the risk involved. It’s not low-income earners who are buying these penny stocks; it is the affluent and knowledgeable investors who want to take a flyer. Securities dealers make it clear: they’re selling a dream of getting in on the ground floor, of getting the big payoff that eludes most but makes some millionaires. The Ontario government is in exactly the same business when it sells its lottery tickets, except it is willing to take money from people who can least afford it.

One can’t help but wonder why the OSC has decided to fight yesterday’s battle against these peripheral players, the used car salesmen of the securities business, who are willing to raise capital for industrial and resource ventures shunned by the largely bank-owned Bay Street establishment? The OSC is overworked and undermanned, but trying to put securities dealers out of business is not the way to lessen its load. The OSC should be educating potential investors about how to raise capital in Ontario, promoting the Canadian Dealing Network as a forum for buying and selling unlisted high-risk securities, standing back from the marketplace and monitoring activity, not siding with the powerful TSE to the detriment of aspiring entrepreneurs.

If the OSC is concerned about the integrity of securities dealing in the province, then it had better consider the monopolistic, bought-deal monster it is creating by squeezing others out of the business. The relationship among the OSC, the TSE, the IDA and the entire cabal of securities lawyers, government regulators and money moguls is too cozy and therein lies the real threat to the market’s integrity.