For a national securities commission

Even as Europe watches to see whether Euronext, the Deutsche Borse, or the London Stock Exchange will emerge as the continent’s major capital market, and even as Nasdaq and the American Exchange combine in the United States, Canada seems bent on letting division win out over consolidation.

Alone among the major industrial nations, Canada has a patchwork securities industry, which risks being sidelined as the securities markets become global. The choice before us is to have a nationally sized and active one, or to turn away from the world and watch small turn into smaller.

It is an unbecoming irony when politicians at both the national and provincial level prate about “globalization” without seeing the implications for the country’s capital markets. As investors seek the liquidity and transparency of larger exchanges, the place that could be filled by regional exchanges is shrinking. The need for a local regulatory regime to govern business on those exchanges — if there ever was one — is disappearing with it.

This is not the same as saying there is no need for a national regulator. The investing public will always demand that the capital markets have a legal framework in which to operate, and that the system not be run for the benefit of the financial industry.

But in our case, provincial securities commissions simply don’t cover the need. There is a national senior-equity exchange, the Toronto Stock Exchange. There is a national risk-capital exchange, the Canadian Venture Exchange. And there is a national derivatives market, the Montreal Exchange, and a single market trading commodities, the Winnipeg Commodity Exchange. All these markets operate on a national scale, and fairly simple logic demands that it’s a national, not a provincial, securities regulator that should oversee them. There is no crying need for provincial securities commissions in provinces that have no exchange.

The provincial commissions have done their best to provide nationwide oversight through inter-agency co-ordination at the Canadian Securities Administrators. Provincial securities legislation has, to some degree, recognized the need for uniform practices across the country. But there is no obvious need for provincial securities commissions when a national one, supported by a national securities act, could do the job.

The legal roots of the provincial securities markets, more than anything else, extend to the Civil Code compromise that runs through Canadian law back to the Quebec Act of 1774. But the differing civil law systems have not prevented the provincial securities commissions from creating a harmonized system of rules and National Instruments; and across the Atlantic we see countries with Roman, Germanic, Napoleonic and Common law systems developing what is likely to be a single European capital market.

Allowing for the differing legal environment of the Civil Code, and perhaps recognizing it by careful legal drafting, it should be possible to draw up a Securities Act for the whole country. The difficulty, instead, will lie in getting the provinces to agree to give up an area of jurisdiction. Provinces, historically, have not been good at the national interest. Public pressure on provincial governments to pass control of the field to the national government would work, as it did in the past with a national pension plan; but few voters are thinking about the issue, and it is unlikely to resonate with them.

A push could come from the securities business, but lobbying from an industry always has a way of looking like, or turning into, special pleading. If securities regulators began, in concert, to recommend it to their political masters, that would mark a dangerous politicization of the civil service.

That leaves far-sighted politicians to drive the issue. There aren’t many of those, and the ones we have are busy. Other priorities will get in the way. But placing this need in front of them may be the best hope for success in keeping Canadian capital markets vigorous.

From the perspective of the mining industry, there has never been a better time. With cross-country registration, Canadian geoscientists have created one of the necessary conditions for a flourishing mining industry and a highly transparent venture capital market. The mining industry, more than ever before, has its act together on issues of practice and disclosure. Securities regulators have never co-ordinated their own guidelines and procedures so closely as today, and there is at last “one big exchange” for companies seeking capital.

The next step, plainly, is up to the politicians.