Securities Regulation

On January 30, 2009, the Faculty of Law hosted a roundtable on the creation of a national securities regulator and the report of the Expert Panel on Securities Regulation, featuring Profs. Anita Anand and Jeffrey MacIntosh, as well as experts Jeremy Fraiberg and Peter Hogg. The webcast of the event is available on the Faculty of Law website.

• Click here to see the event description and speaker biographies (with a link to the webcast)
• Click here to go directly to the webcast

This commentary was first published in the Financial Post on March 31, 2009.

In a recent interview with a major U.S. news network, Prime Minister Stephen Harper touted the fine regulatory balance that underpins the strength of Canadian financial institutions. Without question, Canadian banks have been relatively insulated from the economic turmoil that has crippled their U.S. counterparts. But why is this case? What characteristics particular to the Canadian economy and corresponding legal regime have protected Canada’s financial institutions?

If we look deeply, we see that Prime Minister Harper is partially right: The regulatory regime is an important factor to consider. Yet other considerations, including a conservative mentality that pervades our financial system and its players, are also relevant in the analysis.

This commentary was first published in the Financial Post on September 23, 2009.

The G20 leaders meet today in Pittsburgh. While macroprudential regulation is likely to be on the agenda, countries continue to wrestle with how, if at all, this concept fits within existing legal frameworks and indeed whether new regulators or committees will be created in each country. But, taking a step back, what does "macroprudential regulation" mean? Should Canada proceed down this road? If so, how?

Macroprudential regulation focuses on the financial system as a whole, seeking to minimize system-wide distress in order to avoid reductions in aggregate output (GDP). This is unlike microprudential regulation which seeks to minimize distress in individual institutions in order to protect depositors. Macroprudential regulation focuses on common exposures across financial systems and institutions rather than the entity-specific focus of microprudential regulation.

Profs. Anita Anand and Andrew Green have posted a new article on SSRN titled "Why is this Taking so Long? The Move Towards a National Securities Regulator."

Abstract:

Game theoretical analysis can be useful in contexts such as securities regulation, where multiple decision makers (i.e. securities regulatory authorities or commissions) act unilaterally but can also potentially reap benefits from cooperation. We deploy several models in seeking to render more transparent the strategies and payoffs that motivate jurisdictions to support or resist the introduction of a national securities regulator for Canada. Our analysis suggests that consensus has not been reached regarding a national regulator not only because of a lack of cooperation but also because of a lack of coordination. Indeed, it seems plausible both that provinces recognize the benefit of adopting a common standardized regulatory model; and that the source of disagreement surrounds the precise regulatory content of that common standardized model. This paper explores the implications of this insight.

The article will be published in the University of Toronto Law Journal, Vol. 60, No. 2, April 2010

One of the implications of the global financial meltdown is a renewed focus on the purposes of securities regulation and whether these purposes should include considerations relating to systemic risk. Monitoring systemic risk has traditionally been within the realm of financial institution (i.e. prudential) regulation, not securities law. Yet the line between prudential regulation and securities law is becoming increasingly blurred given the complexity of financial markets, a complexity characterized by the growth of private markets in which derivative securities are bundled and sold by a variety of institutions. This evolution in financial markets means that securities regulators now need to care about systemic risk. Indeed, monitoring systemic risk should be a principle that is integrated into the securities regulatory regime.

On March 3, 2010, the Faculty of Law hosted a discussion on "Current Conditions and Outlook in Global Credit Markets." Professor Edward Altman, of the Stern School of Business, New York University, gave a presentation, followed by a panel discussion with international and Toronto specialists in the field.

You can watch the entire event online, and read Prof. Altman's presentation.

• Watch the presentation and panel discussion
• Read Prof. Altman's presentation

Prof. Altman was also interviewed on BNN television about the current situation in global credit markets.

• Watch the interview on the BNN website

1.   Introduction

Pierre’s Lortie’s recent paper[1] seeks to discredit federal reform initiatives to create a national securities commission by making the following claims:  Canadian capital markets rank above those in other countries as various international bodies suggest; the empirical evidence does not exist to support such a reform; and, the current passport system that operates in tandem with the Canadian Securities Administrators “constitutes[s] an example of Canadian federalism at its best” and change should not be implemented without compelling reasons.[2] Lortie suggests that Canadian investors, junior issuers, and the fairness and efficiency of Canadian capital markets will not benefit under a national securities regulator. Rather, the status quo is superior as it has allowed Canada’s financial system to outperform those in other countries.