The Ontario Securities Commission is taking steps to keep up with a slew of changes taking place in securities markets, such as the rise of electronic trading, the growth of derivatives and the interconnectedness of international markets, according to Howard Wetston, chairman of the OSC.

Speaking at the OSC Dialogue conference in Toronto on Tuesday, Wetston said markets are changing rapidly as a result of globalization, technological advancement, product innovation and other trends.

“The pace of change in our capital markets is dramatic, and the landscape is quite different today than it has been in the recent past,” he said. “This has combined to challenge some of the basic approaches to securities regulation.”

Wetston said the OSC has been engaged in an extensive strategy review in recent months in order to determine how to best fulfill its mandate of investor protection and fostering fair and efficient capital markets in this new environment.

“It is critical that we have an appropriate framework in place for these new developments that ensures the quality of our markets going forward,” he said.

One development that the regulator is actively monitoring is the rise of electronic trading.

“We have been focusing on the controls that are necessary to mitigate risks associated with electronic trading and introducing a framework to address them,” Wetston said.

The regulator is also developing new regulation in the area of over-the-counter derivatives – instruments which Wetston said proved to exaggerate risk during the global financial crisis. Steps being taken by the G20 to address the opaqueness and other problems associated with these products are encouraging, he said, as he expects they will enhance investor protection and help to reduce systemic risk.

The exempt market is another area of focus for securities regulators. Wetston noted that the exempt market in Canada was worth approximately $83 billion in 2010.

“It is clear that there has been a significant migration from the public to the private markets,” he said.

The growing interconnectedness of global markets is presenting another major change to the way securities regulators operate. For instance, Wetston said recent OSC investigations have demonstrated the investigative and jurisdictional challenges that international cases pose for its enforcement staff, including challenges related to geography, language and culture.

“Despite the challenge,” he said, “we have a duty to our markets and investors to do whatever is reasonable and practical to investigate and take appropriate action.”

There are specific challenges pertaining to emerging markets and governance challenges associated with securities issuers in these countries, Wetston said. He noted that the OSC is currently conducting a review of 24 reporting issuers in emerging markets.

“We are trying to determine whether these emerging market issuers, as well as those involved in bringing the issuers to market and auditing their financial statements, provided the required disclosure and conducted the required due diligence,” he said.