Transparency and regulatory competition are more effective tools than increased regulatory oversight in ensuring the effective functioning of Canadian capital markets, according to a new study, Securities Market Regulation in Canada, released today by The Fraser Institute.

The paper suggests that authorities seeking to build a better model for regulating Canadian capital markets should examine the individual pieces of the existing regulatory framework and explore to what extent market forces and private incentives can be relied upon to achieve specific public policy objectives.

“Without a clear problem surfacing that a market solution cannot resolve, there is no rationale for introducing regulation and the burden it imposes,” says Neil Mohindra, senior economist at the Institute and author of the paper.

Mohindra comes out against a national securities commission. Market solutions should be considered before resorting to new regulations and more supervision, he argues.

The Institute says that increasing global integration, advances in information technology and demutualization of exchanges have made some regulatory functions obsolete. For example, a for-profit exchange facing significant domestic or foreign competition has strong business incentives to offer quality self-regulation and safeguard the operational integrity of their trading infrastructure, says Mohindra.

Mohindra argues that SRO oversight programs could be replaced by periodic external performance reviews that would be publicly disclosed. “Information on how well SROs are executing their self-regulatory functions should be in the hands of investors rather than controlled by regulators,” he says.


The paper also says that Canadian investors would be better served by a system that places more reliance on private enforcement mechanisms for redress over actions such as deliberately misleading disclosure. It also says that: regulators should be prepared to act unilaterally in easing regulatory barriers to foreign entry; and, provincial authorities should consider stronger public accountability measures for their securities commissions.