The economic case for a national securities regulator has not been made and there is no evidence that centralized regulation will be cheaper, says a study released today by the Commission des valeurs mobilières du Québec.

This report was prepared by the Montreal-based Centre for Interuniversity Research and Analysis on Organizations for the CVMQ and carried out by Jean-Marc Suret and Ms. Cécile Carpentier of Laval University.

“Since the beginning, discussions regarding the efficiency of the current securities regulatory system have been based on assertions which seem to rely more on perceived facts than proven facts,” Pierre Godin, chair of the CVMQ, said in a statement. “ We asked independent academics who are experts in the field to clarify the issues and ensure that the debate focuses on actual facts, rather than ideological assumptions.”

Quebec and the CVMQ have been longstanding opponents of a national regulator, preferring instead a securities model closer to that of the European Community.

The study examines the various elements of the current debate regarding this aspect of financial regulation in Canada and discusses the principal arguments raised in the current debate, such as the fragmentation of the existing system, the costs and delays resulting from securities regulation, the advantages and disadvantages of regulatory competition, regulatory innovations and the impact of the current system on junior issuers, among other topics.

“There is very little evidence that the present structure of Canadian regulation greatly penalizes this country: issuers incur lower costs than in the United States, direct costs appear to be lower than those in Australia, which combined the securities commissions, and direct costs of regulation are only a small fraction of costs incurred by issuers and investors,” the study finds.

It allows that it is possible that the “total level of regulation is not optimal”. But it notes that there are no studies confirming this.

The study says that it is possible that mutual recognition will allow additional cost savings. “While we are not saying that there is no room for improvement, it must be admitted that the argument of the negative effects of the regulatory system on Canadian issues has not been proven,” it finds.

“The works show, however, that the present structure does not create a comparative disadvantage as compared to the more centralized American structure.

“Data relating to the costs caused by regulatory bodies does not lead to any conclusion, since the balance of the regulatory costs and benefits is the key element in the debate,” the study finds. “The reduction in SEC operating costs, as a function of the activity to be overseen, can certainly not be characterized as optimal.”

The paper argues that it is difficult to blame the migration of trading on the provincial system, saying that, “a serious review of the factors which encourage the migration of cross-border trading, and which seriously limit trading of foreign securities in Canada, is warranted. It appears difficult to impute to the provincial regulatory structure these difficulties which essentially affect the secondary market and the costs of which are mostly related to stock exchange operations and brokers.”

The study suggests that a centralized model would “create a regulatory monopoly, a dangerous situation given the very high concentration of the regulated industry, and would cause the loss in Canada of the benefits of regulatory competition which currently prevails.

“There are few arguments to the effect that such a structure would reduce direct costs and the Australian example seems to indicate the opposite. On the contrary, a system based on harmonization and mutual recognition (the passport) presents advantages which have lead the European Community to opt for this system of securities regulation.”