Provincial securities regulators are sneaking into fixed-income market regulation under the guise of integrating alternative trading systems, according to an article in the Fraser Forum.

The article, by Fraser Institute senior economist Neil Mohindra, examines how the interaction of financial and policy independence affects regulatory behaviour.

Mohindra co-authored a study last month which argued that self-funding has been a failure, boosting security commission resources and staffing without enhancing their policy independence. “Financial constraints compelled the commissions to set policy priorities. With the removal of financial restraints, is there a danger of over-regulation? Are new measures needed to ensure policy accountability?” the study asks.

Mohindra argues that there are signs that the Canadian Securities Administrators are expanding their sphere of influence. He says that the CSA is pulling fixed-income markets under provincial securities regulation with the implementation of ATS rules.

These largely-institutional markets have generally operated without much regulatory interference. “Dealers in these markets now face new reporting requirements on their order information and will have to enter agreements with regulation service providers who will be responsible for monitoring and enforcing conduct.”

Mohindra suggests that this is evidence of bureaucratic empire-building, since institutional players don’t need much protection, most players argued that these rules will decrease liquidity and hurt the market’s efficiency.

“For fixed income markets, the proposals do not affect choice, and commentary suggests that the regulations will either do nothing to improve price discovery or will in fact harm it.”

Mohindra concludes that the new regulatory requirements will create compliance costs for market participants, enforcement costs for the regulators, and oversight costs for the securities commissions.