The term “securities” designates a class of assets that conventionally includes shares in corporations, interests in partnerships, debt instruments such as bonds and financial derivatives.
The securities market channels savings in two basic ways:
- it allows demanders of investment capital (“issuers”) to receive investment capital from suppliers of capital (“investors”) in exchange for a security
- it allows investors to trade securities with one another.
The first type of transaction occurs through the “primary” market, where issuers trade directly or indirectly with investors, while the second type of transaction is referred to as “secondary” market trading.
Every province and territory has its own securities laws and regulatory agency.
These agencies exercise a variety of responsibilities. They include:
- prospectus review and clearance
- oversight of disclosure requirements
- takeover bids and insider trading
- registration and regulation of market intermediaries
- enforcement of compliance with the regime
- recognition and supervision of exchanges and other self-regulated organizations
- public education.
As the Supreme Court of Canada recently confirmed in its much-anticipated decision in Reference re Securities Act (December 22, 2011), Canadian securities law remains largely the responsibility of the provincial and territorial governments.
Canada has no national securities law and no national securities regulator.
Rather, many substantive aspects of securities regulation, such as registration and prospectus requirements and exemptions and continuous disclosure requirements are harmonized using “national instruments” or “national policies”.
They are adopted by each of the provincial and territorial regulators.
Moreover, initiatives such as the national electronic filing system (SEDAR) and the Passport System encourage regulators to delegate responsibilities to one another.
This creates a system of “one stop shopping” for issuers and registrants.
Ontario is the jurisdiction of the Toronto Stock Exchange (TSX) and the principal regulator for most of Canadian reporting issuers.
The Ontario Securities Commission (OSC) has generally taken a more active role in developing Ontario securities law using various regulatory instruments, policies and rules.
The OSC exercises a very broad regulatory and disciplinary jurisdiction, similar to the American SEC.
In the last decade, efforts to increase interprovincial cooperation and to harmonize provincial and territorial securities laws have intensified.
The possibility of replacing the provincial and territorial securities regulators with a single national regulator has gained momentum.
In fact, the federal government drafted legislation to establish a federal securities regulator to administer a national regulatory regime.
The draft legislation and the federal government’s ability generally to nationalize securities regulation was referred to the Supreme Court of Canada for a ruling on its constitutionality.
While the Province of Ontario supported the draft bill, the provinces of Alberta, Quebec, Manitoba and New Brunswick opposed it.
The Court resolved the reference question by concluding that proposed “Securities Act as presently drafted” was unconstitutional; specifically, it was “not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867”.
One awaits the federal government’s next step in its initiative.
Will it re-draft the proposed legislation to make it compatible with the division of powers under the Constitution Act, 1867?
Or will it seek a non-legal route, such as negotiating deeper harmonious arrangements with the provinces and territories?
Will it seek to follow the example in Australia?
There, a national scheme involving cross-vesting of jurisdiction faced constitutional setbacks.
As a result, since 2001, the national scheme of securities regulation in Australia is premised on powers referred by the states to the Commonwealth.
Watch this space to see what happens in this country.