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November 2, 2005

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Assuring Integrity and Competitiveness Through Modern Securities Regulation

Issues to Review

1. Protecting individual investors:

a. Effective disclosure

(i) content of prospectuses and other disclosure documents – is the current prospectus
useful or obsolete?

(ii) distinction between theoretical versus effective disclosure – how do investors really
get their investment information in the 21st century?

(iii) is there a more practical approach to communicating with retail investors?

(iv) what is the true role of the RR in an effective disclosure system?

b. Sophisticated purchaser rules – who needs protection? Is wealth a proxy for
sophistication? If not, is there a better definition?

c. Issues relating to hedge funds, as described in the recent IDA Regulatory Analysis of
Hedge Funds report:
(i) application of exempt purchaser rules?
(ii) would registration be useful?

d. Should the role of technology be increasingly recognized in terms of communication,
consent, privacy?

e. Could a more user-friendly new account document be designed – who is responsible for
deciding the risk appetite of the investor? Where does protection end and selfresponsibility
begin?

f. Should there be more robust disclosure of fees. In an era of low yields do fees represent a
disproportionate % of available return to the investor? Is this simply a disclosure matter to
be left to market pricing?

g. Should there be a periodic disclosure of investor’s performance in account information?

 

2. Balancing cost and effectiveness of modern governance:

a. Cost benefit analysis of governance in Canadian context – can there be a Canadian
context? To what extent are we in a North American market and concepts of a Canadian
capital market are inappropriate?

b. Potential need for differentiated regulation, i.e., for small issuers, both in terms of an
appropriate cut-off and nature of differences.

c. Re-examination of governance requirements, in part in the light of rethinking of
Sarbanes/Oxley in the US.

 

3. Access to Capital – prospectus filing requirements, including exemption from those requirements:

a. If investors gravitate to a market where liquidity is assured, what factors could be
introduced or emphasised in Canada’s markets to encourage investors to choose to execute
trades here rather than elsewhere (given a choice in an inter-listed stock)?

b. If issuers gravitate to a market where their currency is efficiently valued, what factors could
be introduced or emphasised in Canada’s markets to encourage issuers either to list, or
maintain their listings, in Canada?

 

4. Regulatory Burden:

a. Potentially greater role for a principle-based approach versus prescriptive rules-based
regulation – in a litigious society is principle-based behaviour a pipe dream, with those
asked to behave on principle increasingly seeking the safe harbour of rules? If so, and if
principle-based behaviour is in fact desirable to avoid the arbitrariness of rules, what might
be done to encourage principle-based behaviour?

b. Meaningful attempt to reduce the overall paper-load for market participants, including
dealers.

c. Regulatory burden generally, and the opportunity to adopt a more risk-based approach,
especially in regard to direct regulation of market participants, the responsibility of SROs.

 

5. Enforcement Issues:

Are expectations unrealistic? How could a more effective job be done? There is a direct
correlation between the effectiveness of enforcement and the reputation of capital markets.