FAIR Canada has made a submission on the Ontario Securities Commission’s (“OSC”) Proposed Recognition Order for Maple, TMX Group and the TSX and a submission on the BCSC’s Draft Recognition Order Conditions for the TSX Venture Exchange (together the “Proposed Recognition Orders”). FAIR Canada does not believe that the Proposed Recognition Orders put into place sufficient measures to deal with the conflict of interest between the listing regulation responsibilities and listing business operations of the TSX and TSX-V.
TSX Fails to Meet International Standards
FAIR Canada’s preferred approach would be to transfer the listings regulation functions of all exchanges in Canada to another regulator, preferably an independent, self-regulatory organization (“SRO”). An alternative would be for the TSX to establish a regulation subsidiary company with independent governance to perform listings regulation. These two approaches were presented in an expert report commissioned by FAIR Canada, issued in July 2010. FAIR Canada considers the proposed Regulatory Oversight Committee (“ROC”) to be insufficient to address the conflict and does not to meet international ‘best practice’ standards. FAIR Canada believes that now is the time to implement a best practices approach. More than a decade has passed without the conflict being addressed and Canadian investors and the integrity of Canadian markets have paid the price for this failure.
Commit to International Standards
However, if regulators decide to defer addressing the issue and pursue the ROC model, FAIR Canada strongly recommends that, at a minimum, the following steps be taken:
- Acknowledge in the Proposed Recognition Orders that the current structure does not adequately address conflicts and is not up to international ‘best practice’ standards;
- Expressly require a report on addressing the conflicts of interest in listings regulation, within 12 months of the Proposed Recognition Orders coming into effect; and
- Require that the proposed new listings regulation structure set out in the report meet international best practice standards.
Canadian Investors Urge Regulators to Act Now
In their submission, the Canadian Advocacy Council for Canadian CFA Institute Societies similarly state that: “We do not believe that the updated proposal sufficiently addresses concerns with the potential conflict of interest between the regulatory functions of the TSX and its for-profit mandate. Regulatory functions of the TSX should be outsourced to a completely independent body and spun off before the transaction.” In its earlier submission, the Canadian Coalition for Good Governance (“CCGG”), whose members manage the investments of the great majority of Canadians, also indicated that “…the Application should be contingent on the TSX finally addressing the conflicts of interest inherent in its business model… The conflicts of interest inherent in this model have been well-documented (most recently in the July, 2010 Compliax Report prepared for FAIR Canada) and should be formally addressed by securities regulators.”