Flaherty got his securities deal by saying he’d go it alone

A small threat goes a long way


Adrian Wyld/CP

There’s nothing like the prospect—or should that be the threat?—of unilateral federal government action on a contentious issue to light a fire under negotiations with the provinces.

That has to be one of the major lessons taught by Finance Minister Jim Flaherty’s surprise announcement today that the federal, Ontario and British Columbia governments have finally, after years of setbacks and delays, agreed to set up a cooperative regulator for securities markets.

This was not, of course, the landmark creation of a true, coast-to-coast Canadian regulator for stock markets that Flaherty has struggled for years to achieve. But it looks like a solid stride on the path to that sensible, though elusive, goal. Much depends now on how other provinces respond.

Flaherty set out in earnest in 2009 to create a single regulator, an idea long advocated by many economists and business experts frustrated by Canada’s hodge-podge of provincial stock market commissions. But he faced stiff resistance from some provinces, especially Quebec and Alberta. And then the Supreme Court of Canada dealt him a severe blow in 2011, when it ruled his plan overstepped federal jurisdiction.

Still, that court ruling left Flaherty a strategic opening that seems to have led to today’s breakthrough. While the judges said provinces have jurisdiction over day-to-day securities market regulation, they also ruled that Ottawa could step in to regulate “systemic risks.”

So Flaherty switched to simultaneously pursuing two options. He continued to try to coax provinces into voluntarily joining a national regulator, but also began drafting a law allowing Ottawa to regulate some of those broader risks the court mentioned, including murkier corners of capital markets like over-the-counter derivatives, often blamed for the much of the 2008 global credit meltdown.

If anyone doubted that he was serious about imposing this new level of federal oversight on top of the already crowded provincial regulatory scene, signals coming from Flaherty’s top officials this past summer suggested, not just a readiness to act alone, but a growing enthusiasm for that option.

Douglas Hyndman, who heads the Canadian Securities Transition Office that Flaherty set up to push this file, even told Maclean’s in an email that the Supreme Court, by directing federal policy-makers to consider regulating systemic risks, shifted their attention “precisely where Canada needs to do a better job to get regulation right.”

If any provinces thought the feds might take ages to figure out how to proceed along those lines, Hyndman had news for them. “Our planning horizon,” he said, “is in months, not years.”

Today’s joint news conference on Parliament Hill by Flaherty, Ontario Finance Minister Charles Sousa and B.C. Finance Minister Michael de Jong, was mostly a mutual back-patting session about the virtues of cooperation. But there were also a few telling references to how the ominous possibility of Ottawa going it alone factored into their bargaining.

At one point, Flaherty mentioned  “we have been proposing to bring in federal legislation that would deal with the issue of systemic risk,” before adding politely, “This is much better.” And de Jong alluded, rather diplomatically, to his understanding that Ottawa felt that it had “an obligation to act legislatively” and add “another layer” on top of provincial regulation. “This precludes the need for that,” de Jong said, with a palpable air of relief.

The deal unveiled today aims to have the new regulator up and running by 2015. It will be headquartered in Toronto, but with branch offices in any province that participates. With just Ontario and B.C. aboard, it would cover about two-thirds of Canadian capital markets, since Toronto has by far the country’s largest stock market and Vancouver its second biggest.

How many other provincial governments decide to sign on remains to be seen. Quebec isn’t about to bend, and Alberta seems only slightly more likely to shrug off past reservations and join the club. “Quite frankly I expect that a number of the other provinces and territories fairly quickly will climb on board and accept this proposal,” Flaherty said. “It’s in their self- interest to do so and not be left behind. And we’ll see [on] a couple of the others that are more intransigent how that works.”


Flaherty got his securities deal by saying he’d go it alone

  1. Ontario has always been for it. It’s Bloc Quebecois and Bloc Alberta that haven’t been.

    • Its why they don’t want an exchange in Alberta. First trade I ever made was on the ASE (Alberta Stock Exchange).

      Only good thing Ottawa has done for investors int he las 3+ decades is stop the sale of the TSX group from going offshore to UK. But Ottawa ignores everything else even though they have the laws to prosecute bad behavior.

      • We don’t HAVE a federal securities regulator.

  2. Canada had it’s own ‘made-in-Canada’ financial crisis before the world financial meltdown of 2007-08. It was called the Asset Backed Commercial Paper (ABCP) and very ordinary Canadians had their RRSP’s and savings confiscated for 18 months while all the different provincial security regulators pointed fingers at each other.

    Provincial security regulators are just so, uh, provincial. Just right for those hewers of wood, drawers of water, and diggers of tar.

    • CHMC absorbed the ABCP melt down governemtn caused. Its on you, I, our kids and grand kids now.

      Ottawa did bailout th banks for at least $125 billion.

      Reality is, when interest rates were fraudulently pushed down, legitimate lenders stopped lending as returns were below inflation+taxes. If an investment doesn’t have a total return above _real inflation+taxes, it is in effect a negative value investment. Part of why so many pensions are in trouble and don’t have the assets to meet their obligations is because of this fraud on interest rates below inflation+taxes.

      And why I no longer invest in money, no lending at all. OK, I have a minor 0.7% position in preferred shares…thats as close to a loan I will get. But it pays 6.5%…

      J CU PIIIGGGS debt countries in the G20/2006 addodpted money print for government debt and that is what kicked this depression off. But they will deny it, but that is when Bernanke started printing money for debt and fraud low rates so lenders didn’t lend in 2007 which caused the credit crisis. The fraud eventually lead to 2008 stock crash.

      I saw it coming and profited. I was in cash for the crash. Got lots of stocks cheap on early 2009.

      • Ottawa PURCHASED $108 billion worth of mortgages, almost none of which have defaulted 5 years later. If it was truly a bank bailout, the banks would not have had to give up $108 billion worth of assets in return. They simply would have been given the money. The feds actually made money on that transaction – purchasing mortgages paying over 5%, and financing the purchase with government bonds at less than 2.5%. Not only that, but these mortgages were already insured by the CMHC, meaning the taxpayer was on the hook for them already. That’s why it was called the IMPP – Insured Mortgages Purchase Program.

  3. While I agree Canada needs better security regulation, I have zero faith in Flaherty or Ottawa to handle this correctly. Lots of crime goes on and the federal government does nothing even though they have the authority to prosecute. Any corrupt politicians, top mafia or mayors on the take in jail tonight? I rest my case.

    Another case was the “Trust” scandals where volume of trades clear shows insider trading via Ottawa was rampant. NDP asked RCMP to investigate and nothing was ever done. Savvy investors know when insider trading is happening, its in the charts, as I use it as a ethics measurement.

    I would bet the farm we will not see some of the needed changes below:

    – politicians must publicly disclose all stock and position holdings inside of 30 days. SEC like disclosure.

    – Ottawa must start prosecuting insider trading even if it is a politician or government.

    But here is the real reason Ottawa wants it. They want transaction taxes, information for CRA, as well as insider information for government. Lookup transaction taxes, as the day tax greedy Ottawa imposes them my investments in Canada cease.

  4. Ottawa is just looking ahead. Law has nothing to do with why they want control. They want a national transaction tax. Want proof?


    Always look to motivation and assume governemtn tax greed behind such moves. Ottawa has the laws to prosecute fraud. But take this case, only $10,000 bail for first degree murder and embezzlement.


    Today he walks free in $10,000 bail. His investment embezzlement spanned provinces too, as a big lawsuit is pending. But feds are not doing much at all as the province is handling the case. Such cases in the US would see federal trial.

  5. Once you give up a right or privilege the government will never give it back. The Provinces have to maintain autonomy as much as possible. The Americans had a war over this usurpation of (states) provincial rights. 1861-1865.

  6. We already have lots of regulators and regulations. What we need is enforcement! There is no political will to enforce the regulations we now have. Companies and rogue traders are very rarely charged with any offenses. Even when they are it usually results in the proverbial slap on the wrist and a promise to not get caught again. I really doubt the feds will do any better.

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