The Fine Print on a National Securities Commission

Admittedly, this is no easy task. The Hockin Report is the third attempt in recent years at selling the idea. Which combination of carrot and stick can sway those provinces that are still reluctant to hand over to a federal or national organization their regulatory and supervisory powers of securities markets?

Instead of focusing on the major overhauls of the global financial system, the Canadian finance minister seems determined to nationalize our provincial securities regulators, risking a constitutional confrontation in the process – which is exactly what Canada needs in these turbulent and uncertain times.

Keep in mind that securities commissions played a minor, very minor, role in the on-going global financial melt-down. Even when it comes to our own contribution to the financial drama, the ABCP crisis, a study conducted for the Hockin Expert Panel states:

The ABCP crisis turns out to be a poor test with respect to arguments in favor of greater consolidation of regulatory responsibility… The case for consolidation would be strengthened if there is evidence that communication between different parts of a single agency proves more effective than communication among agencies. (Chant, 2008, p.46)

At any rate, the crisis originated, and has been most damaging, in the United States and United Kingdom, both countries which have had a national securities commission in place for a very long time.

It is also argued that the complexity of the current structure with 13 securities commissions is bound to increase costs for issuers and make enforcement less effective. It makes sense, does-it-not, that a single, national securities commission would be so much more effective. The merger of several cities and towns into the Greater Montreal was also to lead to cost efficiency, lower taxes and better quality of service. Well, it is wise to be sceptical about this one too.

But the debate may go on ad nauseam and probably will before the courts. However, a somewhat thorny issue does not seem to have been addressed by the Hockin Report nor by its predecessors.

The Hockin Report proposes that any publicly traded company could opt to be regulated by the federal, or national, securities commission rather than by the securities commission of the province where the company keeps its legal residence. Does that mean that this federal or national commission would have to require all publicly traded companies to communicate with their investors in both official languages?

Indeed, would a francophone investor, regardless of where he or she lives in Canada, be entitled to receive a French version of annual reports and all other financial communications published by a publicly traded, federally regulated, company?    Canadian consumers are informed of the contents of their cereal box in either official language wherever in Canada they’re having breakfast. So why would it be any different when it comes to a national organization that is supposed to ensure Canadian investors are adequately informed about their investments?

Let’s look at a concrete example. In the spring of 2008, Visa Inc. became a publicly listed company in Canada. To avoid the financial costs and delays involved in translating its (503-page) prospectus and related documents, Visa decided not to distribute and sell its shares to Quebec investors.

How would that be possible if Visa had been regulated by a national, or federal, commission? How could a federal agency endorse such a scenario, depriving francophone investors outside of Quebec as well as in Quebec from information in French?

This is not a minor issue. The cost to produce legally binding translations of all documents is enormous. At this time, even among the 253 largest listed companies in Canada, the companies making up the TSE-S&P Index, only 81 (37%) publish their annual report in French and in English. Only 60% actually provide a French version of the all-important Management Information Circular, the document that provides information on executive compensation, proposes board members for election as well as any special resolution to be voted on by the general assembly of shareholders.

For the thousands of smaller companies listed on Canadian exchanges, the problem would be even more formidable.  Proponents of a national, federal, securities commission better answer those questions before proceeding too hastily with their plan. Were a national securities commission to require that all communications of publicly traded companies with their investors be available in both official languages, the cost would be astronomical.