Single Securities Regulator: Economics Writer Philip DeMont on Merits for Canada
Freelance business and economics writer Philip DeMont shares his thoughts on a recent Supreme Court of Canada ruling granting permission for the creation of a single securities regulator. The current system of provincial regulators has benefits for individual investors; however, it complicates the process for companies that want to list, as each province has specific regulations for its jurisdiction. A national system, likely following the regulations of the OSC, would streamline this process. Despite this ruling, DeMont notes that creating a national regulator will be difficult because of opposition from Alberta and Quebec. Crucially, political support for this issue appears to be quite low, despite its non-partisan status, making further progress unlikely. DeMont highlights the potential positive impact a single securities regulator would provide on issues such as climate change, diversity, and corporate transparency.
James West: Hey, welcome back. My guest this segment is Philip DeMont; he’s a freelance business and economics writer. Phil, welcome to the show.
Philip DeMont: What’s the word, hummingbird?
James West: [laughter] So Philip, I wanted to tackle an issue here that is of extreme interest to everybody in capital markets across the country, and that is, the Supreme Court has given the green light for a unified pan-Canadian securities regulator to govern the country’s financial industry.
People in some quarters are quaking in their boots; in other quarters, they’re cheering from the rafters. Which should we be, as retail investors?
Philip DeMont: Well, I mean to some degree, if there’s a retail investor, what you want to be is happy with a single regulator, if you get it; because it’s not obvious you’re going to get it. They’ve been trying since 1934, they’ve had references to the Supreme Court before which didn’t work out because fundamentally the constitution works against a single regulator in some sense.
So they came up with this cooperative idea, and people have to sign on. So you’ve got everybody signed on except Alberta and Quebec, and you’ve got politics in play; that’s why we didn’t get it before, that’s why we might not get it this time. For an investor, though, I have never been a big fan of provincial regulators – not because they’re well meaning people, but there tends to be a bias. Nova Scotia has a regulator, absolutely find people, but when you go down there as a company and you kind of say ‘well, we want to list in this certain way because we can’t list on the TSX’, okay, we might kind of accommodate you a little bit. Like, not necessarily throw the dog out, but it’s a bit like, okay, if you’re an investor down in Nova Scotia at one of those stocks, you’ve got to kind of go, okay, am I sophisticated enough to play? It’s a shell company doing this, and blah, blah, blah.
So the OSC, the TSX, you can kind of go, or even the Quebec Exchange by itself, you could kind of go, these guys play hardball, I can kind of be protected. Vancouver, when the VSE was up? Little more of a close to the, you know, you’re slicing the cheese pretty close.
James West: Yeah, okay.
Philip DeMont: And that becomes a bit of an issue. So if you’re an individual investor. But if you’re a lister, you probably don’t like the single regulator, because essentially, it’ll devolve towards the OSC kind of regulations. That’s kind of what they’ll be looking at.
James West: Okay. So essentially from an individual investor’s perspective, it’s a good thing, but from a listing issuer’s perspective, it’s complicated, then?
Philip DeMont: Well, I mean, the problem always was, if I was a mining company with an odd kind of a situation – because if you were a straight-up mining company, you’d go with the TSX to some degree. So you’re out in Vancouver, the whole argument was, you don’t understand the mining industry in Ontario, so okay, so they started doing various kind of things. This could be equivalent of a merv issue, those kind of, we’ll shell it this way, we’ll do it this way, we’ll do a bit of a reverse takeover – and that stuff’s okay, nobody’s cheating, you know, or anything like that.
But as an investor, I mean, I’d never go there. Because it’s like, okay, the risk is, I’m going to get skunked. On the upside, yeah, if I got a $1.50 stock, it might go to $4.00, but it might go to $0.00. So I, you know, I’m a conservative investor, I go to the OSC or that kind of a situation, because they’re basically going to protect me, and I’m looking for 4 or 5 percent; I’m not looking for 50. If you’re looking for 50, yeah, you go to the Venture Exchange, those kinds of situations, and the listings are a little different. So that became kind of the situation.
Alberta, Quebec, Quebec is more of a sovereignty issue; Alberta is more of a ‘you don’t understand our industry’ issue. The dog’s kind of barking on that one. Like, it’s going for a while, but everybody’s running from the same hymn book now a little bit, and if you’re an individual investor you really want to be protected. Because it’s nice, look, I’m not an idiot, but I’ll go and read these prospectuses and kind of go, okay, I’m not quite seeing it, and then you’ll talk to Steve or you’ll talk to you and it’s like okay, here’s what’s really going on…oh. But if I’m just doing it on the Exchange, you know.
James West: Oh, okay. So if Alberta and Quebec do not sign on to be governed by a single regulator, does that mean there will be no single regulator? Or will we have a single regulator just ex of Quebec and Alberta?
Philip DeMont: Well, I think there’s two things going on. One, BC signed on, and they were always difficult before; so that’s a plus on that side. Then the negative side is, it used to e the Quebec nationalism issue; I don’t think that’s the issue anymore, nationalism’s kind of died in Quebec. They kind of raise the sovereignty flag because it’s a little bit more of a domestic voting issue; it’s the Alberta Exchange, and the problem is, is that if you think that Trudeau has not done enough on the pipeline issue, then what you can do if you’re the Notley government is say look: we need protection on, you don’t understand our industry so you can’t force us into the single regulator.
The flip side is that it’s not really high sailing issue anymore. If I’m Notley in Alberta, I’m not going to trade pipeline movement for, okay, you didn’t do anything in pipeline, do something on the Alberta Stock Exchange with the stock exchange out there on the regulator; do something on the pipelines. Just keep pushing on that. So you can make the argument that Alberta is the province in the way, but I think at the need of the day, it really comes down to this: does Trudeau want to do this before an election, which could make some sense, get it out of the way, or does he want to not take any risk in terms of any kind of a sovereignty fallout, do it after an election, and then you’re pushing it off, because you’re rolling the ball down the road; you don’t know when it actually stops.
James West: Okay. So I’m thinking of all of the provincial regulators and all of the prospectuses I’ve looked at who, you know, occasionally there’s omissions as to which provinces or territories which provinces get registered in. But in general, I find it difficult to detect the differences on a province-to-province basis in terms of securities regulations. So can you give you give me n any examples of specific differences that are unique to certain provinces or groups of provinces?
Philip DeMont: Well, I’m not really thinking of specific regulations, but here’s an example: Halifax, Nova Scotia used to have different incorporation regulations it was way cheaper to go and basically the argument became if you have whatever the fee was, a couple of people in their office you could list in Nov Scotia.
So all of a sudden, these companies on the TSX were gone and solved in Nova Scotia even though all they had was me in an office. And so it’s that kind of a thing, and the problem isn’t even so much, and again, it’s not like they’re stupid and the only smart people are in Toronto and in Ottawa. It’s more an issue of, they’re kind of fighting for sovereignty issues. So there used to be they all pushed to have a Maritime stock exchange, because they viewed it as, you don’t understand our markets better for capital listings, and my dad was a sock worker for a million years; he kind of scratched his head and this and said well, it’s not like Toronto people don’t get on the phone.
And so you get into this debate. So if I’m in Alberta, you know, you don’t understand, we want to do these reverse takeover vehicles; I kind of think it’s not – just list the frigging list.
James West: Yeah, right.
Philip DeMont: And do it that way. Because if not, you’re going to ask a question: if you’ve got 8 of the other provinces onside, and Quebec’s kind of out there because it’s Quebec and you leave them alone, but if I’m listing in Alberta or nowhere else, and that’s the argument, it’s like being in a state with open gun carry: okay, I’ll just stay in these states and stay out of those bars down there. And it’s that kind of a problem: why would I walk into a place where they’re going to be starting shooting at me, whereas I can go here and I can get some vehicle similar to whatever is out there, and I can do it in Toronto.
James West: Okay, so it’s been 80 years that the provinces have been fighting the Feds; the Feds want this, the provinces aren’t necessarily supportive of it. Now we’ve got m broad-based support. How likely is it that this is actually going to go through this time?
Philip DeMont: Well, I mean, it’s better than it was, partly because the last Jim Flaherty, he pushed it, and there’s some momentum among – it’s in a sense a non-partisan issue. You’re not going to have a conservative finance minister that far from Bill Morneau or far from Michael Wilson in the old days, or whoever it is.
The problem is, Trudeau is not that popular right now. He’s looking to try to win an election next year so does this become an issue he can hang any kind of a hat on? Here could be a political way to look at it: investors, Bay Street tends to be conservative. So if I’m the Liberal government, am I going to do this, am I going to get their okay, you might not vote for me, am I going to get money over there? Can I go down to Bay Street and have a fundraiser and have a bunch of people give me some dough?
If not, it’s like, I was a part of a guy for a while, I’d be saying, no. go where the money is, or your votes are; don’t go where they’re not going to vote for you or give you money, and give them something. It’s – don’t do it.
James West: Right.
Philip DeMont: Because you’ve got a million things you’re going to fight on, and you know, for Bay Street, it’s like, well, why wouldn’t he, it makes perfect sense! Yeah, but he’s fighting pipelines and he’s fighting native issues, he’s fighting a bunch of stuff. So he puts it in a different mix. So for Bay Street, it’s a one issue: like, why wouldn’t they do this? But then at the same time, they want to reduce the deficit. They say, you can’t have a deficit. It’s that kind of an issue.
James West: Interesting. Okay, so then, are there any industries that would benefit from this amalgamation of governance across the country relative to other ones?
Philip DeMont: Well, I mean, one thing you could look at is, some of the softer kind of issues we look at, and we don’t really think of those regulatory issues; climate change, women on Boards, for instance, diversity. Because with a single regulator, for example, let’s take climate change: you don’t cap and trade, which I think was kind of dumb, because it’s a market-based solution to that problem.
Okay, so now all of a sudden you’ve got regulatory concerns about what clean up, let’s say the Alberta oil well cleanups are going to cost. So you need to kind of list that kind of an idea.
So what they’re going to kind of do with those kind of regulators if you have a single regulator, is, you’re going to have to list this stuff. You’re going to have to go and figure out what it’s going to cost, and you’re going to have to list it; everybody is going to have to list it. So if I’m buying from oil driller One and there’s a future cost that government’s going to make me pay for cleaning up the oil wells, okay, I know it’s $100 million and 25. But you know, this other guy is not going to get away with not being able to do it. So, transparency 0 because one of the troubles with transparency, it might be nice to say well, you’re transparent. But if I’m not, I kind of win. So you either force people to be transparent on those kind of issues.
Women on Boards. I mean, I’ve always been confused by this, because every time you see women CEOs, women on Boards, you do better. Fundamentally, your returns are higher. Male companies tend not to do that. Okay, governments are saying, smarten up, we’ll put it into regulation: you’ve got you disclose your Boards, you’ve got to blah, blah, blah, blah, blah. And then you force them to do it, and everybody goes and it’s easy then you go back your shareholders, a bunch of male shareholders might bitch about putting, ‘oh, we got too many women on the Board, but well, the regulator made us do it’.
James West: Right.
Philip DeMont: It’s kind of like gay marriage in the States. Every state opposed it, but they knew they were going to get overthrown, because the government, the Supreme Court, already ruled. If the regulator tells me to do this, sorry guys, gotta do it. So you don’t like climate change, don’t really care; regulator tells me to do it.
James West: No, right, that’s great input. Thanks very much for joining us today; we’ll be back soon.
Philip DeMont: Sure. Terrific, thank you.
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