Assemblée législative de l'Ontario

SECURITIES AMENDMENT ACT, 1994 / LOI DE 1994 MODIFIANT LA LOI SUR LES VALEURS MOBILIÈRES

C.D. BRUNER

SECURITIES DEALERS SOCIETY OF ONTARIO

TORONTO STOCK EXCHANGE

INVESTMENT DEALERS ASSOCIATION OF CANADA

PHILIP ANISMAN

ONTARIO SECURITIES COMMISSION

CONTENTS

Thursday 1 December 1994

Securities Amendment Act, 1994, Bill 190 Mr Laughren / Loi de 1994 modifiant la Loi sur les valeurs

mobilières, projet de loi 190, M. Laughren

C.D. Bruner

Securities Dealers Society of Ontario

Harry Bregman, president

Bryan Finlay, legal counsel

Toronto Stock Exchange

Pearce Bunting, president

John Carson, director, market integrity

Investment Dealers Association of Canada

Ian Russell, vice-president, capital markets

Greg Clarke, vice-president, member regulation

Philip Anisman

Ontario Securities Commission

Ed Waitzer, chair

STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS

*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/

Prince Edward-Lennox-Hastings-Sud ND)

*Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)

*Abel, Donald (Wentworth North/-Nord ND)

Caplan, Elinor (Oriole L)

*Carr, Gary (Oakville South/-Sud PC)

*Haslam, Karen (Perth ND)

*Jamison, Norm (Norfolk ND)

*Johnson, David (Don Mills PC)

Kwinter, Monte (Wilson Heights L)

*Lessard, Wayne (Windsor-Walkerville ND)

*Phillips, Gerry (Scarborough-Agincourt L)

*Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Crozier, Bruce (Essex South/-Sud L) for Mr Kwinter

Waters, Daniel (Muskoka-Georgian Bay/Muskoka-Baie-Georgienne ND)

Also taking part / Autres participants et participantes:

Sutherland, Kimble, parliamentary assistant to Minister of Finance

Clerk / Greffière: Mellor, Lynn

Staff / Personnel: Yurkow, Russell, legislative counsel

The committee met at 1000 in room 228.

SECURITIES AMENDMENT ACT, 1994 / LOI DE 1994 MODIFIANT LA LOI SUR LES VALEURS MOBILIÈRES

Consideration of Bill 190, An Act to amend the Securities Act / Projet de loi 190, Loi modifiant la Loi sur les valeurs mobilières.

The Chair (Mr Paul R. Johnson): The standing committee on finance and economic affairs will come to order. Today the business of the committee is Bill 190, An Act to amend the Securities Act. The members of the committee will note that they have an agenda placed before them. We have witnesses coming before the committee this morning and this afternoon, and at 4:30 this afternoon we will consider clause-by-clause consideration.

There will be a presentation this afternoon at 3:30 pm by Mr Philip Anisman, barrister and solicitor, and you have received in your offices a copy of that presentation, quite a substantive presentation, as I understand it.

Also, I'd just like to remind committee members before we start that we will be sitting in the intersession to examine pre-budget consultations, and that information will be coming soon to the members of the committee.

C.D. BRUNER

The Chair: At this time I'd like to call Mr C.D. Bruner to come forward, please. Mr Bruner, please make yourself comfortable. Get yourself a coffee or a glass of water, if you wish. Whenever you're comfortable you may proceed.

Mr C.D. Bruner: Members of the committee, I think it's important that each of you understands why I'm expending the time and effort to appear in front of this committee. This is no joy for me. While I do occasionally work with public companies, I have only a passing knowledge of the Ontario Securities Act. My dealings with the Ontario Securities Commission have been, thankfully, limited. The reason I'm here is my anger at seeing what I believe to be manipulation of the facts, manipulation of the process and a resulting system that will be inequitable and unjust.

Let me start with the manipulation of the facts. Each of you has been undoubtedly briefed by the OSC or the Ministry of Finance. You've been told how urgent it is to pass this bill and how the Ainsley case has in some manner destroyed the ability of the OSC to operate. This is pure fiction. Let me provide you with a few facts.

Public companies have continued to respect OSC policies since the Ainsley case. The financial markets have continued to function without any interruption since Ainsley. There has been no evidence to suggest that Ontario's financial markets have suffered as a result of Ainsley.

The Ontario Securities Commission, with a plenitude of legal talent on staff, knew or ought to have known for the last decade that it has been acting outside the limits imposed upon it by the Securities Act if it believed its policies had the force of law.

It has been over a year since the Daniels task force was struck. Nothing has happened to make this piece of legislation urgent, and it isn't. That is not to say that this legislation isn't important. It is very important that the OSC act in accordance with its legally prescribed mandate and that it be given the powers necessary to perform its function. I am all for giving them those powers, but that does not include giving them the ability to write law. The OSC policies are not law; they are simply the OSC's interpretation of the statute and its regulations.

The Ainsley case did not in any way make these policies any less enforceable than they already were. In fact, OSC policy 1.1 specifically states that the OSC policy statements "do not have the force of law and are not intended to have such an effect." The OSC did not lose or gain jurisdiction in the Ainsley case; the OSC didn't have the jurisdiction in the first place. These are the facts.

Here is one additional fact for you to ponder. In the briefing notes issued to each of you by the OSC and the Ministry of Finance it's proclaimed in big, bold lettering that Ainsley and Pezim point out the problem. These notes go on to discuss how the courts did not give policies the force of law in these particular instances. Why in the world did the OSC, knowing and having stated in its own policy 1.1 that its policies do not have the force of law, suggest that it had in some manner lost jurisdiction it never had? In a prospectus this would be false and misleading.

I want this committee to understand exactly how much public input was received for the Daniels report, on which Bill 190 is supposed to be based. There were a total of four members on this task force, two of whom work for the Ministry of Finance; that is, 50% of the task force. There were only 33 submissions initially received by the Daniels task force. There was no advertising for comments once the initial draft of the Daniels report was released, other than the OSC bulletin. This further limited public response. There were no public hearings. Comments were requested from industry and professional organizations, but no comments were directly requested from public companies. Of the 33 submissions received, a full 10% were from the OSC itself. An additional 20% of submissions received in the first round were from regulatory bodies which the OSC oversees. The final report was vetted by the OSC before it was released to the public.

All of this shows that the Daniels report, on which Bill 190 was based, was heavily influenced by the OSC and the Ministry of Finance -- very heavily influenced. Mr Waitzer is quoted in the Law Times as saying that he had requested that Mr Laughren give the OSC legislative powers as a condition of his employment a year ago. What am I to conclude? While I won't say the Daniels report is unfair and biased, it certainly has that appearance. That is ironic, given the OSC role in ensuring a fair and unbiased market.

One of my major concerns is the fact that in passing this legislation you are setting a significant precedent. You know not what you do. Keep in mind that the only other body in all of Canada that has powers similar to those you're about to give the OSC is the CRTC. This is some precedent you're going to set if you pass this bill: You are going to allow a non-elected body to write law.

It gets worse. This is the same body that has been accused of being heavy-handed, threatening and arrogant. These are the same people who have swayed and tainted the Daniels report and the process upon which it is based. These are the same people who have failed to make a full and complete disclosure as to the urgency of this legislation. You are only one step away from letting the OSC write its own law -- one single step.

Remember, the OSC is just chock-full of legal talent, but it is claiming an inability to have statute and regulations passed in a timely manner. Do they understand the legislative process? When was the last time the OSC presented Securities Act amendments to the Minister of Finance for introduction to the House? Bill 190 is simply a means for the OSC to get around its inability to get required legislation through the House or cabinet. As a result of the OSC's inability, you are now considering a bill which would allow it to effectively bypass the House and cabinet. Even the approval of the Minister of Finance will not be required for OSC rules to become law.

Am I to assume that the House, cabinet and the Minister of Finance don't consider securities legislation to be of much importance? I don't believe that's the case. The OSC is unable to function within the system, yet the ministries of the Solicitor General, the Attorney General and Consumer and Commercial Relations, not to mention a multitude of other ministries, are able to function within this same system. What truly scares me is that these ministries now have a precedent to request these same powers to make law that the OSC will have. They all have an equally valid case. After all, to quote the Daniels report, "The salient question is whether for most commission initiatives the supplementary review undertaken by cabinet of regulations justifies the administrative resources and time delays, given the intensity of the demand for cabinet time."

Why not just have all the ministries write their own law? Then we wouldn't need the Legislature or the cabinet, and think of how much more efficient it would be without all of you. We all realize how ridiculous this statement is in a democratic system, but Bill 190 is not that far removed. Take a closer look. We are changing the system to accommodate the OSC, rather than changing the OSC to accommodate the system. Ask yourself why.

If you doubt the significance of the precedent you are about to set, I challenge you to ask Mr Waitzer, chairman of the OSC. This is an extremely significant precedent. You need to ask yourself and Mr Waitzer what exactly the consequences will be.

As you've all figured out by now, I don't care to see this bill passed in its present form. That is not to say that Bill 190 and, more particularly, the Daniels report don't have some very significant positive elements. They do. The positive elements include requiring the OSC to provide an annual statement of priorities, public hearings for rules -- something we didn't get with the Daniels report -- a requirement for the OSC to prepare a supporting statement for these rules, detailed notice and comment procedures. All of these would help in opening up the OSC to public input, something that has been sadly lacking. Unfortunately, positive as these elements are, they do not outweigh the negative aspects of Bill 190.

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This bill, while full of well-meaning, bureaucratic intentions, lacks an essential element: accountability. Passage of this bill as it now stands will mean that my elected representatives are no longer required for OSC legislation. The OSC will become judge, prosecutor and legislator rolled into one. No one will be accountable for the additional costs except the paying public. This bill must not be passed without these critical areas being dealt with. The end result does not justify this lack of accountability.

While I had hoped that these areas would have been dealt with in a more comprehensive piece of legislation, the Daniels task force, upon which this bill is based, was given only a narrow mandate. The significant issues dealt with by a similar task force in BC could not be dealt with in the Daniels task force due to Daniels's lack of mandate.

As a result, while I don't agree that Bill 190 is proper, I can see my way agreeing to its passage if, and only if, a new task force is struck concurrent with passage of Bill 190. That task force would examine the issues of equity, fairness and accountability not dealt with by the Daniels task force.

Two specific issues that I will be discussing deal with the separation of policymaking and adjudicative roles of the commission, and accountability of the commission to those who pay the fees. Both of these issues need to be addressed by a new task force.

As I mentioned, my first concern is that no elected representatives are being required to approve rules. This is unprecedented to the point that I believe if the citizens of Ontario were made aware that their fundamental right to have elected representatives make law was being abridged, they would scream in anger. This bill abridges those rights.

Amendments proposed for section 143.4 of the Securities Act would allow rules that are proposed by OSC to become law if the Minister of Finance fails to approve or reject a rule within 75 days. We are not talking about rules that are required urgently, as those that come under section 143.2 would be immediately effective; we are talking about day-to-day rules.

I also wish to mention at this point that the Daniels report does not match Bill 190 in this regard. The Daniels report recommended that when cabinet failed to approve or reject a rule, it would become law within 75 days. In either case I disagree but, given a choice, believe that the Daniels report is a better solution.

Simply put, I did not elect the bureaucrats of the OSC. No matter how well-meaning they may be, I want my elected representatives at some point to approve of rules. I don't want the OSC writing law. I am requesting that not only should the Daniels report be followed with respect to rules coming into force, but that, additionally, either the Minister of Finance or cabinet must approve a rule prior to it coming into force. I want at least one elected representative to approve rules. Is that too much?

While there may be a legitimate argument that cabinet time is too valuable to waste on regulations under the Securities Act, a view which I do not endorse, I refuse to believe that at the very least the Minister of Finance will not spare the time to approve rules prior to submission to cabinet. This is no more acceptable than saying that we should dispense with a defendant's need for a defence because it takes up court time. In both cases it is expedient but leaves out the essential elements of due process.

With the approval by the Minister of Finance of OSC rules, I will at least be able to hold a single elected official accountable. The minister's approval, when combined with the cabinet's ability to review, as suggested in the Daniels report, will still allow rules to be passed in an efficient and timely manner.

My second concern is with respect to the separation of policymaking and adjudicative roles at the OSC. While you have heard that the BC task force issued a similar report, I can assure you that it is not at all the same. In BC the task force dealt with and recommended separation of policymaking and adjudicative roles at the commission. That is a major difference. To put that in plain language, the BC task force is saying that the commission should not be both prosecutor and lawmaker. If this legislation passes the way it is now, the OSC will be judge, prosecutor, lawmaker and jury all rolled into one. That is not my idea of an equitable system of checks and balances.

As I mentioned earlier, the Daniels task force claimed that it was unable to deal with this particular issue as it had not been given the mandate. I am requesting that a task force be struck by this committee to examine the separation of policymaking and adjudicative roles at the OSC.

The third area of concern not dealt with by the Daniels report was the cost of implementing these proposals. There are costs involved and these costs may well be significant. Where's the budget of the anticipated additional costs resulting from Bill 190? I doubt there is one. These costs will be borne by public companies and their shareholders through the payment of fees to the OSC.

As it presently stands, there's little doubt in anyone's mind that the OSC is collecting an illegal indirect tax for the government of Ontario. The revenues of the OSC were in excess of $48 million in 1993, while costs were only $19 million. There is no justification for these excessive fees, and they result in market inefficiencies. Based on public comments made by the chairman of the OSC, Mr Waitzer, I believe he would be in agreement. Mr Waitzer also expressed concern about the lack of funding for the OSC; however, I am not prepared to give the OSC a blank cheque. The OSC must be made to account to those who are paying the fees.

I believe the best manner in which to deal with this would be to have the OSC chairman report to a board of governors comprised of public company executives whose role it would be to approve OSC budget requirements and fee schedules. This serves the additional purpose of putting the OSC in touch with its constituency: public companies and their shareholders. As you will know from the Daniels report, very few public companies commented, which speaks volumes about the OSC.

I am requesting that a task force be struck by this committee to examine accountability with respect to the fees and budgets of the OSC.

There are other areas of change that, while not as essential as my three main concerns, I wish to mention. OSC registrants should be notified of substantive rule changes by the OSC in the same manner that public companies provide disclosure to their shareholders. It is not enough to publish them in the OSC bulletin.

The OSC hearing process should be made fair by allowing registrants an opportunity to have their cases heard in camera. Presently, registrants are unfairly penalized if they choose to challenge the OSC, as press coverage, win or lose, has a detrimental effect. Most registrants abrogate the right to a fair hearing, choosing instead to pay a fine in an attempt to minimize press coverage, which can throw their market offering or management in a questionable light. It's already expensive enough for these registrants to fight the OSC without the additional connotations associated with press coverage.

Junior companies are the companies that create new jobs and new opportunities. While investors must be warned of the risks involved, this should not result in junior companies being unable to access the capital markets in Ontario. High risk is not a valid excuse for limiting access to capital. Gambling is legal in Bob Rae's Ontario.

Clause 1.1(a) of the proposed amendments states that the purpose of the act is "to provide protection to investors." While it sounds laudable, I believe this clause should be stricken so that only clause 1.1(b) remains, the fostering of "fair and efficient capital markets." To have a fair market, investors must be protected, but that protection should not be to such an extent that capital markets become inefficient.

In conclusion, I had the occasion to speak with Ron Daniels, the author of the Daniels report. His response to my concerns was that I expected the OSC to continue operating as it had in the past -- in a closed, heavy-handed manner. He didn't believe that I'd given due consideration to the fact that the OSC would change under this new system and would be more open to public scrutiny. He has a valid argument and so I reflected on it.

Mr Daniels is right. I am expecting the OSC to continue operating in the same closed, heavy-handed manner that it has in the past. In looking at the record, I have no reason to believe otherwise. The OSC has failed to reach out to public companies or their investors in any significant way. Instead, to quote one of the respondents to the Daniels report, "They act as though they had a manifest destiny mandate."

The OSC needs to be proactive in involving those who should be involved: public companies, their executives and their shareholders. Presently, there are few public companies or public company executives interested in dealing with or being associated with the OSC. The OSC has held itself out to be an arrogant and threatening quasi-judicial body. Who can blame them? The OSC must start a dialogue with its constituency, those who ultimately pay for its existence. To that end, the task force I'm proposing could go to great lengths, given the proper mandate. The OSC must go to greater lengths to reform itself and start a dialogue with public companies, their executives and their shareholders, rather than only the dealers and those who are in the practice of securities law. That would ultimately make the OSC more user-friendly, more accountable and more respected.

To reiterate, I am asking, at a minimum, for two items, if indeed this bill is going to be passed; namely, that an elected representative, whether the Minister of Finance or cabinet, approve all rules, and that a new task force be struck with a more complete mandate to examine the separation of policy-making and adjudicative roles at the OSC and to examine the accountability with respect to costs incurred and fees charged by the OSC.

I provided you a summation of my comments and concerns in written form. Please review these concerns carefully. Do not pass Bill 190 in its present form.

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The Chair: We have three minutes for questions and answers per caucus. We'll start with Mr Crozier.

Mr Bruce Crozier (Essex South): Thank you, Mr Bruner. Very quickly, you may be familiar with the minister's statement to the Legislature with regard to this legislation, in which he said, "There are indications that other provinces will be following Ontario's lead. British Columbia recently announced it intends to provide" such "powers to its securities commission next spring." And, very briefly, when you talk about an elected representative having input or being involved in the rule-making, it says in that same release: "Proposed rules will be subject to a 90-day public comment period, and the Minister of Finance will have the power to approve, disapprove or return the proposed rule to the OSC to be reconsidered." Would you comment on those two excerpts from the minister's statement?

Mr Bruner: I believe that BC is following the Ontario lead here again. I think Ontario is following the Securities and Exchange Commission's lead in the US. I don't think any of them are right. I think we have to look at how we're doing this. We are doing this without an elected person approving.

Mr Crozier: Well, the Minister of Finance is an elected person.

Mr Bruner: He's not approving the rules. The rules go to him. He can either approve or reject or do nothing. If he does nothing, they become law.

Mr Crozier: It says the proposed rules, after being passed by the minister, or presented to them, are subject then to a 90-day comment period. That doesn't satisfy that?

Mr Bruner: That does not satisfy that.

Mr Crozier: I want to make one comment about capital markets becoming ineffective. I have spoken with some people in the mining and resource industry. They say that it isn't necessarily the restriction that would be imposed by this but that there are other environmental and native rights, a number of issues that affect the investment in Canada and the lack of that kind of regulation in other countries that result in only 20% of the investment funds remaining in Canada. Any comment on that?

Mr Bruner: I'm not a securities lawyer. As I mentioned at the start, I've only got a passing knowledge of the Securities Act. This is something you may be able to ask some of the other respondents in more detail. My concern is only that I understand that there is some detrimental effect to the junior companies, and there should not be within the legislation. They should not treat junior companies differently than they do senior companies, or make it at least more onerous on them.

Mr Crozier: That must be just about three minutes.

The Chair: Thank you. Mr Johnson.

Mr David Johnson (Don Mills): Thank you, Mr Bruner. I certainly congratulate you for coming forward and stating your viewpoints.

Mr Bruner: I may live to regret it.

Mr David Johnson: I know you have the strong impression that your views are in the minority and that's quite probably the case here this morning, but I think it's wonderful that somebody will take the time and effort and have the courage to come forward and state his convictions. I certainly applaud you for that and thank you for that.

You did mention that there was limited input through the Daniels report and I suppose into the situation where we are today. I just would like you to comment on the fact that a great deal of the industry is represented either by the investment dealers association or the securities dealers, I suppose, and they're both here today. They're both going to be speaking to us later today. My impression is that through those two networks, there is a great level of knowledge of what is transpiring through this bill and in fact, while there may not have been a lot of letters or phone calls or whatever, the level of knowledge through those two networks is fairly high. I wonder if you would comment on that.

Mr Bruner: Well, I look at this and I have to express some amazement, because I don't think either of those bodies represents public companies as a whole. As I mentioned, the Daniels report would have been much more effective had there been public hearings. There was only advertising at the start. I was out of the country so I was not able to respond myself. After the initial report had been done and issued, there was no more advertising. Nobody knew about this. At least, I didn't know about this.

The IDA, while representing brokers and dealers, doesn't represent public companies, and it's the public companies who are the constituency here, not the brokers and the dealers. The brokers and dealers are very knowledgeable about the industry and I certainly think their views should be listened to, but they are also under the auspices of the OSC to a large extent, especially IDA.

Mr David Johnson: Okay, that's fair enough. Now, one of the central things, perhaps the central thing, was the separation of the policy-making from the adjudicative role, and I suppose the response we may hear later this morning would be that the system that's proposed through this bill is transparent. This is a word I'm beginning to learn what it means now in this context. Apparently what it means is that there is public scrutiny in the first instance of a certain period of time and then there would be ministerial and cabinet scrutiny before a rule came into being. I think the opposite point of view would be that because of this transparency, having the policy-making and adjudicative roles located in one body, ie, the OSC, will work, and I wonder what your comment would be on that.

Mr Bruner: Well, if there's truly going to be ministerial or cabinet scrutiny, then they can approve it. There's no reason they could not give positive approval to a rule. If these are just going to them and it's just going to sit there for 75 days, which I believe is the intent here, because people are not as interested in securities legislation as other legislation, then there will be no approval.

Mr Kimble Sutherland (Oxford): Mr Bruner, thanks for coming forward today. As someone who, as you said, doesn't have a lot of familiarity, this is obviously a very technical area and a lot of people develop a lot of expertise. But I think on the issue of the accountability to the elected representatives, it may be just a question of the definitions. I mean, you're implying to this committee that because the Minister of Finance isn't saying the words "I approve," then there's no accountability, and I guess I would suggest to you that the way it's set up. If the Minister of Finance doesn't reject them, that in itself is giving the approval and that is the accountability process through the elected official, the Minister of Finance, who has responsibility for the OSC.

Mr Bruner: Well, we have lots of legislation that goes through the House yet we have approvals for it. I don't see what the difference is between him saying, "Yes, I've approved of something," and just ignoring it and letting it sit on his desk. All I can see from that is that he's ignoring it. He's not dealing with it. It's going to go its way no matter what happens.

Mr Sutherland: Mr Bruner, though, you're implying that the Minister of Finance isn't going to look at or be made aware of any of the proposed rules put forward by the OSC. I just don't think that's going to be the case. No matter who the Minister of Finance is, he or she is going to look at those rules that the OSC has proposed and make the decision. I mean, if they sat on the minister's desk for 75 days and the minister was not made aware, that could turn out to be very embarrassing for the minister. So I would think that accountability process is going to be there. The minister is going to be sure that they know what is being proposed by the OSC, and therefore you have accountability through an elected representative.

Mr Bruner: Then why not sign off on it? Why not say, "I've approved it"?

Mr Sutherland: So you just prefer that it's said, that the minister just said, "I approve it."

Mr Bruner: I want to see my elected representatives approving it. I want to see one person, I don't care who, but an elected representative, approving it. I do not want even the precedent set of the OSC making law.

Mr Sutherland: But I guess the point I'm trying to make is that the difference seems to be you feel that the Minister of Finance has to say "I approve" --

Mr Bruner: That's correct.

Mr Sutherland: -- rather than this process, where if the Minister of Finance is not rejecting it, then they are approving it.

Mr Bruner: The minister can still reject, approve, do whatever he wants, but in order for it to become law, the minister should approve, affirmatively.

The Chair: I'm sorry, but our time has concluded. Mr Bruner, I want to thank you for making your presentation before the committee this morning.

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SECURITIES DEALERS SOCIETY OF ONTARIO

The Chair: The next presenter this morning is Mr Bryan Finlay, legal counsel for the Securities Dealers Society of Ontario. Please come forward, make yourself comfortable, and I presume it's Mr Harry Bregman, president, as well?

Mr Harry Bregman: Yes.

The Chair: Please make yourselves comfortable and when you're ready you may proceed.

Mr Bryan Finlay: First of all, I would like to say that we appreciate this opportunity to come and meet with you and discuss some of the concerns we have with the proposed legislation. Let me say at the outset that we have filed a written submission with regard to various points. It's a submission by Mr Bregman, the president of the securities dealers society, who's sitting beside me. I do not intend to read from that submission. I want to commend, first of all, that you do read it from beginning to end, but I want to take the time this morning to address what in practical terms we consider the sort of very minimum relief we would ask with regard to this bill.

I don't think there's any doubt in our mind that it appears that this bill is going through and that we have this one day of hearings, hopefully, to get some amendment to it that will serve the public at large. That's what I want to address. I want to address that particular amendment.

If I could ask you, with regard to the written material in front of you, to turn to the third page from the back, you'll see a document that is entitled in dark print at the very top "The Equal Rights Amendment." If you could just look at that, what we are suggesting, what we're asking for, is that with regard to the proposed bill, paragraph 14 of subsection 143(1) be amended by the addition of these words.

The provision as it now stands in the bill, if you turn it up -- if you've got a copy of the bill in front of you, could I ask you to turn to page 5 of the bill? If you turn to page 5 of the bill and you go down to item 14, you'll see that the commission is to be given rule-making power with regard to "Regulating trading or advising in penny stocks, including prescribing requirements in respect of additional disclosure and suitability for investment."

What we're asking is for an amendment to that provision that would add the clause that's at the top of the page entitled "Equal Rights Amendment" by adding this language, "but no rule regulating trading or advising in penny stocks shall be made unless it applies equally to all registrants who trade or advise in penny stocks." Then I set out beneath that the rationale, but let me explain to you what the rationale is.

The focus of criticism and discussion concerning the trading of penny stocks is that you are dealing with a highly risky investment and that the consumer should be protected. Now, I want you to think in terms of this bill as being, in so far as this provision is concerned, consumer protection. What we're doing is allowing the securities commission to protect the consumer. What we're saying is, if you're going to protect the consumer by imposing rules on the selling of penny stocks, be sure that you apply it evenhandedly. Apply it not only to the securities dealers, who I represent, whose business is mainly penny stocks, but also to members of the IDA, the investment dealers association, and members of the stock exchange.

Impose it, because if rules need to be passed in order to protect consumers, then it doesn't matter who's selling them. It doesn't matter whether it's Shoppers Drug Mart that's selling the toothpaste or it's the local drugstore on the corner, the same rules as to what goes into that tube should apply across the board.

What the securities dealers are very, very worried about is that, as in the past, in the treatment of penny stocks, they will be singled out and there will be rules imposed upon the securities dealers, who are only one small segment, only seven members, seven companies, whereas penny stocks are traded in vast quantities by members of the investment dealers association. Far more penny stocks are traded by investment dealers than by the penny stock dealers.

We say, be sure to leave the playing field even, because these are the people we compete with, and if the concern of the Legislature is to protect the public, then be sure that the public is protected across the board.

I understand that in the past the commission has come forward and justified singling out the securities dealers on the basis that, "Well, they don't have the same sort of very sophisticated in-house disciplinary provisions that the investment dealers association or the Toronto Stock Exchange have."

That's not the point. That's looking at it from the wrong end. If the purpose is to protect the consumer, then it is that those protections should be applied to whoever is buying the penny stock.

Why I focus on this this morning is because we've got lots of problems with lots of this act, and we've set them out and there's even a constitutional concern, but in the short time that I've got this morning, I really can't engage in a section-by-section discussion on that point. What I want to do as this train goes through is to see if I can't get an amendment that will protect the public, first and foremost, and not discriminate against any one portion of the industry that's out there.

That's the real thrust, and I'd like to engage in a discussion on that, if I can. I understood I had 15 minutes. That's what I want to focus on, and I'd be appreciative now to answer any questions or engage in any discussion, because it's a matter really of great moment for my client.

The Chair: Just for your information, Mr Finlay, you can use all of the 30 minutes you're allowed to make a presentation if you wish, but if you'd like to enter into some discussion, we can certainly do that.

Mr Finlay: I've put my point out. I want the tube of toothpaste that's going to be classified and protected for the use of the public to be applied -- anybody who sells that tube of toothpaste is going to have to apply the same rule or buy the same rules. Therefore, I'd like to engage in any discussion that members might have with regard to that, or any part of the bill, for that matter.

The Chair: Very well. As we usually do, we've divided the time, approximately seven minutes now per caucus, and we'll start with Mr Johnson.

Mr David Johnson: Thank you very much, Mr Finlay. I suspected that you might focus on that particular section. In terms of the past, is it your view that policy 1.10 would be an example whereby there were uneven rules that have been applied?

Mr Finlay: Exactly. Policy 1.10 applied solely to the securities dealers and not, by its express terms, to the investment dealers association or members of the Toronto Stock Exchange, although they trade more in penny stocks than we do.

Mr David Johnson: So that's the kind of thing, from your point of view, that should be avoided.

Mr Finlay: Exactly. The product is penny stocks.

Mr David Johnson: I'm trying to sort this out, because obviously we're getting different points of view and I certainly want to listen to all parties. This day is going to be invaluable, I'm sure.

The chairman of the Ontario Securities Commission has written a letter with regard to -- I imagine you have a copy of that particular letter. He'll be making a presentation a bit later, but you won't have the time to go back and forth. In his letter, commenting on what you're proposing here, and I think I'm taking the right section from his letter, it says, "Any rule relating to trading or advising in penny stocks apply equally to all registrants who trade or advise in penny stocks." He's commenting on that. I think that's the clause you're talking about.

Mr Finlay: Yes.

Mr David Johnson: And that this could prohibit the tailoring of a rule to meet the specific requirements of junior issuers with the minimum regulation required by the circumstances. I gather he feels there are different circumstances that could arise, and consequently that to be put in a straitjacket of having to have precisely the same rules may not work. I wonder if you would comment on it.

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Mr Finlay: I saw that provision in this letter yesterday when I saw the letter. I frankly do not know what Mr Waitzer means by that. Let me say this. I've been involved in the litigations concerning policy 1.10 and why there was a difference between the securities dealers society and investment dealers and the Toronto Stock Exchange.

The primary purpose that has been brought out as to why there was a distinction is because the rules and regulations internal to the Toronto Stock Exchange membership and the IDA were sufficient or such that they did not appear to be getting the same amount of criticism from sales that had gone through those particular houses or those particular institutions. I don't know what Mr Waitzer is saying about this, and unfortunately he gets to address the jury last, but I --

Mr David Johnson: That's why I thought I'd give you an opportunity now. But since you've raised the issue, isn't it fair to say in all truth that over the years there have been more complaints with regard to penny stocks and perhaps the members you're representing than with regard to the members of the IDA?

Mr Finlay: I don't accept that in the sense that I don't know what statistical analysis has been done with regard to complaints received by the IDA or the TSE. We certainly know about the complaints received by the commission, but if you're a member of the IDA and the TSE, the complaints may very well go to those governing bodies. So we haven't had statistical analysis as to how many complaints are received with regard to penny stock transactions that are done through those houses. In order to assist this House with regard to whether there are more complaints from the TSE or the IDA as opposed to the securities dealers, I can't --

Mr David Johnson: All right. I may be starting to run out of time.

The Chair: You've got just over two minutes.

Mr David Johnson: Two minutes. All right. The second part of Mr Waitzer's letter, and I'll give you the opportunity to respond, indicates that, in any event, "This proposal should, in my view, be raised" -- "this proposal" I guess being an uneven playing field or what you may feel would be discriminatory practices towards the securities dealers, for example -- "and considered in the context of the commission proposing a rule or policy which gives rise to such a concern if in the view of the registrant the proposed rule could affect them in an unfair manner."

I think what he's saying is that there is a transparent system that's in place: a certain number of days for the public to respond, for the minister to respond. Wouldn't it be the point in time for you to raise it during that process?

Mr Finlay: Yes, I see that. By way of an aside, it's interesting that that same logic couldn't be applied to policy 5.2 and therefore take it out of the grandfathering provision.

With that aside, let me say that with regard to this submission, the securities dealers view this as a matter of principle which should find itself in the legislation. You see, there is no logic why, as consumer protection, rules passed to protect the consumer don't apply to anybody who's buying the product. That's a matter of principle. I don't understand why that isn't exactly the sort of proposition that would find itself in the legislation. It should not be left to the commission to decide as a matter of principle, for consumer protection, how it's going to slice that particular loaf of bread. If it's important that a person up in Sault Ste Marie get this information with regard to buying penny stock, it doesn't make any difference whether that transaction is being sold through a member of the IDA or through the securities dealers. That's why I say it should be in the legislation, not left to the rule-making procedure.

The Chair: Thank you, Mr Johnson. Mrs Haslam.

Mrs Karen Haslam (Perth): Now for a breath of fresh air, because I come at this not knowing probably as much as my colleague Mr Johnson, or even my colleague Mr Phillips. I consider the information I have so far as Investing 101, and obviously everybody else in this room is at Investing 909, so I have some questions, because I am the epitome consumer of penny stock if that's where I want to go, and I don't.

As I understand it, the IDA is self-regulating and the TSE is self-regulating and you are not, so as a consumer I wish that you were a self-regulating body just like the doctors I go to and the health professions that I go to. So if you're not going to regulate yourself, shouldn't there be some regulations and standards set for you? And if that's not done in this way, what about joining the IDA? Can you join the IDA? Can you put in place a self-regulating body?

Mr Finlay: Well, first point: The securities dealers have established their own society in order to govern and regulate themselves. That body is not recognized in the regulation or the statute as being what's called a self-regulating society, an SRO, self-regulating organization. Those are the IDA and the TSE; by regulation they're so defined.

So the question is that at the present time the law permits the securities dealers to have their own legislative home. In fact, in order to become a member of the IDA and the TSE, they have to apply to move from one regulatory category to another. Some have made application but their applications have not, except for one that was done some time ago, been processed through to an acceptance. It has not been an avenue, one that has in any practical sense been available and has resulted in success.

Mrs Haslam: You do believe, though, that there have to be rules and regulations to protect me. You said it doesn't matter -- I can't remember.

Mr Finlay: It's not the point?

Mrs Haslam: Yes, that it's not the point; it doesn't matter. I wonder why you said that. I mean, you do believe in having rules. You do believe that there should be rules for you.

Mr Finlay: Yes, sorry. I put it badly. I put it incorrectly and put it badly if I said I didn't believe there should be rules or regulations or whatever. I'm not saying that. I'm just saying that if you're going to impose them -- I guess I've really put it badly. If you're going to impose these, impose them with respect to everybody that sells penny stocks.

Mrs Haslam: Wouldn't that be double regulating, then? The IDA already have rules and regulations that govern what they do. Wouldn't that be double regulating?

Mr Finlay: Well, no, because policy 1.10, which was a policy brought in by the securities commission to regulate specifically the securities dealers as opposed to the IDA and the TSE, imposed requirements on the securities dealers that were far more stringent than the TSE or the IDA. In fact, the securities commission got submissions from the TSE and the IDA not to impose those very rigorous rules on them.

Mrs Haslam: Did you make a submission to the task force?

Mr Finlay: To which task force?

Mrs Haslam: The Daniels.

Mr Finlay: Yes, I appeared personally before the Daniels.

Mrs Haslam: Was there a --

Mr Finlay: There wasn't a written submission, no.

Mrs Haslam: Nothing in a written submission.

Mr Finlay: There wasn't a written submission but I appeared personally before the commission, and I have -- sorry, that's the answer to your question.

Mrs Haslam: Okay, I'll pass it to Kimble, and as a consumer I think I'll still wait before I invest in penny stocks.

Mr Finlay: When you do, it would be interesting for you to inquire as to whether the rules imposed by the securities commission under subsection (14) apply to that person who's selling it to you, because if it's the IDA or the TSE, it may be that they are not governed by those stringent rules that they wish to impose on us.

Mrs Haslam: But there will be rules there.

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Mr Finlay: But they may very well be quite of a different order.

The Chair: Mr Sutherland, you have three minutes.

Mr Sutherland: If I could --

Mr Finlay: There are rules that do govern us.

Mr Sutherland: Sure. If I could pick up on the discussion, though, you used the terminology "level playing field." Just picking up on that analogy, as a consumer out there, would it have been fair to say, though, before these new rules were put on you, that the playing field in some respects may not have been level because the IDA and the TSE had standards that were up here, without yours, your standards might have been here, and these rules bring those standards up?

Mr Finlay: No. There are specific provisions of the act and the regulations which deal with trading in securities. Policy 1.10, if you use your analogy of sort of bringing the glass of water up to level, didn't bring it up to a level; it pitched us far over and imposed rules which, from our submission, were just simply unworkable.

We went to court and fought that issue out. There's been no judicial determination whether in fact, but there's certainly been a very strong issue with evidence led that these provisions that were 1.10 were unworkable from the point of view of the securities dealers.

Mr Sutherland: Can I take it, though, that generally you're supportive of the legislation, but you have specific concerns in this provision?

Mr Finlay: Let me say this. I'm supportive of the fact that the commission has to be given proper powers to do what it should do so that there is accountability and that rules are rules and policies are policies. I have no problem with that.

I do have a problem with specific aspects of this legislation which in my submission create an argument that it's beyond the power of the Legislature to bring in this particular bill. I could go to particular provisions in it, but as far as, is a bill necessary, do I think the law should be changed, yes, I think the law should be changed.

Mr Crozier: Welcome, gentlemen. First, a quick question to Mr Bregman. When was the securities dealers association formed?

Mr Bregman: In 1991.

Mr Crozier: By this same group that belongs to it now, or has it been added to or have there been dealers who don't any longer belong to it?

Mr Bregman: Yes, there have been dealers who no longer belong to it due to the fact of the securities commission penalizing them for whatever the case may be, and it has been reduced down to approximately seven securities dealers at the moment.

Mr Crozier: So the securities commission, rather than dealing with the securities dealers association as a whole, if there's a problem, deals with a specific dealer.

Mr Bregman: Correct.

Mr Crozier: So if the bill passed as it is now, it wouldn't necessarily apply to all in the securities dealers association; it would apply only to those that didn't abide by the regulations.

Mr Bregman: No, I think it would apply to securities dealers that deal in speculative securities. There are other securities dealers under the category by the securities commission that deal in either limited market makers or whatever category they may be in, but they're still a securities dealer.

Mr Crozier: The amendment that'd you'd like, the equal rights amendment: Can you point out to me where in the act and/or the proposed bill it says that it does not apply equally to everyone?

Mr Finlay: If I could answer that, the discretion given to the commission under subsection (14), which was the section that I took you to on page 5, doesn't require it to be applied generally.

Mr Crozier: Where does it say that? You maybe can help me.

Mr Finlay: Well, you could go to various sections of the bill which would reinforce the fact that this doesn't mandate that a provision passed need apply to all registrants. The best proof of this is the fact that the chair of the commission is objecting to this amendment because the commission wants the flexibility of being able to target particular segments of the industry. The chair himself is saying, "Don't make this amendment, because we want the flexibility that 14 now gives us."

Mr Crozier: But you say, again, just to emphasize briefly, segments of the industry and not individual investment dealers.

Mr Finlay: I think it would be tough for them, though maybe not impossible, to identify specific securities dealers and pass it specifically addressed to those one or two. But remember, those securities dealers that are involved in the sale of penny stocks are a very limited number to begin with. There's only seven or eight. I don't know whether I've answered your question.

Mr Crozier: Well, we're told that the big investors sell them too, so it's more than seven or eight.

Mr Finlay: Oh, yes. But you see, the fear we have, as reflected in policy 1.10, is that the commission said, "We're going to focus on these securities dealers in particular, because we believe, in their trading of penny stocks, they constitute a particular problem," and they bring in these consumer protection guidelines or rules. What we say is: Hold it. Everybody's selling this stuff. Don't nail us.

Mr Crozier: Okay. Thank you, sir.

Mr Gerry Phillips (Scarborough-Agincourt): This seems to be the one big issue and I just want to make sure I've got it clear. It's probably articulated best in Mr Waitzer's letter to Mr Bregman, on page 4. I think Mr Johnson quoted from it. If I can just paraphrase it, this is the issue, I think:

The securities commission is saying that it needs the flexibility to write the rules and that your recourse then will be, when the rule is issued, you then have a right of appeal to the commission and the Minister of Finance; this is our choice. We can accept the bill as proposed, and your recourse, if you don't like a rule, is you then appeal it. I read in the paragraph there's a bunch of technical reasons why they would prefer that approach.

Mr Finlay: Right.

Mr Phillips: You're saying that you have a strong preference for the legislation, the act, prescribing more clearly how the rules will be written, and that's our choice.

Mr Finlay: Yes.

Mr Phillips: I think you made a reasonable case on your side and the commission has made a reasonable case on its side, so we have that dilemma before us.

Mr Finlay: Let me just respond by this. The securities dealers, and I don't think -- the representatives of the commission are here behind me. We have been engaged in litigation for a couple of years of a very, very intense sort. I'm just out of the Court of Appeal late yesterday from three days of arguing issues with the commission. It isn't, in my submission, in the public interest that this litigation go on with people attacking each other. What we say is, if this is consumer protection -- and it is consumer protection -- as a matter of principle, let's make it apply to everybody who sells the toothpaste so that everybody who buys the toothpaste is protected. Don't let's go back to what Mr Waitzer is suggesting, which is, "We're going to pass another rule, we're going to call it rule 1.10 this time and there's going to be this continual allegation and counterallegation of discrimination." I'm not here asking you which side you fall on in that debate. That's not the purpose. I'm saying this is an issue of principle. This is an issue that everybody who buys penny stocks should be protected similarly.

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You're going to hear from the Investment Dealers Association of Canada, "Listen, yes, we do sell a lot of penny stocks, because that's the evidence, but we don't have the sorts of complaints," and you're going to hear from Mr Waitzer who's going to say, "The commission needs the flexibility to do this sort of thing." I want you to remember that at the heart of this what's at stake is consumer protection. Don't buy into it; say, "If the farmer in Kapuskasing is going to be protected like the suburbanite in Etobicoke, have the same rules apply whoever sells the product." There's no mystery why we're fighting this. Otherwise, they're going to impose rules that will drive us out of business.

The Chair: I'd like to thank the Securities Dealers Society of Ontario for making this presentation before the committee this morning.

Mr Finlay: I'm obliged.

TORONTO STOCK EXCHANGE

The Chair: The next presentation is by the Toronto Stock Exchange, Mr Pearce Bunting, president, and Mr John Carson, director, market integrity. Please come forward, make yourselves comfortable, and if you would identify yourselves for the purposes of Hansard and the committee members, it would be appreciated. Whenever you're prepared, please begin.

Mr Pearce Bunting: I am Pearce Bunting, president of the Toronto Stock Exchange. With me is John Carson, who is the director of market integrity for the Toronto Stock Exchange.

John will be making the presentation. However, I wanted to be here to make the point that the Toronto Stock Exchange considers the passage of Bill 190 to be very important. We consider public confidence in our markets critical, and that the commission should have the power to properly regulate the markets is of great importance.

Mr John Carson: As Mr Bunting indicated, we have a vital interest in this bill. We are a self-regulatory organization as well as Canada's biggest stock exchange. Therefore, we're both a participant and a key stakeholder in the securities regulatory system in this province. As such, we are extraordinarily concerned with the gap in the regime that's been identified through the Ainsley decision, which is, namely, that the rules everyone thought were in place aren't there and currently the OSC doesn't have the power to make new ones. As a result, we have been providing extensive input to the Daniels task force since it was struck.

We would agree with some of the comments made earlier this morning that the Securities Act is essentially a form of consumer protection legislation. While the fostering of efficient capital markets is clearly one of the key purposes of the act, we think the fundamental purpose remains to protect investors and to foster fairness in the markets. As an SRO, the TSE actually shares this mission, but we're focused only on the regulation of our own members and our own markets.

The effectiveness of the regulatory system in the province as a whole has a significant impact on investor confidence overall, and of course therefore in the TSE's markets and therefore on our efficiency. In other words, the two basic principles or purposes behind securities legislation are intertwined.

The perceived and substantive fairness of securities markets in the province and in the country remains a critical success factor for both the capital markets generally and for individual markets such as the stock exchange. So we think it's vital that the regulatory system be effective, be responsive and be flexible. To us, that means that rules must be able to be put in place and changed as required; in other words, changed as securities markets change, which they do rapidly.

What are the consequences of not having a regime that's effective, responsive and flexible?

-- First of all, a lack of confidence by investors in the capital markets in the province and in the country. That affects not only domestic investors but also international investors who provide much-needed investment in Canadian markets. Securities are now an international business, and once investors lose confidence in a market it's very difficult to regain, as we have certainly seen in other areas of this country.

-- A second consequence would simply be abuse of investors in the form of manipulative or fraudulent practices, lack of disclosure or lack of specific rules to govern particular types of transactions that may not be in place or are not covered in the act.

On this point, we would like to make what we think is a vital point, and that is that active enforcement of the rules is necessary. We think that it's crucial to increase the resources of the securities commission, in particular its enforcement branch, which is currently seriously understaffed. Yes, the OSC should be granted the power to establish rules and standards of conduct, but it's essential that it have the practical ability to enforce those rules.

Currently, the OSC enforcement branch is in the position of only being able to deal with its top enforcement priorities, the most egregious cases. We only have jurisdiction over our own members through our disciplinary process. When other parties outside of the members are involved in violative conduct, we have to rely on the OSC to take action. Many investigations conducted by the TSE dealing with significant problems like insider trading and market manipulation are forwarded to the OSC but simply can't be followed up on because of the lack of investigative and prosecutorial resources.

It's already come up this morning that the gap between the total revenues garnered by the securities commission through registration fees and so on and the actual budget of the commission is large. There's a huge gap there. Ontario investors are paying a fee of 50 cents a transaction, which was supposed to provide revenue to support their role of protecting investors and in effect acting as the market cop. But notwithstanding the need to increase enforcement, that money isn't being earmarked for that purpose. Investors are not getting the protection they've actually paid for. So we urge the government to review the resources that are available to the commission for enforcing its rules.

Getting back to Bill 190, we fully support adoption of the bill, and in particular we support the granting of broad rule-making authority to the commission. We regard this as a limited-purpose bill at this time. The purpose at this point is not to do an extensive review of the principles and policies of the act overall but simply to plug a dangerous gap in regulation that needs to be closed as soon as possible.

The exchange and no doubt other market participants would like to see other changes to the act, but this isn't the time to bring all of those changes forward. Rather, this bill, as I said, has a limited purpose: to ensure that the regulatory protection that investors and market participants thought was in place is in fact in place.

Secondly, we support the principle in the bill of "openness, public participation and certainty in regulation," to quote from the Daniels task force report. These are reflected in some of the provisions that have been noted this morning, including the notice and comment provisions for rule-making, the requirement to provide an annual statement of priorities of the commission to the minister and the opportunity for the public to in fact have input into those priorities.

This bill will introduce a more open and democratic approach to policy-making by the commission compared to what has existed in the past. So in the course of clarifying the OSC's authority, other changes will in fact improve the policy-making process for everybody.

With respect to the need for rule-making authority, the bill sets out a list of subject areas where the commission will be granted rule-making authority. They are broadly cast, which in our view is necessary in order to provide adequate flexibility to the commission. If the subject areas were too narrowly cast, it would really defeat the purpose of granting rule-making authority since it would probably require a series of referrals back to the Legislature whenever the authority granted for a specific subject didn't in fact cover the kinds of rules that are needed.

Secondly, we think that the bill strikes the right balance between the need for adequate rule-making authority and for checks and balances on the exercise of that authority. We didn't favour the initial proposal in the task force report to give the commission authority to make any rule in furtherance of the policies and principles of the act. Rather, we had stated in our original comment letter that the preferred approach, in our minds, was to set out broad policy guidelines and then to enumerate general areas in the legislation where the commission could make rules, and that's in fact what Bill 190 does.

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A further reason why we are in favour of the rule-making authority is that we think that the regulator must have the ability to respond quickly to market developments. As you've heard, the pace of change there is very rapid. The nature of the markets, their structure and the range of products that are being sold in securities markets as well as the nature of both the investors and the securities dealer participants have changed dramatically, even in the last 10 years. While it generates new opportunities for investors, it also generates new problems and issues for regulators that have to be addressed.

Another important reason the exchange believes that rule-making authority must reside with the commission is that securities regulations are extremely detailed and complicated. They are among the most arcane of government regulations and address a wide range of activities, everything from things such as registration of brokers, to prospectus requirements for the huge number of mutual funds that now exist, to defensive tactics that companies might use when they are a target of a takeover bid. All of this requires a high degree of specialized expertise by people who are familiar not only with the framework and philosophy of the regulations but also with practices in the market. So, of course, with the commission being established as a tribunal to develop that kind of specialized expertise, we think it's appropriate that they be able to use that in making rules.

I'd also like to mention that there are consequences for the national coordination of securities regulation here. If all rules were required to go through provincial legislatures, it would be virtually impossible for the various securities commissions, acting through the Canadian securities administrators, to coordinate policies and rule-making or at least to implement them at the same time.

If this bill is passed and is followed in a number of other provinces, the ability to coordinate rules on a national basis will be significantly enhanced since commissions will be able to adopt rules not only that are uniform, but be able to implement them at the same time. That is important because Canada is really a small marketplace nationally, when considered on an international basis.

To address the checks and balances on the authority that are contained in the bill, we think they will ensure that the authority that's being delegated won't be abused and that due regard will be paid to the views of the public and interested parties. This is a key point for the stock exchange and for its members. Because people are directly supervised by the commission, we don't want to be part of a process that doesn't allow us and our members a voice in all of the detailed rules that we're going to be subject to. But the checks and balances that we had submitted to the Daniels task force should be contained in the bill are in fact contained in the bill, including the requirement for notice and comment etc. These procedural safeguards are in fact a significant improvement over the current situation.

We also note that recourse to the courts would be available should the commission adopt rules that are beyond its jurisdiction as set out in the bill; in other words, go beyond the rule-making authority that's being delegated. In our view, that's the only ground of appeal to the courts that's really necessary. If a party or group feels particularly aggrieved by the adoption of a rule, they can appeal to the minister to reject it or return it to the commission for further consideration. We think this type of political control will be more effective, not to mention faster and more efficient, than a judicial review based on extensive or nebulous grounds.

We would also like to address the situation in the unlisted stock market, or perhaps the penny stock market, if you will. The exchange is also the operator of the unlisted stock market through a subsidiary company called the Canadian Dealing Network, or CDN, and therefore it is appropriate that we comment on this area. CDN is responsible for operating the quotation and trade reporting system for unlisted stocks and we also carry out market surveillance and trading regulation of the OTC or unlisted marketplace, "OTC" referring to over the counter. However, we don't actually regulate the securities dealers that use that system. Those dealers consist of both our own member firms and the members of the Securities Dealers Society of Ontario, which you just heard from.

The Task Force on Securities Regulation was struck in response to the Ainsley decision, and as you know, that was an action by the SDS group that is active in the unlisted market attacking the OSC's adoption of policy 1.10, which governs how they could sell and market penny stocks. Since we are operating the CDN marketplace, we're very familiar with the contents of policy 1.10 and with the dealers it was designed to regulate, which, again, are those that aren't members of the TSE or the IDA. We are also quite familiar with the ongoing regulatory problems that exist in the unlisted stock market.

Protecting novice investors from marketing abuses in highly speculative or penny issues lies at the heart of the OSC's mandate. The TSE and the Canadian Dealing Network were and are of the opinion that decisive action by the OSC is necessary in this area in order to improve or, I would actually say, completely turn around the fairness of and public confidence in the unlisted market. To put it bluntly, the terrible abuses that exist in certain situations have to be stopped. Only then can this market become a viable one to facilitate capital raising by legitimate small and startup companies. It isn't now. In fact, almost no public offerings are conducted by companies in the unlisted stock market because the dealers that are members of the Toronto Stock Exchange don't think they can sell those issues to their clients.

For these reasons, we publicly supported implementation of special rules governing the sale of penny or speculative stocks. We don't believe it's possible for the OSC to devise effective solutions to these kinds of problems without the authority to make specific rules governing the sale of these securities. This is precisely the approach that's been taken by the Securities and Exchange Commission in the United States with a fair degree of success over the last few years.

To sum up our submission, we support the bill because:

-- It's crucial to plug the serious gap in securities regulation that has been opened up by court decisions.

-- We think the most effective way to plug it is to give the OSC rule-making authority.

-- In practice, in our view, our members, investors, the exchange and public companies have been operating under the assumption that the OSC does have the power to make policy.

-- The rule-making procedures in the bill open up the process, increase the political accountability of the commission and introduce checks and balances on the OSC's authority that don't exist today.

The Chair: Thank you very much for your presentation. We have just under four minutes per caucus. We'll start with Mr Lessard.

Mr Wayne Lessard (Windsor-Walkerville): Thank you, Mr Carson. From your submission, I take it that when you're talking about consumer protection and public confidence, which are characterized as very important issues, they're enhanced by giving the OSC this rule-making power.

We've heard from Mr Bruner this morning, and I don't know if you were here for his submission. His submission is that consumer protection and public confidence would be enhanced if there were greater political accountability. He doesn't like the fact that the rule-making power is being transferred to the OSC. He feels that at the very least, the Minister of Finance should say he approves or rejects or turns a rule back to the commission. He doesn't really like the automatic 75-day instatement of a rule if nothing happens.

My question is, I'd like to know why you feel that it's important to have the automatic 75-day provision for a rule to come into place. Do you think it's possible for the legislation to work in the way that you feel it should by making the minister do something within a certain length of time, either to approve or reject or return a rule? Would it work that way?

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Mr Carson: Yes, I think it would work. I regard that as a detail that doesn't go to the heart of the bill. I would assume that the reason the 75-day provision is there is so that a rule proposal doesn't just sit in the minister's office and cannot be implemented because he or she chooses not to act on it. But as I say, I think that is a detail that doesn't go to the heart of the principles that underlie this bill.

The Chair: We have about 30 seconds, Mr Sutherland.

Mr Sutherland: Could you just outline in a bit more detail how you see the difference in how you regulate your members versus how the SDS operates and your view of the difference in the standards.

Mr Carson: First of all, I don't regard the SDS as a regulatory body at all. I wonder how many staff and how much resources they devote to regulation. I'm not aware that they do anything in terms of regulation.

The TSE spends about $8 million a year out of our total budget on regulatory departments, including member regulation, market regulation and listed company regulation. I don't think, to be honest, there's any comparison there at all. The TSE has an ongoing market surveillance/compliance/review program which is sophisticated and thorough, and I don't think the SDS does anything in terms of regulation, to be blunt.

Mr Phillips: I appreciate the brief. Just a comment and then a question. Those are fairly strong words on the enforcement stuff. I know it's not directly related to the bill, but just reading it, it sounds like you are raising a fairly major alarm bell here.

Mr Carson: Yes, I believe the situation falls into that category.

Mr Phillips: I don't think it's directly related to the bill, but I think that's something we need to deal with.

By the tone of your comments, I kind of figure the impression you might have of the securities dealers society, but its proposal on the equal rights amendment, as they call it, is frankly the one issue that we've got here. There seems to be general agreement on most other things. Can you be helpful to us at all in terms of why we shouldn't support that equal rights amendment, as they called it? I assume you've had a chance to look at it.

Mr Carson: Yes. I understand what their concerns are, but I think our feeling would be that the decision on what registrants and individual rules should apply to should be left to the process that's set out in Bill 190. Why should a legislative amendment with respect to this particular rule -- meaning we're all anticipating perhaps that the commission will bring forward some of the kinds of things that are in policy 1.10 in the form of a rule -- why should that be the only rule that is governed by a specific amendment in the act?

I think the process of talking these things through, through a rule-making proposal which is subject to public comment, which allows all of the parties to make their case to the commission and then for the minister to be lobbied, if it gets to that, is the right process to deal with these kinds of issues.

Mr Phillips: On the surface there's a certain logic to their argument, which is that regardless of who is selling that product, the same rules should apply to everybody who's selling it. I know from the letter from Mr Waitzer that that's not as simple as it sounds, but I'm looking for any help you can give us on why it isn't as simple as it sounds.

Mr Carson: First of all, I don't want to prejudge the issue. If and when a rule proposal comes forward, then this matter will have to be looked at again. But I would point out, as was previously brought up at the hearing, that there are specific rules governing marketing practices that apply to the TSE and IDA members which are enforced not only by their own compliance departments but by the compliance reviews that are conducted by the regulatory departments of the stock exchange and the IDA.

Further, although it's a true statement to say that all brokers, all dealers, are dealing in speculative issues and in fact that is a market that exists out there, I think it's important to note that in many instances the specific stocks that the non-member dealers are dealing in are a different group of stocks from the ones the members are probably dealing in, and we think that more of the problems are focused in the group of stocks that those non-member dealers are trading in.

Mr David Johnson: Thank you, Mr Bunting and Mr Carson. I wonder if you could just follow up on that last point. You're indicating that the securities dealers are dealing with different sorts of stocks than the members of the IDA? Is that what you're saying?

Mr Carson: When you talk about penny or speculative stocks, you can be talking about stocks that are in the unlisted market in Ontario, you could talk about most of the stocks that are listed on the Vancouver Stock Exchange and the Alberta Stock Exchange, and those markets are generally considered to be the definition of the penny or speculative market in Canada. However, within that general category there's a wide range of different types of issues, and I don't think it's unfair to say that some issues are more legitimate than others. Some issues have real companies behind them and others don't.

As I said, through the CDN, we conduct market surveillance of the unlisted stock market every day, and I don't think it would be an inaccurate statement to say that some of those stocks are trading at prices which appear to be ridiculous based on the apparent value of the issuer, and our investigations demonstrate what appear to be manipulations of some of those securities. That's one of the reasons why we think it's crucial that the securities commission have adequate enforcement resources.

Mr David Johnson: I appreciate those comments. I think your brief touches all the bases. But I'm going to go back to the enforcement again, which may not be the topic of this particular bill, but still, when you say that problems such as insider trading and market manipulation are being forwarded to the OSC and are not being followed up because of lack of investigative enforcement resources, that sends a shiver down my spine. Can you give us some idea of the magnitude of this problem?

Mr Carson: Yes. I don't want to be unfair to the staff of the enforcement branch of the OSC, who I think in fact are doing a good job and are doing a better job over the last few years than previously. As I say, their problem is simply that they're getting a huge volume of problems coming into them -- public complaints, investigation reports from the TSE, investigation reports from the IDA, referrals from other branches of the securities commission asking for action to be taken -- and they simply cannot deal with more than a fraction of all those problems.

Now, nobody is going to be in the position or have the luxury of being able to deal with every problem that crosses their desk. If that was the case, we wouldn't be making the comment. It isn't that. It's that they can only deal with a small fraction of the problems and therefore there are significant cases that simply can't be dealt with.

Mr David Johnson: That shocks me, I guess, to hear that. So these are not frivolous cases; these are real cases involving insider trading and manipulation.

Mr Carson: That's right, and I think the director of the enforcement branch of the commission would tell you the same thing.

The Chair: Our time, unfortunately, has run out, Mr Johnson. I'd like to thank the Toronto Stock Exchange for making its presentation before the committee this morning.

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INVESTMENT DEALERS ASSOCIATION OF CANADA

The Chair: The final presentation this morning is from the Investment Dealers Association of Canada, Mr Ian C.W. Russell, vice-president, capital markets, and Mr Gregory M. Clarke, vice-president, member regulation. Please come forward and make yourselves comfortable. If you would identify yourselves for the purposes of the committee members and Hansard, then you may proceed.

Mr Ian Russell: My name is Ian Russell and I'm vice-president, capital markets, at the investment dealers association.

Mr Greg Clarke: My name is Greg Clarke. I'm vice-president, member regulation of the investment dealers association.

Mr Russell: The investment dealers association is pleased to have the opportunity to appear before the standing committee on finance and economic affairs this morning and express the full support of the association and its member firms for Bill 190, which is tabled before the Legislature. This proposed legislation amends the Ontario Securities Act in accordance with the recommendations of the final report of the Ontario Task Force on Securities Regulation, otherwise referred to as the Daniels report.

The IDA, or investment dealers association, is the national self-regulatory body and trade association of the Canadian securities industry. There are 111 securities firms registered as investment dealers which are members of the association. Our membership includes large and small securities firms located in all regions of the country and engaged in all aspects of the securities business. These firms employ nearly 24,000 people and have an aggregate $4.5 billion in regulatory capital used to intermediate between savers and investors.

Association member firms raise most of the capital for businesses and governments in Canada and distribute these securities in domestic and international markets. These firms account for all the agency and principal trade in equities and about 80% of the trading in fixed income securities in domestic capital markets.

The association regulates the business activities of its member firms and acts as the industry spokesman on industry and capital markets issues. Through its actions, the association promotes efficient and liquid markets by strengthening the integrity of the marketplace and broadening participation in the savings and investment process.

The rule-making authority of the Ontario Securities Commission has been called into question as a result of recent legal decisions. The association has recognized the critical need to restore this authority through appropriate amendments to the Securities Act and in this vein has contributed to the consultation process and has supported both the interim and final recommendations of the Daniels task force, which are embodied in Bill 190.

The current situation, in our view, is untenable. The Ontario Securities Commission must be given the proper authority to enforce existing rules and regulations and implement new rules as circumstances warrant. The longer this vacuum of authority is not addressed, the more the commission's authority is called into question, particularly as legal challenges chip away at the vestiges of its authority. This situation breeds uncertainty as to the efficacy of the rules and regulations governing market activity. It also encourages investors to withdraw from securities markets. Reduced investor participation will have a damaging effect on the liquidity and the efficiency of the marketplace. As well, issuers will be increasingly reluctant to offer securities in the domestic market because the enforcement of rules which govern disclosure and the trading and selling of these securities become virtually impotent and the integrity of the capital-raising process becomes suspect.

In sum, it should be emphasized that the Canadian securities industry supports and indeed thrives on a defined and effective regulatory structure which sets out a clear rule book for market activity. This encourages greater certainty among investors and issuers and contributes to increased business activity.

If the reputation of our marketplace is impugned because of a perceived or actual lack of effective regulatory oversight, then foreign investors will be less inclined to participate in our markets. In recent years, Canada has become dependent on foreign capital to finance the requirements of both governments and business.

The jurisdictional problems of the Ontario Securities Commission have not yet reached the stage to give undue concern to domestic and international investors. In our view, this is because market participants fully expect legislators to act expeditiously to restore the commission's authority in capital markets and fill the regulatory void. However, if Bill 190 is not passed in a forthright and timely manner, then the likelihood of negative consequences occurring in markets is likely to increase.

The jurisdictional uncertainty in Ontario has already contributed to an inertia in the policy-making needed to address changing circumstances in capital markets. This is partly due to the uncertainty surrounding the regulatory status of the commission. For example, the inability to construct an acceptable framework for the transparency of the over-the-counter domestic debt market, despite more than two years' effort, in part reflects a reluctance by the commission to impose a mandated transparency model in view of the narrow limits of its jurisdiction.

As well, scarce resources at the commission have been committed to dealing with the jurisdictional problem. This has limited progress in moving forward with other pressing regulatory matters such as the need to give the commission the administrative and financial autonomy to carry out its mandate to promote efficient markets and ensure investor protection.

The upshot is that the commission has been hamstrung in taking its leading role in both domestic capital markets and international markets. Canadian capital markets and securities regulators are held in high regard, not just by domestic market participants but by international investors and regulators. The current chairman of the Ontario Securities Commission has been appointed as chairman of the technical committee of the International Organization of Securities Commissions, the pre-eminent international regulatory body. This appointment gives Canada considerable leverage and influence in international regulatory deliberations, and the appointment should give legislators even greater confidence to entrust rule-making authority to the professional staff of the Ontario Securities Commission.

Bill 190, which incorporates the recommendations of the Daniels task force, strikes an acceptable balance between the authority the commission needs to impose rules and regulations in fast-moving and innovative markets and the accountability to the public for its actions. The new legislation reaffirms the commission's authority to carry out its mandate to provide for efficient markets and investor protection and calls for notice and comment procedures and ministerial review of imposed rules and regulations.

You have heard earlier this morning from several witnesses who have raised concerns which may relate more to the provisions in policy 1.10 and policy 5.2 than to Bill 190. It is important to bear in mind that the purpose of these hearings is to elicit comment on the proposed regulatory structure as set out in Bill 190 and not on the particular merits of policies, blanket orders and rulings. Bill 190 provides the framework for full public comment on proposed rules and regulations, which should give confidence to all market participants that their views will be accorded a full and open hearing.

The Daniels task force, in its deliberations, took great care to ensure the widest possible debate on proposals for regulatory reform and in fact solicited two rounds of public comment following the interim and final reports of the task force. We believe the final recommendations carry the broad support of most issuers and investors in the domestic market. All members firms in the Canadian self-regulatory system which will be subject to this new regulatory regime are fully supportive of the proposals.

We encourage members of the standing committee on finance and economic affairs, in the interests of promoting fair and efficient markets, to recommend the expeditious approval of Bill 190.

These foregoing comments conclude my formal testimony, and I and Mr Clarke would be pleased to take any questions.

The Chair: Thank you very much for your presentation. We have about seven minutes per caucus, and we'll start with Mr Phillips.

Mr Phillips: I appreciate the presentation, and just so you know where I think this bill is, we're down to, I'd judge, kind of one issue. I think there's broad support for the need for legislation and it has to do with this equal rights amendment, so described by the securities group.

Help us out -- help me out a little bit anyway -- in terms of the difficulty with prescribing that the rule should apply equally to all people selling a particular form of securities, in that logic sort of says to me on the other side that you might welcome fairly stringent rules for those people selling it. I would think the investment dealers already have some fairly stringent rules, so suddenly those same rules would apply elsewhere.

On the face of it, there's a certain attractiveness to the equal rights amendment. The securities commission has indicated, and the bill itself, that it won't work, but I'm having a little bit of trouble just finding out why.

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Mr Clarke: I'll handle that. I think the key element in equal rights or the view that things should be equal we do not disagree with fundamentally. Our problem with it is that if we are only talking about the rules implemented by the securities commission, we don't think that's the appropriate way that "equal" should be interpreted.

The Legislature has given the securities commission the right to recognize self-regulatory organizations. We fundamentally believe that all people who are dealers ought to be members of the self-regulatory organization. There are many benefits to this. For the public, we offer an investor protection regime which is beyond all comparison with what's offered in other ways. We offer an enforcement regime. You heard from Mr Carson just before I was here that between the IDA and the TSE, we have 100 people working in the province of Ontario whose full-time job it is to go around and review the members in terms of their compliance with the capital requirements and in terms of their compliance with our requirements on how the conduct of business ought to be done. Our requirements include all of the requirements in the securities commission and go beyond that and make further requirements. We also register the individuals, and when there are complaints against our members, we handle every single complaint that is made in that regard, as between the IDA and the TSE.

So in our regime we have more stringent rules to begin with; we have built-in enforcement, always subject to securities commission review. The Ontario Securities Commission has been in to the IDA and reviewed our entire process for handling investigative cases in the last couple of years. There is a coherent, thorough job done on regulation. We have a set of rules which is above those in the Securities Act.

The problem in this whole thing is that to the extent people stand outside of the self-regulatory regime, they are subject only to those rules which are in the Securities Act. It would be my submission to you that the combination of all IDA-TSE rules in conjunction with the Securities Act is far beyond what is in 1.10. I believe that our members support self-regulation because they get to input directly into the process by which our rules are made. They are more knowledgeable about the way the market operates than anyone else and on that basis make better recommendations.

I'm not saying there are necessarily any problems with 1.10, but I would argue that 1.10 is a pretty blunt instrument. Over the course of the 25 or 40 years that we've had a self-regulatory system in Canada, we have developed better, maybe more workable rules for our members through that. We encourage the Securities Dealers Society of Ontario to either set up its own self-regulatory organization or to join the IDA and TSE in it. But to talk about equal rights is nonsense. Our rules are far more severe than policy 1.10 ever could be.

Mr Crozier: Can you tell me why the securities dealers association is not a self-regulatory group?

Mr Clarke: There is a history. There was a predecessor organization, in any event, called the Broker Dealers Association in Ontario, I believe in the early 1980s and perhaps the late 1970s also. My knowledge of it is relatively minor. I expect that through various periods of time they found that self-regulation is an expensive thing to do. Our members spend $25 million a year in supporting this system. I don't know how much it would cost to regulate seven or eight firms, and I shouldn't speak for them, but it strikes me that one of the potential reasons why they don't have a self-regulatory organization is because it's expensive.

The Chair: Thank you, Mr Crozier. We have to go on. Sorry.

Mr David Johnson: I thank you for your presentation. It has certainly been very helpful. I'm just trying to recall; it wasn't stated here today, but I think, since you were talking about policy 1.10, that some of the aspects as they apply to the securities dealers involved a time frame for disclosure. That is the basic issue, I think, disclosure of information, under 1.10.

There's a time frame involved and there's certain information that is involved in terms of flowing to the potential purchaser. I think it's their contention that because of the time frame involved and the information involved, which I believe they've expressed to me are more stringent than would be required through your members, for example, it's their concern that people would not purchase penny stocks through them but would simply shift to your members. I wonder if you would comment on that.

Mr Clarke: Again, this is a place where there's a difference in doing regulation in one way and doing it in the other. The reason why that kind of communication with the client is necessary is because it's the view of the securities commission and certainly mine, not necessarily widely supported, that these people do not take into account their clients' best interests in terms of doing the ongoing job. Therefore, the clients have to be informed on an ongoing basis that there are risks etc in the thing.

The way our rules handle that kind of concern is that we put an ongoing obligation on firms to act in the best interests of their clients and then we monitor and follow them up. We charge individuals and firms if the trades that they make on behalf of their clients are not suitable for the clients so that they get the right treatment. So, rather than requiring an exchange of pieces of paper in every circumstance, we put an ongoing monitored requirement on the members to ensure that they act in their clients' best interests in this regard. It's a different model but, having said that, I would say that the standard on our members is far higher than any kind of standard that's put on by the legislation.

The fact that in particular circumstances a particular technique may not be particularly effective just in terms of paper flow and the rest of it is I think, in my submission, the reason why our members form together in self-regulatory organizations. They would like the rules to be effective, but they would also like them to work in a manner that's efficient for our members. I can't really comment on whether it is actually ineffective. I don't know, but I would argue that if it is, simply put, they should get together and put in force some other kind of regime that is helpful.

Mr Russell: The other corollary to that might be that if they feel there is a serious competitive disadvantage they're under because of those particular regulatory provisions, they have the option to come into the self-regulatory organizations in Ontario, either becoming a member of the IDA or the Toronto Stock Exchange, which several have done.

Mr David Johnson: Good. In terms of Mr Carson's comments that there are penny stocks and there are penny stocks, I think he was indicating that perhaps the IDA members might deal with different sorts of penny stocks than the securities dealers. Can you enlighten us on that?

Mr Clarke: I think the fact of the matter is that listing on a stock exchange implies there has been vetting done by the stock exchange of the underlying company to ensure that there actually is a business here and that in some manner -- I mean, it doesn't hold out that it's a good investment, but there is actually a business and they make a number of requirements.

The over-the-counter market is essentially a market where those kinds of requirements are not there. One of the differences between CDN and the TSE is that the TSE listing department does not look at and make requirements of the stocks that are on there.

What Mr Carson was saying, I believe, was that the OTC has a broad variety of quality. A stock exchange listing implies a minimum standard of quality. Whereas the OTC market may have some of the very best stocks in the world -- typically you find quite often into that marketplace go overseas listings that have not been listed for trading on the Toronto Stock Exchange or another Canadian stock exchange, so you may have some of the very best international companies in the world on that market -- you may also have companies that are of much lesser quality and in fact do not meet any kind of real minimum standard.

Mr David Johnson: I wanted to get your comments, before we ran out of time, in terms of Mr Carson's statement with regard to insider trading and market manipulation. I wonder what you see from your vantage point. This is a great concern to me, I must say, that apparently this is transpiring. He thinks it's significant.

Mr Clarke: I believe Mr Carson's point was that the securities commission does not have the resources to deal with all of the cases that come forth to it, and on that basis must make a selection as between cases which they can handle and they cannot handle.

It is certainly my view, not based on a tremendous amount of experience -- I mean, our organization investigates all of the complaints made of our members, who are our responsibility -- that this is becoming an increasing job. There are larger and larger numbers of complaints from the public and typically, when the markets start to go down, you find ever-increasing numbers, so this year has been a year where there have been increasing numbers of complaints and one must vet and choose between them.

Simply put, the securities commission is subject to a number of requirements: the cutbacks in expenditures in all government departments, it's not getting more people and it's probably getting more complaints. Well, it's surely getting more complaints. On that basis, they have to do their very best to select which cases are the most important, but I have no doubt that they are letting go cases which are probably of merit because they simply don't have the resources.

Mr David Johnson: This concerns me because you mentioned the confidence that's required in the market system, and I share your views on that.

Mr Russell: If I could just make one observation, there was an OSC staff review that looked into prospectus financings involving broker dealers in a five-year period between 1987 and 1991. The findings of that report were that more than 50% of the proceeds that were raised from these prospectus offerings flowed to the broker dealers and less than 40% went to the issuers of the securities. That doesn't necessarily imply market manipulation, but it does suggest a rather unorthodox way of financing.

Mr David Johnson: I didn't get the sense that Mr Carson was just talking about the broker dealers when he was talking in terms of insider trading and that sort of thing, but perhaps I should deal with him afterwards.

The Chair: Thank you, Mr Johnson. Mr Sutherland.

Mr Sutherland: If I could then go back to the earlier comments that we heard from the securities dealers about the level playing field and their argument that the equal rights amendment brings a level playing field, I use the analogy with them that maybe there wasn't the level playing field to begin with. In other words, TSE and your organization were up here, their standards may have been here and then that was just bringing them up to an equal playing field. If I understand your comments correctly, you're saying that this policy 1.10 wouldn't even bring them up to a level playing field, to the standards that your organization has or of the TSE?

Mr Clarke: That certainly was our submission and our comment on policy 1.10, that this had merit. In our minds, it addressed some of the concerns, but certainly we didn't feel that clients who dealt through securities dealers got anywhere near the same kind of treatment and concern as would clients of investment dealers or brokers, members of the Toronto Stock Exchange, because our rules were still much more severe in terms of the responsibility and the requirements put on our dealers.

Mr Sutherland: And therefore there is not an undue burden on the securities dealers.

Mr Clarke: In some. I'm not trying to tell you that the specific mechanisms in that particular policy were an effective, efficient way to carry on your business. All I'm saying is, if they wanted to do otherwise, they could become members of the IDA or TSE if they chose to, or they could set up their own SRO and make more effective, efficient rules, but that's one of the benefits of self-regulation. If one chooses not to set up a self-regulatory regime, one is subject to the best job that regulatory organizations can do.

Mr Russell: I think another point, just to amplify on what Mr Clarke has said -- you're right; there is a move with 1.10 to achieve more regulatory equivalents. It's interesting that when you look at those regimes, most of the complaints that have arisen have come from the broker dealer side, as opposed to the IDA, which has prompted this move to try and move the standard of regulation up for the broker dealers through 1.10.

The Chair: I'd like to thank the Investment Dealers Association of Canada for making its presentation before the committee this morning. Thank you very much.

I would like to remind the committee members to bring the package that was sent to your respective offices with respect to our presentation at 3:30 this afternoon. Also, the clerk has handed out a package that is for the 4 pm presentation this afternoon. I just remind you to bring them because she doesn't have any other copies.

Mr Johnson: We can leave this here?

The Chair: You can leave them here for sure.

This committee stands recessed until 3:30 pm, or immediately following routine proceedings.

The committee recessed from 1155 to 1531.

PHILIP ANISMAN

The Chair: The standing committee on finance and economic affairs will come to order. We continue our hearings with respect to Bill 190, An Act to amend the Securities Act. Our first presenter this afternoon is Mr Philip Anisman, barrister and solicitor. Please make yourself comfortable, sir. You have up to 30 minutes to make a presentation and you may wish to leave some time for questions from the committee members. When you're comfortable, you may proceed.

Mr Philip Anisman: When does the clock start running? When I begin?

The Chair: It started when I started.

Mr Anisman: Thank you for the opportunity to appear here today. I recognize that time is brief. I provided a submission to the committee on Monday which I understand all of you have. I also sent copies of that submission to the minister, to officials in the ministry and to Ed Waitzer at the securities commission.

The submission focuses on Bill 190. It contains a number of comments with respect to provisions in Bill 190 that I believe require amendment and has draft amendments in it reflecting the suggestions that I make. For ease of reference, just in case anyone hasn't noticed, at page 3, the third page in the submission, is an index which directs you to the pages at which the specific statutory provisions are discussed, because the table of contents isn't chronological through the bill, it goes by subject matter.

There's one other matter that I should refer you to. I received yesterday evening a letter from Ed Waitzer relating to some of my earlier comments on Bill 190. I believe that it was written before he'd had an opportunity to read this submission. He sent copies of that letter to the leaders of the opposition parties, to members of this committee and to the minister. He raises a number of comments in it with respect to some positions that I've taken and that I'll take today. I'll be addressing his letter in the course of my comments to you.

I should say at the beginning that I've participated in the process that's led to this bill from its inception. I made submissions to the Daniels task force, I've written on the task force report and I commented on the Daniels work as it was proceeding. I've done so because I believe that the issues that are dealt with in this bill are very important, not only with respect to the securities commission but with respect to public law and the functioning of public authorities in this country.

I should say at the beginning as well that there are a few general statements I should make before I get into my specific submission. I have a hunch I'll reduce your question period.

I believe, and I believe strongly, that we require in this country efficient and effective regulation of the securities market, both in Ontario and nationwide, to make it work to the economic benefit of Canadians. I believe the OSC should have powers adequate to enable it to conduct the regulation of the securities market. But I also think that in giving it powers, it's necessary to recognize that powers carry with them dangers and that unconfined powers create risks, whoever exercises them and however well-meaning they may be, and that when powers that are broad are given to subordinate authorities under the Legislature, those powers must be given in a manner that ensures accountability.

I say that quite conscious that both of those goals are necessary and may conflict. I think a balance can be achieved in reaching them. I quite frankly think that Bill 190 is out of balance, and that's why I'm here today.

I believe the OSC should be given rule-making power, but I think that power must be accompanied by adequate mechanisms to ensure the commission's accountability and to check for potential excess; to make sure, in other words, that the commission stays within reasonable bounds when it exercises those powers.

Bill 190 would give the Ontario Securities Commission broader powers to make laws than any subordinate agency that I'm aware of in Canada has or has ever had. It would be given those powers against a background of conduct during the last 10 years when the commission has exceeded its jurisdictional limits on a substantial number of occasions, in my view, and has engaged in regulatory conduct knowing that that conduct was beyond its jurisdiction.

I'm not suggesting when I say this that they're bad people or that it was improper in any sense other than the sense that I happen to believe that governmental bodies which have statutory authority should pay attention to the limits in it. I happen to believe that the commission, in pursuing its regulatory goals, goals that it believed quite proper and that may very well have been proper, ignored those limits on occasion. It lost sight of what I take to be serious process issues. I tell you that only because I think the history of the commission indicates the importance of ensuring that when it's given the kind of powers it will be given in Bill 190, I take it, there are appropriate checks and balances in place.

That's background to the first issue I'd like to address -- it's addressed in my submission -- and that's the question of judicial review. My submission states that in my view Bill 190 should be amended to provide expressly for judicial review of commission rules and should set the standards for that review. I'll try and take you very briefly through my reasons for that.

First, section 143 of the act, once Bill 190 is enacted, will give the commission very broad rule-making power. The Daniels task force itself stated that the powers were very broad indeed. I'd suggest they're virtually unlimited, even though the "last basket" provision in the Daniels task force report was removed from subsection 143(1).

Secondly, the commission's power will be enhanced significantly by the fact that new subsection 1(1.1) will give it the power to define terms in the act. That power will enable the commission, at least with respect to those terms -- and they're broad terms, like "derivatives" -- not all of which are securities -- "related party transactions," "market participants" -- to define the scope of its own jurisdiction with respect to those categories of activity or people by making rules. Then it can make rules further to define what they can do.

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You'll see in my submission, at page 12, that I recommend that the definitions should only be definable in regulations by the cabinet, not through rules, so that the commission doesn't perform both functions. But even if that recommendation is accepted, the power in section 143 is very broad indeed. I submit to you that this breadth mandates serious mechanisms of accountability to be included in this bill.

The bill relies on two mechanisms: the notice and comment procedure for rule-making and ministerial approval. In my view, neither of them is adequate to the task. The commission controls the notice and comment procedure. It's ultimately the decision-maker and it doesn't have to make public all of the information on which it relies, although, in fairness, I expect most of it'll be made public, but it doesn't have to. The Daniels task force itself recognized that the political review contemplated by its recommendation that the cabinet consider rules wasn't going to be used very frequently, and I suggest that experience supports that.

I think that the only mechanism available that will help to provide an adequate check on the commission's powers is judicial review. I'd like to read you a sentence from a 1973 article by James Baillie, a former chairman of the commission, some five years before he became chairman, talking about judicial review. Here's what he said: "While a remedy is available through recourse to the courts in cases where a securities commission has exceeded its authority" -- meaning on jurisdictional grounds -- "the powers of the securities commission are sufficiently broad that this rarely operates as a material constraint."

Since 1973, courts have come to grant more deference to securities regulatory authorities, and I am sure you're all aware of the Pezim case in the Supreme Court of Canada. In addition, the breadth of the rule-making power in section 143 virtually, I suggest, guarantees that a jurisdictional challenge to commission rules isn't going to happen.

I think that what we need, and what this bill needs, is a provision authorizing judicial review. I don't think it's all that difficult to do. My submission, at pages 16 and 17, has a draft provision that could simply be plugged into the act if you accept my submission.

I suggest as well that the standard of review should be one based on arbitrariness, capriciousness or abuse of discretion, and that in determining whether a rule is arbitrary a court should be authorized to look at the proportionality of the rule, by which I mean whether it accomplishes its purpose as stated by the commission in connection with the rule-making and in light of the statutory principles and purposes clause that is in this bill, which itself contains a proportionality standard. I suggest to you that would help. I don't think it's very novel.

Some of you may have heard a number of objections to this proposal. One that's been made is that it would create significant costs and uncertainty. I don't think it would. I expect that judicial review would occur at the fringes. The courts wouldn't second-guess basic policy of the commission with a provision like mine but would only look for serious unreasonableness or excess. In fact, I suggest to you that the experience in the United States supports what I've just said. The rule-making provisions in this bill are based on US law. In the United States there is judicial review of rule-making. It's been left out here.

In the acts administered by the Securities and Exchange Commission in Washington, at least in one of them, there's a specific provision for judicial review of rules which has standards much like the ones in my draft. I know of no challenge to an SEC rule through judicial review in the 60 years since that provision was enacted. I know of only one case that challenged the validity of an SEC rule. I think it was struck down, and it was a criminal prosecution, United States v Chestman, I believe, some years ago. That goes to the question of costs and significant uncertainty.

The other argument that's been made is that the proportionality standard I suggest is novel, that I'm the only one who suggests it and that it's undefined. I frankly think it's defined in the draft I've given you. I don't think it's all that novel. Courts in judicial review of adjudicative matters have been prepared to consider proportionality when dealing with reasonableness. They don't do it frequently, but they've been prepared.

I'd suggest that if that's the stumbling block, I'd be happy to drop subsection (7) from my section and leave it on a straight standard of arbitrariness, capriciousness or abuse of discretion. In other words, I frankly don't see how this kind of power can be given without some kind of judicial review.

I also recommend in my submission that judicial review of policies be given. I think there are slightly different standards required for that, and there's an alternative provision with standards in it on page 20 of my submission. That brings me to two provisions in the bill which I'll suggest to you are both overbroad and unnecessary.

The first one is subsection 143(3), which would empower the OSC, with the minister's approval, to override regulations. In fact, I think that provision was added to the act. It's quite a remarkable provision and I should say up front that it's wholly inconsistent, in my view, with democratic theory. I just don't see how even a minister can override a regulation. But I think that the reason it's there is not unreasonable. It was put into the bill, I think, to enable the commission to make rules on subject matters that are currently covered by the regulations under the act. The Daniels task force would have done it another way and would have required the cabinet to make an order with respect to each regulation each time. My guess is that this was put in because it just seemed easier, more practical.

In fact, Ed's letter to me -- the one I mentioned at the beginning -- suggests that what I'm suggesting just wouldn't happen, in any event, because it's pretty clear that no minister is going to override a regulation. I address that issue at page 27 of my submission. In fact, I'd agree that if the current government enacts a regulation to override a commission rule, the minister won't approve another regulation reversing it. But I don't know what'll happen when the next government comes into power and I don't know what'll happen when the government after that comes into power. As I say, I think the provision is wholly inconsistent with democratic theory. It seems to me that there is a risk there that needn't be taken.

If I'm right about what the purpose of that section is, the simple way of dealing with it is to deem all existing regulations under the act to be rules, and then the commission can deal with them as it should. I think that's an appropriate mechanism, and there's a provision that would permit that at page 27 of my submission. It would simply permit the commission to deal with all the subject matter that's now covered by the regulations by deeming all the regulations to be rules. It's more direct, it's simpler, it avoids the complexity in the current act and I think it does what they intended it to do without the excess and the potential excess that's in the current draft. Ed says they wouldn't do it. Well, then, don't give them the chance; they don't need it.

The same comment applies to subsection 143(6), which deals with incorporation by reference. The section is overbroad. It allows the commission to adopt policies by incorporating them, by reference, into a rule. That's quite inconsistent with what Daniels meant to happen, and in fact Ed's letter says they simply wouldn't do it.

My concern arises from the fact that the commission, in one of its submissions to the Daniels task force, said that there are a number of independent regimes that it's created through policies that are essential for the functioning and the regulation of the securities market. Not all of those policies identified are in the schedule to this bill. I think there is a possibility that subsection 143(6) could be used for them, and I'm not sure it would be unreasonable to do that in the circumstances, but I don't think that it's appropriate for the commission to be able to incorporate its policies into a rule.

Again, Ed says in his letter -- the one that I received last night -- that the commission clearly doesn't intend to do that. My response is that if the commission doesn't intend to use the section that way, make it clear. Ed suggests as well that I'm raising this horror because I needed to support my argument on judicial review. In fact, I don't; I think that's an independent argument. Even if you accept my position on judicial review, I think this section should be amended. Given that the commission says it's not going to use it this way, I don't see any problem with doing that. My concern is simply that power, once given, isn't easily withdrawn. Once it's there, someone's going to use it some day. So I think it should be clean on the way in.

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I think I'm approaching 20 minutes. If I may, there's one more major point I'll make. There are a number of other points I thought were major, but I'll skip them. I think this one is crucial, and then I'll stop to give you an opportunity to ask me any questions you'd like, and it has to do with the confidential treatment of rules. Under the bill, and this is consistent with the recommendations in the task force report, the commission is not obligated to disclose information that it thinks should be treated confidentially even if that information is significant in its view and influences the rules that it makes; nor is it obligated to disclose submissions made with respect to rules during the notice and comment period that it concludes should be treated confidentially on a request, even though those submissions may inform the final rule adopted.

My problem with that position is pretty simple. The purpose of the rule-making procedure is to enable people who are affected by a rule to respond to the rule and comment on it so that they can inform what goes on and have a say in it. Indeed, that's the mechanism that Daniels saw as crucial to accountability. But I just don't see how people can participate in a process when they're not aware of material information that informs that process. It's that simple. If this were a case of insider trading, the commission would be on my side.

When I delivered my paper at Queen's a few weeks ago on the Daniels task force, Joan Smart, the vice-chair of the commission, was commenting on it, as by the way was Jim Baillie, and that's where the remarks in Ed's letter come from. Joan said that the confidentiality issue is met by the fact that the minister gets all the information. The problem with that is that the 60-day period for the minister is a period during which people are intended to be able to make submissions to the minister to address issues that concern them on rules through the political process. I don't see how they can address issues with the minister if they're unaware of information that's been relied on any more than they could address them before the securities commission. So the confidentiality treatment simply undercuts, in my view, the whole purpose or a significant part of the purpose of meaningful participation in rule-making and the accountability function that it performs. Again, I think this can be simply dealt with. There are draft provisions which could be added to this bill at pages 36 to 38 of my submission relating to both rules and policies.

My submission contains issues on transition. I won't mention them. I will mention one other issue and that is this: The commission over the years has made a number of blanket orders and rulings. They're all going to be grandfathered in the schedule. In my view, most of them were unauthorized. If I'm right, and my analysis is in submissions that have been made to this committee before, people who have relied on those blanket rulings and orders, issuers and individuals, may be exposed. I suggest at page 22 of my submission that the act should be amended to protect them. There's nothing in Bill 190 to do that now. The provision would also protect people who rely on a rule that is subsequently declared to be invalid for any reason and therefore a nullity and therefore not law. It derives from American securities law as well, but I think it's a healthy protection for individuals that really should be in this bill, and frankly I'm quite surprised that it isn't.

I also have submissions on memoranda of understanding. To put it simply, I think notice and comment requirements should apply to them when they affect or may affect individual rights, and I can tell you that some of them do.

At this point, I think I should stop. I'm 22 minutes into my 30 minutes of time and there are a number of other substantive and technical submissions in my formal submission. If you have time, perhaps you might want to consider them, and that'll be facilitated by the index at the beginning, when you go to clause-by-clause after you hear submissions. I'll simply conclude by thanking you for this opportunity to make some of my views known to you. I'm happy to take any questions any of you may have.

The Chair: Thank you, Mr Anisman. We have somewhere between two and three minutes per caucus. We'll start with Mr Johnson.

Mr David Johnson: Thank you very much, Mr Anisman. You've prepared a very detailed brief, and the problem that we face, which I guess you fully understand, is that we have one day today and the House sits next week. Either this goes through next week or it doesn't go through at all. My guess is, looking at all the excellent information you've given to us and the deputations that we've heard this morning and the further one this afternoon, that either the bill will essentially go through in the form it's in right now or it won't go through at all.

You talked about judicial review, you talked about confidential information, the broad powers of the OSC etc. I wondered, if you were sitting where we're sitting and were put in that situation, would you support the bill the way it is or would you support that nothing happens?

Mr Anisman: You'll notice that I didn't refer to that particular question in my submission. In fact, when I wrote it, I simply assumed the bill would go through and I was hoping to find a balance in it. Ed's letter to me raised that question expressly and said he knows I agree with the thrust of the bill, he knows I agree with rule-making and he assumes that I would agree that it's better to let the bill go through so the commission can deal with current problems now. That forced me to think about it, and I've thought about it hard. Well, I won't stall. I'm reluctant to say this, but I don't think I'd approve it now.

I think that with judicial review it could go in. I suggest to you that there are provisions in my submission that this committee, when it goes to clause-by-clause, should be in a position to consider and adopt. They're before you, they don't require much drafting, I've given you all the provisions that can simply be put in if you accept the principle and the commission and the ministry have had time to consider them because I sent copies to them on Monday. So I'll be very frank. I wouldn't pass the bill as it now stands, if it were my decision, but I would pass it with the amendments and I think that can be done today.

Mr David Johnson: One of the other possibilities, and I think it was raised in one of the other briefs, was to deal with the situation that exists now but look at a more thorough review next year.

Mr Anisman: I'm troubled by that too. I'm troubled by it because I can't foretell the future. The quinquennial review has also been referred to. I would say this: I don't know if I have any suasive power anywhere, but if I had any suasive power it would be to suggest that you adopt the judicial review provision and pass this bill.

Mr Sutherland: If I could just pick up on that comment about the judicial review, are you saying if judicial review is put in, then you would support the bill, or are you saying your form of judicial review, which brings in this whole new concept of proportionality and in some cases, rather than to talk about concepts of law, some may feel that you're asking them to be a new tribunal over the securities commission? So are you talking about a plain judicial review which people have access to or are you talking about your judicial review?

Mr Anisman: I'd prefer my judicial review, and I don't think proportionality is all that novel, but I live in a world of second-best. What I'd say to you and as I said in my initial presentation, if you take my provision at pages 16 to 17 and cut out the proportionality section, what you have is a traditional, standard judicial review provision.

I think that as a compromise and as second-best, I would be happy to see the bill go through with that provision, deleting my subsection (7).

Mr Sutherland: Thank you, Mr Anisman, for your very detailed submission. It's not too often that we get an individual person who has spent this much time going through a specific piece of legislation.

Mr Anisman: I just can't understand them without doing that.

Mr Phillips: Mr Johnson indicated our challenge here, which is that we are being told of the importance of this bill, and from everything I've heard, it is important to the wellbeing of our securities industry. You've obviously put in a lot of work on this and are very thoughtful on it and are, frankly, quite persuasive. But the challenge, I think, for us is that your arguments have been heard and weighed by others before and then not brought forward, so I think you might also appreciate this is a somewhat technical matter. I mean, it's important, but a somewhat technical matter. What was the argument used with you for not accepting your argument?

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Mr Anisman: I think the argument against accepting my argument was twofold. One was that the proportionalities standard was novel, and the second part, that it would throw the courts into second-guessing the commission on substance. It was a variation of the question I've just been asked.

The second argument against it was that it would create costs and uncertainty. I addressed both of those arguments in my submission. As I've said, the SEC has made rules since 1934 in the United States. They're subject to a judicial review provision in their own legislation and in the federal administrative procedure act and there has not, to my knowledge, been a single challenge to one of their rules through judicial review. There have been under other legislation with other bodies, but not there, so I just don't buy that criticism.

The second one about proportionality, I disagree with it, in fact. I don't think it's that novel, but as I've said, I'd be quite prepared to live with a traditional standard of judicial review as a compromise and have the bill go through with a little more check on the commission. I don't think it's a technical issue. I think it's a straight matter of principle. I quite frankly think that the commission is being given in this bill enormous power, more than any subordinate body I've ever seen in the British Commonwealth. I've actually looked at some other countries on it.

It seems to me it's necessary to have checks to protect against excess. I don't think it's going to be used all that frequently. I think it's healthy to have the commission not view itself, though, as a law unto itself, only having to justify its position to the minister, given the minister's busy schedule. It should have to recognize that if it goes too far on traditional administrative law grounds and is excessive, a court may deal with it and that people have an alternative route. I think that will be a healthy regimen for it to look over its shoulder when it makes rules. I think it will help the securities market, it will help the commission's credibility and it would help this bill.

I should say one other thing. I know I talk too much, but the position I took in response to Mr Johnson's question wasn't easy for me because I've devoted most of my professional life to working on securities policy. I've drafted securities laws; I've written in favour of strong securities legislation. I've tended to advocate those kinds of positions. I very strongly believe that we need a strong securities commission in this province, but I also think there are other principles that are beyond simply the securities market, that go to the protection of individuals and the constitutional integrity of our whole system and they're invoked by this. I don't think -- I don't understand, quite frankly -- why it's an all-or-nothing proposition. I don't understand why an amendment can't be made in the clause-by-clause session when you have draft legislation before you and when you have an opportunity to have the commission analyse it and tell you what's wrong with it, if you agree with me in principle.

The Chair: Mr Anisman, your time has expired. I want to thank you very much for making your presentation before the committee this afternoon.

Mr Anisman: Thank you for your generosity in allowing me so much time.

ONTARIO SECURITIES COMMISSION

The Chair: The next presentation this afternoon is by the Ontario Securities Commission, Mr Edward J. Waitzer, chair; Mr John A. Geller QC, vice-chair; and Mr Harvey Tanzer, deputy director and senior legal counsel, capital markets branch. Please come forward and make yourselves comfortable, if you would be so kind as to identify yourselves for the purposes of the committee members and Hansard, and when you are ready you may proceed.

Mr Ed Waitzer: Thank you, Mr Chair, and thank you for the opportunity to appear here today. Mr Geller, who is vice-chair of the commission, is on my left, Harvey Tanzer is on my right, and my name is Ed Waitzer.

We're grateful for the opportunity to make submissions regarding Bill 190. As you know, I have circulated to the clerk of the committee and I think each of you has received letters that I had written in response to the concerns raised by each of the three intervenors who raised concerns about Bill 190. I don't propose to deal with those now, except to the extent that any of you may have specific questions.

Instead, I thought it might be helpful to address myself to Bill 190 itself and its implications for the Ontario Securities Commission, Ontario's capital markets and the investing public. It might be helpful for me to begin by putting Bill 190 into historical perspective.

The commission's twofold mandate is investor protection and the promotion of fair and efficient capital markets. Of the various statutes administered by the commission, the Securities Act is by far the most significant. Given competing demands for legislative time, the Securities Act hasn't always kept pace with changes in a highly dynamic domestic and international marketplace.

In response to those legislative shortcomings, the commission has over time, through a variety of instruments, including blanket orders, rulings and policy statements, worked in response to demands from market participants towards providing responsive and timely solutions in order to fulfil its mandate.

Although everyone may not agree with the jurisdictional authority supporting the use of those instruments, most of those affected by them have expressed overwhelming support for the results which they have achieved. I think that was evident in the submissions made to the Daniels task force.

In August of last year, policy 1.10 of the commission, which you heard about this morning and which provided guidelines affecting broker dealers, was found by Mr Justice Blair in the Ainsley decision to be more in the nature of a rule than a policy and it was struck down. It is not effective today. That decision is currently under appeal, arguments were heard earlier this week, and I want to correct any misapprehension that Mr Finlay left this morning. That litigation is not an attack, certainly from the commission's point of view, on the securities dealers society, nor on any of their matters. Rather it's an attempt to achieve judicial resolution of two important legal issues that affect the commission's mandate.

Recognizing the significance of Justice Blair's decision and the potential implications for capital market participants, the government quickly responded by authorizing a task force, comprised of representatives of the commission and the ministry and shared by Professor Daniels, to consider the implications.

Within the time frame available to it, that task force I think undertook a remarkably transparent and open process involving a great deal of public participation, all of which is indexed in the report itself, to determine an appropriate balance between the authority necessary for the commission to fulfil its mandate and an appropriate level of accountability for such an agency in our parliamentary system. The task force, after two formal rounds of consultation and very extensive informal consultations, developed suggested legislation which forms the basis for the bill before you today.

Among other things, Bill 190 provides for a public and transparent rule-making process and the authority to make rules within specified purposes and principles and discrete heads of authority. The process for rule-making entrenches in the Securities Act the obligation of the commission to put out for notice and comment all proposed rules, justify the authority and rationale for the rules, describe the alternatives considered and the basis for their rejection, as well as respond to issues and concerns raised during the comment period.

Market participants will be beneficiaries of this process, not only as a result of its transparency and ultimate certainty but also by virtue of ensuring that all concerns raised are duly considered, both by the commission and ultimately at the political level.

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The process provided by Bill 190 ensures that concerns such as those raised by the broker dealers this morning in connection with policy 5.2, the fairness of registration conditions or the former policy 1.10, can be brought to the public's and the minister's attention and will be given full consideration in the context of any regulatory proposal advanced by the commission.

In addition to these procedural safeguards, the bill also provides that all proposed rules, as well as public comments, be submitted to the Minister of Finance for consideration before they can become effective.

Phil mentioned to you that there is provision for confidentiality. I would simply note that there are statutory conditions which prescribe that confidentiality and suggest to you that there are circumstances where not having provision for confidentiality, strictly circumscribed by statutory standards, might hamper the ability of the commission to get the kind of input it requires in order to formulate policy.

In addition, for purposes of ensuring that the commission's agenda is in sync with the markets and continues to be responsive, the commission is statutorily required to annually list its priorities and the status of its current initiatives. Furthermore, to ensure that the act keeps pace with market developments, the bill requires a quinquennial review of the Securities Act.

There is also, as the stock exchange noted in its submission this morning, provision for judicial review to the extent that the commission exceeds the authority conferred on it by the Legislature.

The proportionality doctrine that Phil just advocated is novel and untested in Canada except in constitutional cases. When Professor Hudson Janisch, who is one of the leading authorities on administrative law, pointed this out at the Queen's conference to which Phil referred, less than a month ago, Phil acknowledged that he hadn't yet thought through the standard, and I only saw the drafting of his proposed amendment yesterday.

Phil knows my high regard for his knowledge of securities law and commitment to the process, but on this particular issue, I think he has gotten to the stage -- and Phil has made a very substantial contribution to the process throughout. I think he now finds himself in a singular minority and at a level of technicality and fine-tuning that, to my mind, would be dangerous to start invoking without having had the benefit of the same kind of public comment and input that the Daniels task force went through.

The bill is an extremely significant piece of securities legislation in that it provides the means by which Ontario's securities regulatory framework can continue to maintain the high standards for which it is recognized. It also provides the commission with an essential tool in moving towards a more harmonized, responsive and cost-efficient regulatory regime across Canada.

There are many to be thanked for the extraordinary effort that has resulted in the bill coming before you today: firstly, of course, the task force, for the open and thorough process through which they've managed to compromise -- and I say that in the best sense of the word -- various points of views in order to balance effectiveness and restore the commission's ability to regulate with rigorous safeguards, including ongoing legislative oversight and involvement; the securities industry -- and I use that in the broadest sense to include professionals -- which is truly an engine of this province's economy and recognizes the importance of an effective and responsive regulatory regime in order to maintain a vibrant financial services sector in this province; the minister, who, persuaded of the need for reform, was prepared to wade into waters in which few political leaders choose to tread and who steered a steady course for this process; and to each of the parties for taking the time to hear the concerns of all interested parties affected by this legislation and deal with this important legislation in an expeditious and non-partisan manner.

The last year has been an education for all of us. Bill 190, if nothing else, I think essentially reflects the importance to effective securities regulation of input and support from markets, participants and the Legislature, through the political process. For institutions such as the commission, this depends in large measure on the clear articulation of priorities and on openness and responsiveness to various constituent groups. These attitudes and actions, coupled with the right tools, which I think Bill 190 provides, are the key to the ability of the organization to do a difficult job well. This has been the legacy of the commission and the basis upon which we hope to continue to enjoy your confidence and trust.

The Chair: Thank you, Mr Waitzer. We have approximately seven minutes per caucus. We'll start with Mr Sutherland.

Mr Sutherland: Thank you very much for appearing today. I was wondering if you could just elaborate a little bit as to what some of the problems have been for the commission since the initial Ainsley decision in terms of how that has affected your role to regulate certain areas.

Mr Waitzer: I think Phil probably summed it up best when he talked about a proposed amendment in his submission that would in effect provide immunity for those who have relied upon rulings or other regulatory instruments that the commission has invoked. Most of the policy statements, rulings, blanket orders that we're talking about are designed to facilitate efficient market operation, and to the extent that there is any uncertainty as to the effectiveness of the regulatory framework, it becomes very difficult for market participants to feel comfortable operating in the context.

Mr Sutherland: Another question: I was wondering, with this new legislation, Bill 190, in terms of some of the new requirements that are put on to the commission in terms of its reporting to the Legislature, the five-year review, those types of things, how you think that will affect your relationship with the public, the government and the Legislature.

Mr Waitzer: When I said that this year has been an education for all of us, I was quite genuine. No one welcomes accountability. The reflexive response is always against accountability, and as you well know, many of the proposals advanced by the commission to the task force were rejected by the task force. I think the process has been an educative one for the commission. I think we have embraced the accountability proposals and I think it will prove a very healthy discipline for the regulatory process at large, and that extends, as I pointed out, beyond Ontario, because Ontario in many ways in this instance is setting the lead for other jurisdictions. British Columbia has announced its intention to adopt rule-making. Alberta has indicated that it hopes to do so this spring. So there's a domino effect.

Mr Sutherland: How much time do we have left?

The Chair: You've got about four minutes.

Mr Sutherland: I'll let Mr Wiseman go ahead then.

Mr Jim Wiseman (Durham West): Thank you. You made a comment there that sort of piqued my interest about why we should reject Mr Anisman's submission. Your comment, and I'm going to give you an opportunity to clear this up, seemed to imply that we should reject his recommendation because it goes to a level of technical detail that is beyond what is necessary. It seems to me that what you're saying is that we should be excluding his comments because they take it to a technical level and that that's the reason we shouldn't accept his submission, because he's too well versed and others maybe are not. I'd like you to perhaps clear that up for me.

Mr Waitzer: If that's what I was taken to have said, I misspoke. What I intended to say with respect to his proposal on judicial review is that I fundamentally disagree, and I believe that most others who have considered this carefully fundamentally disagree as well.

When I talked about fine-tuning and technical details, when you get into the rest of the submission that I had a chance to read yesterday, there are many small technical details that he addresses. My point on those, without commenting on whether I agree or disagree, is that I don't think this is the appropriate forum in which to be dealing with those kinds of minutiae.

But judicial review, and some of the other proposals that Phil has put forward, are not what I would characterize as technical details, and with respect to those I obviously disagree.

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Mr Wiseman: As a historian, I have often found when I read through the history of what people have said that some of those people who are swimming upstream alone may be closer to being right in their evaluations than some of the group who are going downstream en masse. What can you say to convince me, because you've already recognized Mr Anisman has considerable technical expertise in this area, to suggest to me why it is that, given the historical precedents that I could name -- I don't have time to -- perhaps the person swimming upstream might be right and the people going downstream might be wrong?

Mr Waitzer: We could have a debate on political theory here, and the role of the Legislature.

Mr Wiseman: This isn't political theory, this is --

Mr Waitzer: But let me correct, I think, your basic precept. There are few who have had as much input, and constructive input, into this bill as Phil, perhaps none, other than the commission itself, and in many areas Phil's views have prevailed over those advanced by the commission. I don't think it's fair to characterize Phil as swimming upstream, because Bill 190 to a large extent, and to his credit, reflects views that he has advanced.

What we're now talking about is views Phil put forward that weren't accepted in this process of trying to achieve a balance. Phil doesn't think we've got the right balance, and he's reproposing them and proposing a few new ones at this stage, having had the benefit of seeing the legislation.

The ones he is reproposing that are substantive I think it would be folly for this committee to accept without having had the benefit of all those others, many of whom are equally erudite in securities laws and don't carry any particular brief for the securities commission. It just defies the process the task force was designed to invoke.

With respect to some of the lesser and more technical ones, those I characterize as fine-tuning, and I think even Phil agreed in his submission to you those are not essential to be dealt with today. They're not going to go to the effectiveness of this legislation.

Mr Crozier: Mr Waitzer, there was a reference in one paragraph in your letter that under SRO membership -- someone had indicated that they had had difficulties, his firm had had difficulties, in becoming a member of the Toronto Stock Exchange, and you pointed out that there was a way to have this reviewed. Just in general terms, what would be a problem that a company may have in becoming a member of the stock exchange?

Mr Waitzer: It's hard to speculate.

Mr Crozier: You referred to a specific instance.

Mr Waitzer: Let me give you the context to that. Mr Ornstein and Mr Bregman met with me a year ago, shortly after I assumed my current responsibilities, and talked about their desire to become members of the self-regulatory process, and I encouraged them to do that. There are obviously costs. For instance, becoming a member of the IDA involves higher capital requirements than not, than being a broker-dealer. There are costs to membership, because you're sharing in the costs of the self-regulatory system.

When I saw the letter, and indeed when Mr Bregman approached me after this morning's session saying, "Some of us are trying to become members of the stock exchange or the IDA but they don't want to let us in," my response then and my response today was that the commission, by statute, has oversight responsibility with respect to self-regulatory organizations. Anyone who feels aggrieved by a decision, or indeed the lack of a decision, by the stock exchange or the IDA has the right to have that decision reviewed by the commission.

I encouraged Mr Bregman this afternoon, and I tried to encourage here, if what they are complaining about is that they feel they're being blackballed from membership in the IDA or the TSE, they should be addressing that complaint to the commission and the commission would have a statutory responsibility to deal with it.

What I heard from the IDA and the stock exchange this morning was that that isn't the case and that in fact several broker-dealers have in recent years become members of the IDA or the TSE.

I'm not answering your question because it's very hard for me to -- I don't know what the barrier is, and the only way I will find out in my institutional role is if one of them comes forward saying, "We have tried to become a member, have been denied, and we think we've been unfairly denied the opportunity to become a member." That has not occurred.

Mr Crozier: Well, I think you've partially answered it. My concern is with firms that don't want to, or appear not to want to, belong to an SRO. If this legislation that's being proposed overregulates them, then I suggest maybe that should be the case, if they don't seem to want to belong to an SRO.

Mr Phillips: On the other subject that was raised a lot this morning, that is, treating the penny stock people with exactly the same rules as anyone else -- I'm paraphrasing it -- I think their recommendation to us is an amendment to the act that says that the rules must apply to everyone; the same rules for selling penny stock apply to everyone.

In your response to them, you essentially said that that's overly complicated -- I'm paraphrasing; you can tell me what you've said here in other language -- and that their recommendation would make it very difficult to operate and your recommended approach, if they believe a rule you have brought forward is inappropriate or wrong, is that they have the mechanism of appeal and that's the route you recommend. Can you help us out by explaining more thoroughly the problems you see with their proposal? They called it the equal rights proposal.

Mr Waitzer: It's actually not a mechanism of appeal, because they would have opportunity for input both to the commission and at the political level before the commission ever invoked a rule. Remember that rule-making is at minimum a six-month, very public, very visible process here. Appeal is once the rule is invoked. They'd have opportunity for input in advance, and I agree with the submissions made this morning that that is the right time. It would be quite extraordinary for the Legislature at this time to circumscribe in this one narrow area, because it really defies the whole notice and comment process that the legislation otherwise provides for.

The other answer was really Mr Crozier's, that if you accept the logic of equal treatment, then presumably what we should have is a rule requiring all dealers to be subject to the same regulatory regime. If you're talking about level playing fields, the same regulatory regime for dealers would be membership in a self-regulatory organization, subject to the requirements to make contributions to the Canadian investor protection fund.

One of several factual errors Mr Finlay made this morning was he said that no client had suffered a loss at the hands of a securities dealer. I've only been at the commission a year, but I was involved on behalf of shareholders in the failure of one securities dealer, Durham Securities, within the last two years where substantial client losses were incurred, and of course those losses aren't protected by the Canadian investor protection fund. They'd be subject to capital requirements; they'd be subject to audit requirements; they'd be subject to the know-your-client requirements imposed by the self-regulatory -- so if we're really talking about level regulation, that's where the logic takes you to.

The point I was trying to make in my letter was that to the extent that the Legislature in its wisdom has decided that there should be a category of registration for those who don't want to bear that cost -- and there may be reasons. One of the reasons may be to promote junior resource financing; that's not my decision -- then surely there has to be the ability to tailor the regulatory requirements to that particular class of registrant, subject of course to the notice and comment and political accountability regime built into Bill 190.

Mr David Johnson: Thank you for your presentation this afternoon. To follow up on this last issue of the so-called equal rights amendment clause, you're appealing the striking down of policy 1.10. If you lose that appeal, is it your intention to reinstitute that policy as a rule?

Mr Waitzer: I've been at the commission now for 13 months. There has been no discussion at the commission level of reintroducing policy 1.10. There has been discussion about the merits of the litigation, but there has been no discussion -- so at this stage there is no initiative under way to reintroduce policy 1.10. I can't tell you what the commission will do because I'm only one voice on the commission, and of course I wasn't there when policy 1.10 was originally formulated.

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Mr David Johnson: If the appeal is successful, presumably policy 1.10 is still in force, but I don't know what happens with regard to Bill 190. Would policy 1.10 then automatically become a rule?

Mr Waitzer: If the appeal were to be successful, policy 1.10 might be enforced, but of course it would only be a policy, and Bill 190 makes that quite clear: It's only a guideline; it has no mandatory effect.

Mr David Johnson: In your view, if the equal rights amendment, as the securities dealers call it, were put in where they would wish it to be, who would be most disadvantaged by that? I guess I'm putting words in your mouth, but would it be the customers of the securities dealers because protection would be lost?

Mr Waitzer: I think it would derogate substantially from the integrity of the regulatory process, because you're really circumscribing the ability of the commission to do its job without knowing ahead of time what the commission thinks is appropriate. Surely the right way to do it is to wait until the commission says, as Bill 190 requires: "Here is what we are proposing. Here is why."

Mr David Johnson: I understand all that; that's kind of a general approach. But who in your view would be at the greatest disadvantage if it were put through?

Mr Waitzer: I think investors will be disadvantaged and ultimately it will impose more costs on the system.

Mr David Johnson: Would the members of the investment dealers association be disadvantaged at all?

Mr Waitzer: When investors are disadvantaged everyone is disadvantaged, because to the extent that investors lose confidence in the integrity of the system they tend to flee the market.

Mr David Johnson: A lot of this paper has come at the last moment; I'm just about swamped by it. Have you actually seen Mr Anisman's proposal regarding judicial review, the specific amendment?

Mr Waitzer: I read it last night, yes.

Mr David Johnson: The first part of it says, and it's an addition of a section 2.2 to the bill, "A person or company affected by a rule made by the commission may appeal to the Divisional Court."

Mr Waitzer: Sorry. Can you take me to the page number?

Mr David Johnson: Near the top of page 16. "A person or company affected by a rule made by the commission may appeal to the Divisional Court." I'm asking you to forget about the proportionate concept and all of that -- just the concept that a person could appeal a rule to the Divisional Court.

Mr Waitzer: My understanding of the law as it stands today is that a person affected by a rule may appeal to the Divisional Court. There's a judicial review of any commission action to the extent that the commission's action exceeds the authority conferred upon the commission by the Legislature, so that's already there. Subsection 10(1) is really just a preamble to what follows.

Mr David Johnson: So we'd flip over to the next page, and I guess that's clause (b) you're talking about. Could today a person raise an appeal on the basis that it is "arbitrary, capricious or an abuse of discretion," which is clause (a)?

Mr Waitzer: Isn't that really what happened with policy 1.10? The basis for the appeal in policy 1.10 was that the commission had exceeded its jurisdiction and had abused its discretion.

Mr David Johnson: Which is "arbitrary, capricious or an abuse." Help me out here, then. How does Mr Anisman differ from what's actually in place today?

Mr Waitzer: What Mr Anisman is trying to introduce is this proportionality concept, which in fairness is a concept that has been developed, I gather -- and I learned about this at this Queen's seminar -- in the law in the United Kingdom. It is developing in Canadian constitutional law, but it's quite novel.

Mr David Johnson: We're going to run out of time. This is one of the problems of only having a few minutes on a Thursday afternoon.

That is introduced in subsection (7), as I understand, and Mr Anisman has said, "If you must, strike (7) out." I see him nodding his head now in agreement. If we remove (7), what's left? How does it differ from what any citizen essentially has the right to do today?

Mr Waitzer: My question would be, what does it add? Phil is much more oriented in administrative law than I am, but my concern would be that two other academics and experts in this field, Dean Whyte and Hudson Janisch, both vehemently disagreed with the notion of building an additional statutory level of judicial review into this bill.

Mr David Johnson: But what's puzzling is that you say it already exists.

Mr Waitzer: But the concern is that we're adding new words that may redefine, or certainly create uncertainty in the common law as it stands today. It's not clear what the need for that is absent the proportionality test which Phil adds to his section.

Mr David Johnson: Can I ask you about the TSE's statement this morning? "Many investigations conducted by the CSC dealing with significant problems such as insider trading and market manipulation and forwarded to the OSC for action simply cannot be followed up due to lack of investigative and enforcement resources." That's very worrisome for me, and I wonder if you'd comment on that statement.

Mr Waitzer: It's worrisome to me as well. I think the commission's enforcement branch is recognized as a worldwide leader and has brought some enforcement cases, as recently as the last two years -- I'm thinking of the front-running case, Biscotti, the Gordon Capital case -- that are recognized world-round as trendsetters in terms of securities enforcement.

There is no question that the commission is severely underfunded, and at this stage we have to be selective in our enforcement proceedings. The minister is aware of that and the minister has indicated his interest in addressing the issue in a constructive way. And it's an issue that goes broader than enforcement; it's an issue that really goes to appropriate funding for securities regulation. That is a matter under consideration right now.

The Chair: Our time has expired. I want to thank the Ontario Securities Commission for making its presentation before the committee this afternoon.

Our next order of business is clause-by-clause consideration, but we're going to take a five-minute recess to prepare for that.

The committee recessed from 1637 to 1648.

The Chair: The committee will come to order. We'll continue with clause-by-clause consideration of Bill 190.

The first consideration will be that of section 1. Any discussion with respect to section 1 of the bill?

Mr David Johnson: Mr Chair, we can do this section by section, but there are a couple of key points, and I wonder whether it would be more instructive to have the government's view up front on those couple of key points, and then we can use our time more productively.

I know we have the government's amendment, which I presume will be passed. Beyond that, can I ask the parliamentary assistant about the so-called equal rights amendment, obviously one of the major points we've talked about today, that has been put forward by the securities dealers. In their view, and I think they've expressed this quite well, this would create a level playing field with their members and with the members from the investment dealers association, for example.

It would be an amendment later on, paragraph 143(1)14, that goes, "But no rule regulating, trading or advising in penny stocks shall be made unless it applies equally to all registrants who trade or advise in penny stocks." I wondered what the government's response to that proposed change would be.

Mr Sutherland: I guess the response of the government is that while it has been proposed as an equal rights amendment, we would support the testimony we've heard today, which indicates that what's being proposed is not really an equal rights amendment because the playing field that has been portrayed by the securities dealers isn't the actual playing field we've heard evidence about.

We've heard from several of the groups today -- the stock exchange, the investment dealers -- who suggest that their standards of being a self-regulatory organization implies a much higher level of standards, and also the sense that they do actually do enforcement and compliance to adhere to those standards. We heard evidence that the securities dealers do have standards -- I believe there was some evidence presented that they do have a code of ethics and a bill of rights for investors -- but there's no actual enforcement or compliance.

The points I made in some of my questions to the securities dealers and the others was that their not being self-regulatory organizations and the commission having the authority to bring in regulations regarding some of those areas because they're not self-regulatory organizations does help bring it up to a level playing field. It would be our view that, while it's called an equal rights amendment, it's not really presenting equal rights.

Mr David Johnson: Then I assume that means the government will not support that. Both sides of this issue have put their thoughts quite well. There's obviously a need to protect the market system and ensure that there's integrity in the system. I know that those who speak on behalf of the bill in its present form have that foremost in their thoughts. I know the securities dealers are attempting to deal with their situation, to maintain a business. It's a difficult situation for them, so they've put their thoughts forward as well, but I gather that, on balance, the government has decided not to support that.

The only other one that really was contentious, and I'd ask the parliamentary assistant for his comments, was the suggestion by Mr Anisman with regard to a judicial review. That would be contained on pages 16 and 17 of his submission minus subsection (7), I suppose, which would be the proportionate concept. If that was excluded, but the possibility of a judicial review was instituted as an addition to the bill, what's the government's position on that? Is the government supportive of that position?

Mr Sutherland: The government is not supportive of that position. While Mr Anisman put forward a very strong argument, we've also heard that other experts in the field would say that a judicial review at this stage is not necessary because, without it being explicitly in there, you still have the ability to go forward for a judicial review process if they feel that the commission is going beyond its scope of regulatory authority.

While Mr Anisman has put forward that argument, the response is, what impact will it have? Is it adding any more sense of accountability? The argument we've heard is that, no, whether or not you have it in the legislation really does not ensure that. Mr Johnson, you and your colleagues talk a lot about having unnecessary regulations and legislation. If it's not going to have at this time a foreseen positive impact, is it necessary to put it in there? We'd put forward the case that it's not.

Mr David Johnson: Again, there are obviously two points of view on this, and I think both points of view have been well expressed today. Certainly Mr Anisman has expressed his view, but I don't think he's alone. Mr Bruner -- who was here earlier and may have left by now; I don't see him here -- is also expressing somewhat the same sentiments in terms of the authority of the OSC and perhaps the necessity for a judicial review. Mr Anisman has put forward other views too, about confidential information and the broad powers that are contained in this bill, so certainly that opinion has been put forward and expressed well.

On the other side, many speakers have indicated that the bill in its present form is highly supportable and we don't need any further appeal mechanisms other than what exists today, plus the fact that the whole procedure is being made "transparent," which will give the public the right to be involved and will protect all who need to be protected.

There certainly are two sides to that issue, but I just wanted to establish up front where the government is coming from.

Mr Sutherland: Could I just add one comment? Also at this time, as we're having this discussion, I think it's fair to repeat the comment we heard today, that Bill 190 should not be seen as a comprehensive review of all the activities of the securities commission, its mandate, its principles etc, that this bill is designed to look at one part of that; of course that is to ensure it has the regulatory authority to do some of the things it needs to do in terms of regulating the markets.

As further discussions occur, as certain rules and policies are put forward for public comment, there may be a growing sense, as part of those comments, that some of these other issues should be looked at. That may require the government in the future to say, "Maybe we want to take a look at those other issues as well."

Mr David Johnson: To your knowledge, does the government or the ministry have any plans at present for an overall review?

Mr Sutherland: No, I'm not aware of any formal commitment that's been made to undertake a formal review of the entire activities of the commission and its principles and mandate.

The Chair: Are there any further general discussions with respect to Bill 190?

Mr Phillips: I think it's a bit of a challenge for the Legislature. Our party at least, and I think all parties, feel a sense of responsibility to move quickly on this bill. We've heard from many that if we don't have it in place, we at least run the risk of undermining the credibility of our securities industry. So we're supportive of the bill but appreciate that there are some people who have raised some legitimate flags, caution flags at least.

Assuming the bill passes, which is not a bad assumption, the commission's going to have a responsibility to be, as I'm sure it will, cautious about the power we're giving it, because we have to protect people who may be looking for some protection. I think we're giving the commission some fairly strong authority, and I think we're persuaded to do that on the basis of the need for a strong regulatory framework for it, but with that goes a heck of a big responsibility. I guess I believe that if it's abused, the Legislature can always act on it. We don't have to wait five years if we've done something that we haven't anticipated here.

I really appreciate the delegations that have come to us with their concerns about it. Phil's obviously an expert in the area and he raises judicial review. As I know a little bit about it -- not a lot about it, but a little -- I think I'm persuaded by the argument of not pursuing judicial review, just because of my own view that if there are too many avenues available for constant second-guessing the commission, we run the risk of bogging ourselves down, and if the commission is not performing its role, I think we fix the commission.

The last thing I'd say is that it's difficult to deal with an issue like this in such a short time frame. The government probably appreciates that the opposition would appreciate a little more time on an issue like this, but I understand why we're doing it. I personally, and many of us I think, will be monitoring this as it heads down the road, watching carefully the securities commission to see it'll do the fine job I'm sure it will do.

The Chair: The Chair would like to proceed expeditiously now with clause-by-clause. If there are any sections about which members would like to raise specifics, please let me know.

Shall sections 1 to 7, inclusive, carry? Carried.

We have an amendment to section 8.

Mr Sutherland: I move that subsection 143.1(1) be struck out and the following substituted:

"Deemed rules

"143.1(1) Every order and ruling of the commission and every policy relating to an order or ruling that is listed in the schedule shall be deemed to be a rule validly made under this act and to have come into force on the day this section comes into force.

"Amended orders or rulings

"(1.1) For the purposes of subsection (1), a reference to an order, ruling or policy, whether or not it is referred to in the schedule as amended, is a reference to the order, ruling or policy as it existed on November 16, 1994."

Apparently, as the legislation was done up, some of the 46 items listed in the schedule make reference to being "as amended" and some of them don't. We wanted to make it clear that it is to be as those areas had been amended over time. That's the nature of and the reason for this amendment.

The Chair: Mr Sutherland has moved a government amendment. Shall the motion carry? Carried.

Shall section 8 as amended carry? Carried.

Shall sections 9 to 11, inclusive, carry? Carried.

Shall the title carry? Carried.

Shall the bill, as amended, carry? Carried.

Shall I report Bill 190, An Act to amend the Securities Act, as amended, to the House? Agreed.

Thank you very much.

There will be a subcommittee meeting next Wednesday; further details will be forthcoming. This committee stands adjourned.

The committee adjourned at 1703.