Debates of April 19th, 2002

Question No. 114—

[Paul MacKlin, Liberal, Parliamentary Secretary to the Minister of Justice and Attorney General of Canada]

The national strategy on community safety and crime prevention is a fairly recent initiative. Phase II of the national strategy, launched in June 1998 at $32 million per year, built on the recommendations and the four years of consultation and policy work of the former National Crime Prevention Council. The objectives of the national strategy are:

(a) to promote the integrated action of key governmental and non-governmental partners to reduce crime and victimization;

(b) to assist communities in developing and implementing community-based solutions to problems that contribute to crime and victimization, particularly as they affect children, youth, women, and Aboriginal people; and

(c) to increase public awareness of, and support for, effective approaches to crime prevention.

In approving resources for phase II of the national strategy, the Treasury Board Secretariat required that a mid-term evaluation be completed by March 2001 and a summative evaluation be completed by November 2002. The mid-term evaluation focused on the organizational structures that have been built in support of the national strategy and made a number of recommendations for improvement. The upcoming summative evaluation will focus more on the results that are attributable to the work of the National Crime Prevention Centre, NCPC, in its support of the national strategy. In short, the evaluation will assess the extent to which the NCPC has moved toward the achievement of its objectives.

In the summer of 2000, a mid-term process evaluation of phase II of the national strategy was conducted to determine whether the design and implementation of the national strategy would support the attainment of its objectives and its five long term impacts. Key stakeholders and the mid-term process evaluation of phase II identified the need for a gradual, strategic expansion component to the national strategy. The findings of the evaluation specifically stressed the need for improvement in the following five areas if the national strategy is to be successful in reaching high risk groups and vulnerable communities: more comprehensive support structure; stronger policy, research and evaluation capacity; expanded and strategic use of partnerships; greater focus on sustainability; and effective public education and promotion.

As a result of recommendations made in the mid-term evaluation, the NCPC underwent an organizational review during the summer of 2001.

All projects funded under the crime prevention investment fund, one of the strategy’s five funding programs, undergo rigorous, third party evaluations. Through this research and development crime prevention fund, we will learn what is promising, what works, what does not and in what context. Evaluators are required to conduct process evaluations, outcome evaluations and collect costing data to be used by the NCPC to carry out a benefit-cost analysis of selected crime prevention projects. It should be noted that virtually all of the third-party evaluations are still on-going today as they typically last four years in duration; notwithstanding, the NCPC has received promising interim results for many of the project evaluations.

In June 2000 a study entitled an Evaluation of Crime Prevention Community Mobilization Projects in Selected Communities Across Canada was completed. Although the sample size of projects reviewed and analyzed was small and the focus of the study was on process evaluation, several key findings emerged. It was found that project evaluations tended to report on activities, client satisfaction with these activities, e.g., services, workshops, or communication information, and future program or service needs. In some regions, such as Nova Scotia, representatives of the Department of Justice realized that community groups varied in their level of expertise in carrying out evaluations and produced a hand-out providing guidance on how to identify project outcomes, in particular impacts on client groups and partnerships established. To attempt to address these and other issues associated with evaluation, the research and evaluation section of the NCPC will be releasing a publication this spring pertaining to the development of logic models and theories of change. It is hoped that this document will assist community groups and organizations in developing their projects and logically linking up proposed crime prevention activities to anticipated short, intermediate and long term outcomes.

Crime prevention through social development, CPSD, is a community based, long term approach to preventing crime and victimization that recognizes the complex social, economic and cultural processes that contribute to crime and victimization. Because CPSD focuses on the social development end of the crime prevention equation, it can take time, i.e. years, for the crime prevention benefits to accrue. Notwithstanding, we are very confident that projects and interventions, which have resulted in measurable reductions in levels of crime and victimization and in improvements to community safety, can be identified.

Many problems of crime and victimization are common worldwide. As a result, it should be noted that Canada can also learn from the promising, model and best practices of other countries. Scientific evidence to date already shows that some prevention programs work, some do not, some are promising, and some have not been tested adequately. NCPC works hard to keep abreast of this information and to subsequently share what is learned for the purpose of guiding our policy frameworks and project funding decisions.

Question No. 115—

[Peter MacKay, Progressive Conservative, Pictou—Antigonish—Guysborough, NS]

With reference to the Residential Schools litigation, how many lawyers and how many support staff in the Department of Justice have worked on these actions and for how many hours?

[Paul MacKlin, Liberal, Parliamentary Secretary to the Minister of Justice and Attorney General of Canada]

For the last five years, the Department of Justice, DOJ, has been working on the Indian residential schools, IRS, litigation. However, only in the past three years has it kept detailed data on the overall work on these files as the significance of this litigation became apparent. Therefore, we are presenting comprehensive information from the last three fiscal years. Prior to this, IRS litigation formed part of the general litigation the Department of Justice conducted on behalf of the Department of Indian Affairs and Northern Development and no separate records were kept with respect to the number of full time equivalents, FTEs, working on IRS litigation.

The number of employees working on IRS litigation is based on actual utilization of time spent on IRS files rather than on number of employees since most lawyers work on numerous files throughout the year. One full time equivalent, FTE, is composed of 1,300 billable hours of work per employee per fiscal year.

Table 1: No. of employees working on IRS files in the DOJ (based on FTE utilization)

Table 2: Hours worked on IRS files for DOJ (The actual number of hours worked on IRS litigation is recorded through timekeeping.)

Note A: 2001-02 is as at February 28, 2002.

Question No. 116—

[Peter MacKay, Progressive Conservative, Pictou—Antigonish—Guysborough, NS]

With respect to the Goods and Services Tax (GST), how much GST revenue has been collected, broken down on a year-by-year basis from 1993 to 2001?

[Elinor Caplan, Liberal, Minister of National Revenue]

The following table provides the amounts of goods and services tax, GST, revenue collected, broken down on a year by year basis from 1993 to 2001.

Net GST Collection per fiscal year ended March 31st (in billions of $)

• Net GST consists of the following: Gross receipts less: Refunds and Rebates less: Harmonized sales tax--Transfers to provinces less: GST Credit to persons less: Government Tax Remission Order

Question No. 119—

[Elsie Wayne, Progressive Conservative, Saint John, NB]

As of March 11, 2002, what is the total expenditure on the submarines acquired from Great Britain, and when are these vessels expected to be in full service for the Canadian navy?

[Art Eggleton, Liberal, Minister of National Defence]

Total expenditures on the Victoria class submarines as of March 11, 2002 were $472.31 million.

Current plans anticipate the first two submarines becoming operational in 2004 and the last two boats in 2005.

Questions Passed as Orders for Returns

[Sarmite Bulte, Liberal, Parliamentary Secretary to the Minister of Canadian Heritage]

Mr. Speaker, if Question No. 117 could be made an order for return, the return would be tabled immediately.

[The Speaker]

Is that agreed?

[Some hon. members]

Agreed.

Question No. 117—

[Peter MacKay, Progressive Conservative, Pictou—Antigonish—Guysborough, NS]

With respect to Parliament Hill and the surrounding vicinity: ( a ) how many tourists are expected to visit next summer; ( b ) how many buses are expected; ( c ) what arrangements will be available to facilitate access to Parliament Hill by vehicles carrying tourists; and ( d ) what arrangements will be available to facilitate access to Parliament Hill by vehicles carrying tourists who have mobility challenges?

(Return tabled)

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Mr. Speaker, I ask that the remaining questions be allowed to stand.

[The Speaker]

Is that agreed?

[Some hon. members]

Agreed.

Business of the House

[Marlene Catterall, Liberal, Ottawa West—Nepean, ON]

Mr. Speaker, there have been discussions between all parties with respect to Bill C-441. I believe you would find consent for the following motion. I move:

That notwithstanding any standing order or the usual practices of the House, Bill C-441, an act to change the names of certain electoral districts, be deemed to have been read a second time, referred to a committee of the whole, reported without amendment, concurred in at report stage and read a third time and passed.

[The Speaker]

Does the hon. chief government whip have the unanimous consent of the House to propose the motion?

[Some hon. members]

Agreed.

[The Speaker]

The House has heard the terms of the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to, bill deemed read a second time and referred to a Committee of the Whole, deemed reported deemed reat a third time and passed.)

The House resumed consideration of the motion that Bill S-40, an act to amend the Payment Clearing and Settlement Act, be read the second time and referred to a committee.

Payment Clearing and Settlement Act

[Bryon Wilfert, Liberal, Parliamentary Secretary to the Minister of Finance]

Mr. Speaker, a potential cost to these clearing houses is the risk that any member may default before a transaction is settled which would result in a financial loss to both the clearing house and its members.

As a central counter party, securities and derivatives clearing houses take measures to reduce this risk. For example, members are required to post collateral and to net their payment and delivery obligations with the clearing house.

By way of explanation netting is a way to significantly reduce the net payment and delivery obligations of members of the clearing house, in some cases by tenfold. If, for example, a member of a clearing house buys a security for $1,000 and sells another for $900, the member's net obligation to the clearing house is $100.

Collateral, as hon. members know, is an asset that is posted, in this case with securities and derivatives clearing house, to partially offset members' obligations to the clearing house in case they cannot fulfil their obligation. Collateral is usually provided in the form of a cash deposit or the transfer or pledge of a security.

Like many of its counterparts in other countries, the Canadian securities and derivatives industry has been faced with the challenges of globalization, rapid technological change and consolidation.

Proximity to the United States and relatively low barriers to entry for foreign securities dealers, free movement of capital and an increasingly North American focus of many large Canadian corporations have made the securities and derivatives markets be more competitive. As a response, larger Canadian securities firms have been improving their quality to service clients on a North American basis. Canadian exchanges have also been facing this intensifying competitive environment.

Issuers of capital are increasingly able to access global markets, bypassing local markets and intermediaries. A growing number of Canadian firms are choosing to list their stock on U.S. exchanges. In addition, U.S. derivatives exchanges offer derivatives on Canadian indexes, commodities and companies.

It is imperative then that the Canadian securities and derivatives industry be able to compete with other countries, particularly with the United States where a significant portion of Canadian securities and derivatives trading occurs.

The industry needs a competitive legal regime that lowers settlement risks and the associated costs to these clearing houses. Such a change will make these clearing houses in Canada more efficient and competitive with the United States and other G-7 countries and help to keep trading activity here at home.

Without these changes, more securities and derivatives trading will occur outside of Canada, primarily in the United States where bankruptcy and insolvency legislation generally exempts securities and derivatives clearing organizations from court ordered stays and allows them to net the obligations of members and realize their members' collateral.

Recent changes in Europe also reaffirm the importance of keeping our industry competitive.

The settlement finality directive which came into force in 1998 established a legal framework for payment and securities settlement systems in the European Union. EU member states must ensure that securities settlement systems can net obligations and that the netting is legally enforceable and binding on third parties in the event of insolvency. The directive also provides for collateral to be realized in a timely manner in any wind-up procedure.

Laws in Canada do not fully protect netting agreements and collateral posted with securities and derivatives clearing houses to the same extent.

Stakeholders in Canada have raised concerns that current federal legislation does not prevent court imposed stays from securities and derivatives clearing houses realizing collateral in the event of their members becoming bankrupt or insolvent.

The Bourse de Montréal, on behalf of the CDCC, along with the WCE Clearing Corporation and the Canadian Depository for Securities have all requested that the Payment Clearing and Settlement Act be amended to cover securities and derivatives clearing houses. They are concerned that Canadian bankruptcy and insolvency laws add to the cost of their clearing house operations and to their members by increasing the costs related to the risk of a failure of one of their members.

It is difficult to attract large international dealers and trades to Canada if these Canadian clearing houses face higher costs because they cannot enforce their netting and collateral agreements with members in the event of the insolvency of one or more members.

Given how our competitors function, it is imperative that changes be made to ensure that Canadian securities and derivatives clearing houses can compete with those in the United States and in Europe.

Bill S-40 addresses these issues. The amendments in Bill S-40 will make Canadian securities and derivatives clearing houses more efficient and competitive with the United States and the other G-7 countries, allow them to lower their costs and help to keep trading activity in Canada. This is accomplished by amending the Payment Clearing and Settlement Act to include legal protections for securities and derivatives clearing houses of their netting agreements and collateral posted by their members.

These amendments protect netting agreements and prevent stays imposed by a court on the ability of securities and derivatives clearing houses to realize collateral in case of bankruptcy or insolvency of one of their members.

Hon. members should bear in mind that the protections being sought through this bill are over federal bankruptcy and insolvency laws. These legal protections will allow Canadian securities and derivatives clearing houses to lower their settlement risks and settlement costs, thereby making them more efficient and competitive with the United States and other G-7 countries.

Before closing I want to draw the attention of hon. members to recent recommendations made by the Bank for International Settlements, the BIS, to which the amendments of the bill adhere.

The BIS is an important forum for international monetary and financial co-operation between central bankers and other regulators and supervisors. Its work has contributed to the setting of standards, codes and best practices that are deemed essential for strengthening the financial architecture worldwide.

Last November the BIS made recommendations about securities settlement systems, including securities clearing houses. These recommendations support a well-founded legal basis for securities settlement systems so that rules and procedures can be enforced with a high degree of certainty. In particular, it favours the enforceability of netting arrangements and the ability to realize assets pledged as collateral.

As I mentioned earlier, securities and derivatives clearing houses are important to the efficient operation of our financial markets.

First, securities and derivatives markets are critical in providing opportunities to raise capital for investments and hedging financial risks.

Second, securities and derivatives clearing houses take measures to reduce settlement risks and associated costs through netting and requiring members to post collateral.

Third, it is important that the measures taken by these clearing houses to reduce risks are supported by a sound and competitive legal regime.

In considering the bill, I urge hon. members to keep these three additional points in mind: First, that these amendments are in keeping with recommendations by the Bank for International Settlements regarding securities settlement systems; second, that they are supported in Canada by financial sector participants and their associations, by provincial governments and by the insolvency community; and third, that they help meet a throne speech commitment to keep Canadian laws competitive.

It is essential that Canada's financial sector remains strong and efficient. The amendments in Bill S-40 will help to ensure this. A competitive legal regime will help keep securities and derivatives trading in Canada and assist the industry in attracting international deals and brokers here.

For those reasons, I urge hon. members to pass the legislation without delay.

[Yvan Loubier, Bloc, Saint-Hyacinthe—Bagot, QC]

Madam Speaker, I will begin by thanking my Canadian Alliance colleague, the member for Prince George--Bulkley Valley, for agreeing to switch positions with me.

I am pleased to take part in the debate on Bill S-40 for the simple reason that the bill's purpose is to modernize the securities sector. The Montreal Stock Exchange, which recently became the only derivatives clearing house in North America, will therefore be able to benefit from this bill. In fact, all key players at the Montreal Stock Exchange worked very hard to move this bill forward and ensure that its wording would satisfy the objectives of both the Montreal Stock Exchange and the Canadian Derivatives Clearing Corporation.

First, I wish to congratulate Luc Bertrand, president of the Montreal Stock Exchange, Giovanni Giarrusso, first vice-president and general manager of institutional affairs, and Michel Favreau, first vice-president and chief of compensation. I wish to commend them for their excellent work, for their contribution to the debate and for the necessary changes incorporated in Bill S-40 with respect to the proper conduct of operations at the Montreal Stock Exchange and the clearing corporation.

As I mentioned, the Montreal Exchange is the only derivatives market in Canada. It has a wholly owned subsidiary known as the Canadian Derivatives Clearing Corporation, whose job it is to clear financial transactions involving derivatives.

What does clearing mean?All it means is that when there is a transaction involving derivatives, in other words, when there is a seller of derivatives and a buyer, the clearing house, in this case the Canadian Derivatives Clearing Corporation, ensures that the buyer is able to pay the seller and that the seller is able to receive the money from the buyer. This is referred to as clearing a transaction.

There is a problem with how the Canadian Derivatives Clearing Corporation operates, one that Bill S-40 will rectify. Before, the corporation did not afford the same legal protection to buyers and sellers as other clearing houses in North America. In a field that is fiercely competitive, the situation can arise—and this is what has happened to the Montreal Stock Exchange and to the Canadian Derivatives Clearing Corporation—where derivatives from Canadian companies are listed on foreign exchanges, particularly in the United States, and if they have a clearing house, it is easier to go through an American stock exchange clearing house, instead of using the Canadian Derivatives Clearing Corporation.

This is easy to do, because this is a competitive environment, and made even easier because, without the proper legal protection, the Canadian Derivatives Clearing Corporation was at a disadvantage, since the derivative seller, seeing the increased risk in trading through the Canadian corporation, preferred to trade with American clearing houses.

Once passed, the bill will rectify this problem. I invite all of my colleagues in the House, from all political parties, to support it, because we will solve this problem. We will provide the Canadian Derivatives Clearing Corporation with the competitive capacity it should have had from the outset. We will level the playing field and allow the corporation to face the music and compete with all of the other North American clearing houses.

Passing Bill S-40 will allow the Montreal Stock Exchange to make a major investment in the automated derivatives system.

This would be a first in America. It will also allow investments to increase the growth of transactions on derivatives and will raise the credit rating of the Canadian Derivatives Clearing Corporation.

There will also be—and this is where the beauty of this bill lies—impacts both upstream and downstream, among them the creation of skilled workers. As we know, the financial sector requires ultra-specialists.

The new environment created by increased prospects at the Montreal Stock Exchange and the Canadian Derivatives Clearing Corporation will attract such specialists. It will be far easier for the Montreal Stock Exchange to attract such workers, who are hard to find, even elsewhere in North America.

Given all the advantages offered by Bill S-40, I therefore encourage my colleagues in all parties, in opposition as well as in government, to vote in favour of this bill. As I have said, it will give new life to the Montreal Stock Exchange as a specialized derivatives clearing house, and to the Canadian Derivatives Cleaning Corporation, a wholly-owned subsidiary of the Montreal Stock Exchange.

Once again, congratulations to all those who have contributed to the drafting of this bill and those who are going to vote in favour. I thank them all in advance.

[Dick Harris, Canadian Alliance, Prince George—Bulkley Valley, BC]

Madam Speaker, I know we have heard from the government speaker and my colleague from the Bloc who spoke in support of Bill S-40. I plan to speak on behalf of the Canadian Alliance in support of this bill as well. Although, members know our feeling about bills that originate in the Senate. Although this is an amendment, so it is a little different. We have always held the opinion that bills should originate in this House but we will make an exception here because this is a good bill.

Bill S-40 would amend the Payment Clearing and Settlement Act. It is important to note that this glitch in the act has existed for some time and the government has known about it. The Minister of Finance and his department officials have known that our clearing houses have been operating at a disadvantage to our counterparts, particularly in the G-7, which have made changes to look after the problem involving bankruptcy and dealing with the collateral and derivative contracts.

The government has known about the problem for some time. Principal groups and companies that are involved in this type of business have been saying that there is a problem. On the grand scale of running government, something like this is a minor change that would eminently be beneficial to the various types of clearing houses, to the buyers and sellers who deal with the trading companies, to our competitiveness with our G-7 counterparts in attracting foreign business to our clearing houses and to the people who buy and trade through the clearing houses.

One would think that someone in the finance department would have said “let's just get this done” and make the change. This will not change the direction of the world but it will make the people in Canada who are involved in this sector of our economy a lot happier. They will be able to attract more business, create more jobs and acquire a higher degree of technology in their operations. However this has been dragging on for some time now.

In February the member for Calgary Southeast, who was our finance critic at that time, wrote the finance minister and asked him to introduce the requested amendments as soon as possible. The way the government marks time, February, March, April, a month and a half is really nothing.

There has been precious little other business on the government agenda. It could have introduced the amendment earlier than this. As well, it could have been done even before our finance critic had to write to finance minister to ask him to get on with it. It is just the typical slow wheels of government turning. I have been here since 1993 and I have never seen government wheels turn as slow as I have with this Liberal government.

There are so many issues that parallel the movement on this amendment. One only needs to look at the softwood lumber issue. When the softwood lumber agreement was signed in 1996, there was a set termination date five years hence. The government knew that. It knew it would have to prepare for the eventual end of that agreement.

One would think it would be good government business to begin looking five years ahead from the date the agreement was signed in preparation for when it would run out in order to avoid a trade crisis. The fact is the government simply did not do that. Anyone who has some sort of gift for planning, and one would hope that there would be some in the government who could look further ahead than 10 days, would see that five years from 1996 we would be in some sort of a trade crisis with the United States unless we did some planning.

There were warnings from the official opposition about the perils that lie in the SLA. There were warnings that when the softwood lumber agreement ended we would be in a trade dispute which perhaps would lead to a crisis situation. There were warnings not to get into the SLA in the first place. Despite all the warnings, the government did not move until about six months before the softwood lumber agreement expired. That foot dragging, the same type of foot dragging it did on the amendment to the Payment Clearing and Settlement Act, got us into a full scale trade crisis with the United States on softwood lumber.

Now the U.S. is playing hardball. We went into the game at the end of the SLA unprepared hoping that the negotiators and the U.S. forest industry and the lobby group that represents it would somehow do us a favour. Well it does not work that way. They do not do anyone any favours. They play for keeps and they play hardball. Those who are not prepared, as Canada was not, are going to get beat up.

In relation to Bill S-40, this is the sort of the thing that was placing our clearing houses at a disadvantage to our competitive partners in the G-7. The other G-7 partners, as the Secretary of State for International Financial Institutions will know, were way ahead of us on this one. Canada was lagging behind.

I am sure the hon. member knows how important this amendment is. Not only should we get it in now but we should have had it in long before now to allow our clearing houses to be more competitive. In particular, the one in Montreal has been really pushing this so it can expand its business. Other similar businesses and clearing houses in Canada could attract foreign business and use the services of the clearing houses with the confidence that the agreements are not going to be held up through some court order due to a bankruptcy from some of their members.

It is important to be on top of things like this and the government simply has not been on top of it. The hon. member, being a former chief economist and a good one at that, has to know how important it was to get this amendment in. However there has been more foot dragging which should not have happened.

We can talk about the slow pace of the Liberal government on a number of other issues and draw parallels to this bill. For example, the part of British Columbia where I live has a huge natural disaster called the pine beetle infestation. The government has known about this situation.

The Pacific forest centre in Victoria that deals with the science of forestry and forest management has known about this and the federal government has known about it for a number of years now. A few short months ago I asked the government if it would come to the assistance of the British Columbia government in fighting the pine beetle infestation.

The answer was that the federal government had not been asked yet. My question had to be, is there anything wrong with being a little proactive on it? Why not call B.C. and ask if the federal government could be of help? There is an obligation on behalf of the federal government to return some of the billions of federal tax dollars that have come out of the British Columbia forest industry.

Just a few short weeks after that day, the British Columbia government did make a formal proposal to the governing Liberals. It presented its five or six year plan to deal with the pine beetle infestation and asked for the federal government's help.

The forest industry is in crisis out there. Tens of thousands of B.C. workers have lost their jobs not only in the forest industry but in related industries. The future of that particular part of the province because of the pine beetle infestation looks dismal.

The fact is the federal government has not responded to the request for help by the Government of British Columbia. That is a shame considering that the B.C. forest industry has sent billions of dollars, perhaps tens of billions of dollars to Ottawa over the last number of decades. The five year plan calls for a total expenditure of about $500 million. That is a very small percentage of what B.C. has sent here. Also it would be a cost sharing plan so perhaps the federal government's share would be down to about $250 million.

The federal government has simply ignored the west once again in the face of a very serious crisis. It has ignored the western forest industry, a prime area of softwood lumber harvest and production in Canada. It has ignored it and allowed the softwood lumber crisis to develop. It has ignored the province of British Columbia, and in particular my riding where literally hundreds of thousands of acres are infested by the pine beetle. It has ignored that.

The government seems to ignore and drag its feet on the real important issues that face various parts of our country, as it has been ignoring this amendment to the Payment Clearing and Settlement Act. Now it is acting on it. It is late but at least the government is acting on it.

While the Liberals tend to delay making decisions on major issues that affect the country, they seem to have no problem when it comes to making a perk-like purchase for the Prime Minister and cabinet, such as a couple of Challenger jets to fly around the country. It took them 10 days to do that. My colleague from Elk Island has been keeping track of the government on this issue.

It appears that one day in the parliamentary restaurant the Prime Minister said to some of his colleagues “Listen folks, I may only be around here for another year or year and a half. It would sure be nice to have some new planes to fly around in because I have a lot of countries to see and a lot of people to meet. I want to ensure that my final year or year and a half is filled with a very high degree of comfort and a lot of travel because that is always fun”. It took them 10 days to spend $101 million on Challenger jets.

This has not come up yet but I am sure it will. Under questioning the Minister of Public Works and Government Services said that the planes were ordered from Bombardier because it was the only one that could supply Challenger jets. The government wanted Challenger jets because it already had four Challenger jets and it wanted to stay with the same type of aircraft and therefore Bombardier got the order.

That is the wrong way for a government to order its goods and services. There is a written process. It appears the order was deliberately put through national defence so that the government could avoid going to public tender to allow other companies that build that type of aircraft to bid on it.

Under the procurement guidelines any contract for goods and services over $37,000 must be publicly listed through the MERX system and is open to bid by suppliers in Canada, the United States and Mexico. That is part of the NAFTA agreement. This is the way the rules were set up under NAFTA so that suppliers in the U.S. and Mexico as well as in Canada could bid on these contracts. This was the reason the government established what is called the MERX system, which is being run by one of the major banks, that posts all the requirements for the government on the service so that suppliers can make bids.

When the government is looking to purchase airplanes, it is very deceiving of it to put the tender out in such a way that it names the manufacturer and the brand of aircraft it wants. Under the procurement rules the government should have stated that it needs a passenger jet which must have a certain number of seats, a flight range of x number of miles, a fuel economy of a certain standard and it must be fitted to special requirements regarding avionics and things like that.

That is the way the government should have put that tender into the MERX system which would allow companies that are capable of supplying an aircraft like that to bid on it. It is a public tender. That is what the procurement system in the government is all about. The MERX system is there so that the government can easily put its requirements in front of anyone who chooses to bid on a contract.

There are companies in the United States, such as Gulfstream, Citation, Beachcraft and Lear that build corporate jets. Had the government put the requirements of a type of plane out, it could have had four or five other tenders including Bombardier's. If all the other tenders were simply not suitable, the government could have held them up and said “These are the tenders we received and here is why we chose Bombardier”. No one would question that, but the government did not do it.

The government may have another problem with the purchase. It may be in direct violation of the NAFTA rules by not allowing American and Mexican companies to bid on the planes. I would advise the Minister of Public Works and Government Services to be prepared for a NAFTA challenge from a company that could have provided that same plane.

Everything the government needs has to go out to public tender unless for example it is required for a state of emergency or if it is an issue of national security. I suspect that the government put the purchase of these aircraft through national defence hoping that people would think it must have been a security issue and would not worry about it. The people watching the procurement system the government is bound to operate under are a lot smarter than that. I suggest that the government be ready for a NAFTA challenge on the purchase of the aircraft.

I could talk about Kyoto. However the House has heard enough about how the government has been mismanaging that issue so I will instead try to sum up Bill S-40. It is important to point out that Bill S-40 would make technical changes to correct a significant problem faced by certain Canadian clearing houses. Under existing solvency laws derivative contracts are not exempt by court ordered stays. If member corporations go into bankruptcy any collateral deposited at clearing houses is frozen along with other assets. Clearing houses have to line up behind all the other creditors. Our counterparts in the G-7 foresaw this problem years ago and took steps to correct it by introducing legislation. However the Liberal government has not. This has put Canada way behind.

Bill S-40 would bring Canadian law into line with our G-7 counterparts by exempting such collateral deposits from the law relating to bankruptcy or insolvency procedures. This would allow clearing houses to realize collateral deposited by its members without the risk of a court imposed stay. Under existing law Canadian clearing houses operate under a competitive disadvantage compared to derivative clearing houses in the United States and Europe. This is exactly what I was talking about.

Our friends in the G-7 have been way ahead of us on the issue. As a result they have been attracting businesses from outside their countries that have confidence in dealing with them because the flaw in our laws governing the issue does not affect them. The passage of Bill S-40 would put us on a level playing field with our friends in the G-7.

I will make an observation for those who are watching. During a trading day a member of a clearing house will be both a buyer and seller of listed stocks. That is the way it works. Instead of each member making separate settlements with other members a designated central clearing system or clearing house handles the daily settlement process between members. The Montreal stock exchange has spearheaded the effort to change the law but the Liberal government has not listened to it.

Bill S-40 must go through. We in the Canadian Alliance Party will support it. It is about time the bill came forward.

Before I close I am sure the House will allow me to say hello to my father who is watching. He is in Sidney and has been very ill. I told him I would try to brighten his day by saying hello to him. We are hoping all the treatment he is getting will bring his strength back, and I will see him in a couple of weeks.

[Pat Martin, NDP, Winnipeg Centre, MB]

Madam Speaker, I too am pleased to have the opportunity to join in the debate on Bill S-40, an act to amend the Payment Clearing and Settlement Act.

I will start by saying there is not much in the world I know less about than the clearing of derivatives, et cetera. However I undertook to learn a bit about it so I could convey my party's opinion and the recommendations of our critic. I found it quite fascinating. It is an area of study I have never expressed an interest in or spent a lot of time on but I found it gripping.

I can tell from some of the speeches given today that some people view this as a rather dry issue. I do not. Even as a layperson in the financial market sector I sense there is a crisis of confidence in the financial community on Bay Street, on Wall Street and among major institutional investors. Bill S-40 is one step that may re-instill at least some semblance of confidence because it deals with making sure investments enjoy a greater degree of security.

The bill seeks to amend the Payment Clearing and Settlement Act to permit securities and derivatives clearing houses to realize the collateral of members, for example deposits for commodities, securities, or currency contracts in the event of bankruptcy or insolvency. This would give a measure of added confidence to the sector.

Bill S-40 had its genesis in extensive consultations with officials from clearing houses and from the stock exchange in Montreal. The finance critics of all opposition parties had broad consultation and were allowed input at the early stages. This may explain why we are seeing a great deal of co-operation in putting the bill through.

Bill S-40 is a technical bill with only one clause. It is short and to the point. It was expedited through the Senate in only two weeks. The committee stage lasted only an hour. Clearly there was broad consensus that it was a necessary and desirable thing to implement.

Canadian securities and derivatives clearing houses enable consumers and businesses to buy and sell securities and derivatives in a timely manner and at a reasonable cost. They do this by providing clearing and settlement services and acting as a central counter party to securities and derivatives trades. This is what our research revealed.

Although the NDP generally and I personally do not have a lot of use for unfettered speculation and are no great friends of derivatives, in researching the issue we have come to learn that there are good and bad derivatives. Our criticism of the speculative derivative market is therefore only valid in a certain sense.

There are good and bad derivatives. Good derivatives help hedge corporate treasuries against risk such as price changes and currency fluctuation risks. There is a role for such derivatives in helping corporations hedge risk with their investments.

Bad derivatives, the ones we are critical of, are about gambling. They are about rolling the dice with people's money. They are about casino capitalism. Speculative derivatives allow corporate or individual gamblers to make bets on the future price of underlying assets by betting a fraction of the cost of an asset. The leverage comes about because the derivative instrument replicates the borrowing or lending of the underlying asset.

This is what I have found although I had to read it a couple of times to get the gist of it. The opportunity for leverage comes about because the derivative instrument involved replicates the borrowing or lending of the underlying asset without ever having to physically own it.

This is an abstract concept a lot of lay people and ordinary Canadians would not necessarily know. However they had better get to know it because it is an unbelievably exploding market. A lot of people's pension dollars may be invested without their knowledge. Money managers who handle employee benefit plans and investments are surely dealing with some of these issues. We should know about it.

I will give members an illustration of the explosion of the derivatives market. Some $64 trillion was traded in derivatives in 1995. In 1997 the figure was $360 trillion. Today more than $1,000 trillion is invested in the derivatives market. Surely we need to take great interest if that is the direction in which the investment marketplace is going.

We view this as a negative. We do not believe such massive investment marketplace can be regulated in an adequate way. As members might expect, the scope and magnitude of the investment marketplace causes major regulatory problems. It is a moving target. Anything growing and expanding at that rate is difficult to nail down. The bigger the corporation the less transparency and accountability. That is what has led to the crisis of confidence in the investment marketplace. It is because of the massive losses of companies like Enron. We have all heard of Merrill Lynch. Merrill Lynch is being charged by the New York state attorney general for biased research. It is causing a crisis of confidence in the whole financial sector.

As we are dealing with this or trying to get our minds around what $1,000 trillion worth of activity and derivatives speculation looks like we must also try to get our minds around how to safeguard those involved in the massive free for all gambling in the derivatives speculation marketplace.

There are major regulatory problems. The Enron fiasco is only the tip of the iceberg. It was partly due to the fact that derivatives transactions were booked between private parties rather than a public, transparent and fully regulated clearing house system. The failure of auditors and their lack of independence was a contributing factor but the real root of the problem can be traced to the fact that derivatives transactions were booked through private parties rather than a public, transparent and fully regulated clearing system. Anything we can do to alleviate the problem would surely would give comfort to those involved in the financial sector.

A massively leveraged hedge fund was held by Long Term Capital Management fund or LTCM. I am sure most people are familiar with it. It showed up in the news. LTCM had a substantial amount of the world's economy hedged on the future narrowing of interest spreads by the U.S. treasury. It rolled the dice based on the future of narrowing of interest spreads in the U.S.

By mid-1998 LTCM had about $4 billion in equity capital and borrowed funds of about $120 billion, a hefty leverage of about 30 times. Red lights should be going off all over the place when a company is leveraged at 30 times, with $4 billion in equity capital and $120 billion borrowed on something as speculative as the spread between real interest rates. It is a recipe for disaster. Amazingly, the leverage was compounded tenfold by LTCM's off balance sheet derivatives exposures which amounted to another trillion dollars.

These are the stakes the big guys play with. With $4 billion in equity capital LTCM borrowed funds of about $120 billion for a leverage of 30 times. It compounded that tenfold with off balance sheet derivatives exposures that amounted to more than $1 trillion. It is like Rumplestiltskin spinning straw into gold when a company takes $4 billion and spins it into a trillion dollars. It is incomprehensible to little people like us.

A consortium of private banks led by the federal reserve in New York had to bail out LTCM. Fortunately no public sector money was involved, but it goes down in history as one of the biggest runaway freight train catastrophes in financial sector history. The truth of the matter is that we really do not know the long term consequences of what I call derivatives wizardry. We do not know what the real implications are for the real economy. What does it mean to real people? These guys are playing for big stakes in casino style capitalism. They are rolling the dice in this derivatives market and I think they are putting us all at risk.

Frankly, the real losers at Enron were not even the investors and the shareholders but the ordinary Americans who, with confidence, had their pension funds invested in that company on their behalf by money managers. They believed the auditors' accounts. They had no reason not to believe them. They trusted this institution of American capitalism. They thought that a company that big was beyond corruption. People think surely to God a company that big is regulated carefully and analyzed by the government and surely to God somebody is in our corner in that marketplace. It turns out that was not true. Tragically there were snakes at the top who were doing terrible things to thousands and thousands of Americans, because a lot of them have personally directed pension funds, like the Alliance has always advocated. The Alliance wants pension plans to be private, individual accounts that are invested on people's behalf. In this case, people's privately invested accounts disappeared and they lost their retirement security.

The step we are taking today in Bill S-40 is a step in the right direction to help alleviate some of those concerns and some of those fears. Our critic, the member for Regina--Qu'Appelle, who actually knows something about this kind of thing, recommends that we support Bill S-40. He points out some of the positives of Bill S-40, stating that it:

Enhances the stability of the financial system by enabling a securities and derivatives clearing house to immediately realize assets pledged as collateral in the case of default or bankruptcy.

I note as well that the bill will have primacy over the Bankruptcy and Insolvency Act. In the case of a clearing house being involved, this amendment to the bill will now have primacy over the terms and conditions and the order of disbursement of assets under the Bankruptcy and Insolvency Act.

What is good about this change in Bill S-40 is that it guarantees a swift payment of collateral to those clearing houses and ultimately it protects the stability of the system. That is what we are trying to do: restore people's faith in the integrity of the system. Frankly, that faith is wounded. It is damaged, it really is, and that is not good. We live in a system that relies very much on confidence in the system to promote investment. Bill S-40 achieves this by taking a shortcut to override the other bankruptcy legislation, as I have pointed out. It will have primacy over the Bankruptcy and Insolvency Act.

The mainstream argument in favour of Bill S-40 is that the legislation puts Canada on a level playing field with the U.S. and Europe and increases our financial competitiveness and Canada's ability to attract capital. That point has been made adequately by most who have spoken to the bill.

A main beneficiary of the bill would be the Montreal Stock Exchange, which also clears derivatives transactions for the Winnipeg Commodity Exchange in my riding of Winnipeg Centre. The Montreal Stock Exchange also specializes in futures.

We normally do not support legislation originating from the other place, but because this is a purely technical bill I think maybe it is a good idea to waste the time of the Senate instead of wasting the time of the House of Commons, so we can in fact approve of the bill coming forward through this method.

I will replay some of the key things. I caution members of the House. The truth of the matter is that we really do not know the long term consequences of derivatives wizardry. We are still critical of what we call the bad derivatives, because it is a rolling of the dice. It is gambling with futures and it is gambling with the confidence of the investment community, with the real implications for the real economy. Are we playing sorcerer's apprentice with the system?

Financial deregulation has expanded the investment horizon of private investors but has also created new systemic risks without really improving access to affordable capital and loans, which is one of the critical requirements for a moving economy. The increasing poverty of so-called emerging countries is an obvious case in point. The disciplining effects of markets adjusting to speculative derivative bursts contribute to endemic deflation, which, I would caution again, hurts the weakest and most vulnerable of countries, especially developing third world nations.

What is key in this debate? We believe that in order to restore confidence in the mainstream investment marketplace it is necessary to obtain a regulatory environment that would mandate transparent, standardized and strictly regulated off balance sheet items such as derivatives. We want to see this regulated for our own protection, not so that the heavy-handed estate interferes with the marketplace but for own protection. All derivative products should fall under that same regulation.

I note that when we dig a little deeper into the details around this amendment to the Payment Clearing and Settlement Act, Bill S-40, what it does is provide the Canadian securities and derivatives clearing houses with legal protections similar to those in place in the United States and other G-7 countries in the event that one of their members becomes insolvent or declares bankruptcy. There is a remedy put in place that is above and beyond the courts. It saves the lineup for who will divide up the assets of an insolvent company.

With over 190 member firms, the Canadian securities and derivatives industry is a key and vital player in Canada's financial system. The industry provides a mechanism for raising capital, channeling savings into investments and minimizing and hedging risks through these derivatives contracts. To explain the network throughout Canada, the three clearing houses, the Canadian Derivatives Clearing Corporation, the Canadian Depository for Securities and the WCE Clearing Corporation, clear and settle trades on four different exchanges, these being the Toronto Stock Exchange, the Bourse de Montreal, the Canadian Venture Exchange in Calgary and the Winnipeg Commodity Exchange.

As a central counter party, they assume settlement risks, that is, the risk that a member may default before a transaction is settled, which would result in a financial loss to both the clearing house and its members. Because of this, securities and derivatives clearing houses have risk reducing measures that require members to post collateral and net their obligations with the clearing house.

The Canadian securities and derivatives industry is in need of a competitive legal regime that lowers settlement risks for the clearing houses, and we support that point of view, and therefore lowers trading costs. We support that as well. This will make these clearing houses more efficient and competitive with the United States and other G-7 countries.

We are satisfied that the amendments in Bill S-40 accomplish this by expanding the scope of the Payment Clearing and Settlement Act to include legal protection for these securities and derivatives clearing houses of their netting agreements and collateral posted by their members. I would note that the protections being sought are above and beyond the current bankruptcy and insolvency laws.

Before closing I should mention that the changes in the bill are in line with recommendations made by the Bank for International Settlements, which is an international forum that fosters co-operation among central banks and other agencies in the pursuit of monetary and financial stability. The BIS supports a well founded legal basis for securities settlements so that rules and procedures can be enforced with a high degree of certainty. In particular, the BIS favours the enforceability of netting arrangements and the ability to realize assets pledged as collateral.

We believe that the amendments to Bill S-40 will help to ensure that Canada's financial sector remains efficient and competitive.

[Loyola Hearn, Progressive Conservative, St. John's West, NL]

Madam Speaker, I rise on behalf of our party to also support the amendments to Bill S-40. We think it is a very good move.

It is a bit ironic, perhaps, that here we see government making some very solid, positive moves that would help Canadian companies, whereas just today, and it is an issue I will raise later because it may not entirely be relevant, we see the situation where a government department, in calling tenders for supplies, eliminates small Canadian business, small local competition, and really passes tenders into the hands of large American based companies. There are many areas where we have to scrutinize what we are doing to make sure that perhaps we do as we are doing here, which is to bring in proper legislation and take proper procedures to protect our own companies so we can be competitive in the overall marketplace.

Increasingly Canadian companies are going to the United States markets to meet their funding needs. Our largest companies trade more shares on the United States exchanges than on the Toronto Stock Exchange. The past three years have seen net portfolio investment go from an inflow of $14 billion per year to an alarming outflow of $30 billion per year. This is extremely serious. During that period of time, foreign purchases of Canadian companies have outweighed Canadian acquisitions of foreign companies by more than $75 billion. As these companies come under foreign ownership, their financing activities move out of the country.

In addition, the present circumstances make it very difficult to nurture new companies because they do not have access to adequate capital. Furthermore, they are unable to attract attention in the United States marketplace or even meet the higher U.S. listing requirements.

Bill S-40 is one of the initiatives that would reverse this trend. It is a step toward addressing the declining competitiveness of the Canadian economy and the declining liquidity of the Canadian capital markets.

The globalization of financial markets in recent years has permitted investors to move their investments rapidly away from riskier markets to others where the legislative framework is friendlier and less risky. In the United States, bankruptcy and insolvency legislation generally exempts securities clearing organizations from court ordered stays and allows them to net the obligations of members and to realize on their members' collateral. Thus, some trades that could and should occur in Canada, particularly in derivatives, are being handled in the United States because of the risk issue on the Canadian exchanges and the lack of protection in our bankruptcy and insolvency legislation. In particular, the Bourse de Montreal, Canada's major derivatives exchange, is at a marked disadvantage compared to exchanges such as the Chicago Board of Exchange.

The securities and derivatives industry is very significant for our Canadian economy. Strong and competitive Canadian financial markets are the key to the overall growth and prosperity of the nation. However, it is difficult to attract large international dealers if Canadian clearing houses face higher costs as a result of their inability to enforce their netting and collateral agreements with their members or because they present greater risks to the participants in the event of the insolvency of one or more members.

Clearing houses for Canadian securities and structured products such as derivatives and options must be able to clear transactions in a timely manner, but under existing law in Canada they cannot clear transactions when either the buyer or the seller becomes insolvent. The various Canadian laws that currently govern bankruptcy and insolvency, namely the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Winding-up and Restructuring Act, do not offer Canadian clearing houses the same protection that is offered in the laws of other G-7 countries.

This is of great concern to the four exchanges in Canada that trade in securities and structure products, namely the TSE, the Toronto Stock Exchange, the Bourse de Montréal, the Canadian Venture Exchange in Calgary and the Winnipeg Commodity Exchange. This is also of great concern to the three clearing houses that clear the trades of the four exchanges, namely the Canadian Derivatives Clearing Corporation, the Canadian Depository for Securities and the WCE Clearing Corporation.

The Bourse de Montréal, on behalf of the Canadian Derivatives Clearing Corporation and the two remaining clearing houses, have all asked that the Payment Clearing and Settlement Act be amended to cover securities and derivatives clearing houses.

Bill S-40 is designed to provide clearing houses with the legal protection they need in the event one of the trading parties becomes insolvent or bankrupt.

The amendments in Bill S-40 would expand the scope of Canada's Payment Clearing and Settlement Act by providing protection for the netting agreements for our securities and derivatives clearing houses. They would also provide protection for the collateral posted by the members of the clearing houses.

Passing the bill will encourage both domestic and foreign investments in Canadian companies. That is what we want. We do not want to see this business going to the United States. We should not only hold our own here in Canada, but we should entice foreign investment here as well. We can only do that if we are competitive.

Should Canada fail to adapt its financial legislation to international norms, there is a clear danger that a significant number of Canadian businesses will move to foreign markets.

Bill S-40 will ensure that the Canadian market enjoys the same protection that is provided in the other G-7 countries. It will enhance our competitive position by enabling clearing houses to lower their costs by reducing the settlement risks caused by poor bankruptcy protection. Thus it will allow our financial markets and institutions to grow their business in Canada and reclaim certain specialized financial business that has moved to foreign markets. It may also attract new investors from the United States and other foreign countries.

It should be noted that the amendments to the bill follow up on the November 2001 recommendations made by the Bank of International Settlements and the International Organization of Securities Commissions.

One of the central recommendations was that the transactions involving the clearing houses have a well-founded legal basis so that their rules and procedures could be enforced with a high degree of certainty. This includes the enforceability of transactions, netting arrangements and liquidation of assets pledged or transferred as collateral.

Bill S-40 will help more of our financial markets to become more competitive. However more work needs to be done.

Tax reform is crucial. Despite federal and provincial tax cuts, Canadian taxes are still higher than in the United States, and the United States rates are scheduled to decline even more over the next four years.

A modern regulatory structure that will work in a fast paced marketplace is also necessary. We must eliminate rules that are duplicative, contradictory or not in the public's interest. Financing in Canada is more expensive and complicated than it should be. Each new regulatory policy should undergo a rigorous cost benefit analysis and be implemented in a way that minimizes cost and excessive red tape. How often have we heard that?

A single and national governing body must also be created to oversee Canada's financial markets. The multiple Canadian regulatory authorities have created a fragmented and decentralized system.

In conclusion, securities and derivatives clearing houses are crucial to the efficient operation of our financial markets. Bill S-40 will allow them to reduce costs, because of better bankruptcy protection legislation and thus become more internationally competitive. The bill, in conjunction with tax reform, reducing the regulatory burden, and consolidating the many financial market regulatory authorities will help restore Canada's competitiveness.

After all that is what collectively we should all be doing; ensuring that we are a major player in the financial markets in the world. We can be. We have everything here that would draw investment. The only thing we need is the will to ensure that investors feel comfortable, get a fair deal and we can compete with other countries around the world.