Debates of April 27th, 1998

Canadian Environmental Protection Act, 1998

[The Acting Speaker (Ms. Thibeault)]

The question is on the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

[Some hon. members]

No.

[The Acting Speaker (Ms. Thibeault)]

All those in favour of the motion will please say yea.

[Some hon. members]

Yea.

[The Acting Speaker (Ms. Thibeault)]

All those opposed will please say nay.

[Some hon. members]

Nay.

[The Acting Speaker (Ms. Thibeault)]

In my opinion the yeas have it.

And more than five members having risen:

[The Acting Speaker (Ms. Thibeault)]

Call in the members.

And the bells having rung:

[The Acting Speaker (Ms. Thibeault)]

The recorded division on the motion stands deferred until Tuesday, April 28 at the end of Government Orders.

Depository Bills And Notes Act

[Anne McLellan, Liberal, for Secretary of State (International Financial Institutions)]

moved that Bill S-9, an act respecting depository notes and to amend the Financial Administration Act, be read the second time and referred to a committee.

[Tony Valeri, Liberal, Parliamentary Secretary to Minister of Finance]

Madam Speaker, I certainly welcome the opportunity to speak today in support of Bill S-9, the depository bills and notes act.

Basically this is technical legislation. It is non-controversial in that it updates federal legislation to provide a legal framework for well-established market practices.

Specifically the proposed legislation supports the secure and efficient processing of trades in financial instruments. It does this by allowing instruments to be held in central depositories. The legislation also allows for the transfer of ownership of these financial instruments on the books of the depositories.

Before discussing Bill S-9 let me first describe some of the changes taking place in the Canadian financial industry in general and the environment in which this legislation will function.

As hon. members are aware, Canada's financial sector in the past few years has dramatically changed the way it does business. International competition which itself is fuelled by ongoing technological changes has been a major contributing factor. In actual fact, few parts of business life in Canada have been more affected by evolving information technology than the financial sector.

This sector is one of Canada's most important industries. It contributes 5% to gross domestic product. It creates almost 500,000 jobs and generates $5 billion annually in export revenues. In addition it delivers essential services and products in today's modern economy, services such as financial intermediation, protection against risks and the provision of financial security.

Globalization, new technologies and deregulation are key forces of change that have been at work making our financial industry more modern and more efficient. The government has also responded to the changing environment.

International trade and investment for example have required wholesale financial services to be available on a global basis. Canadian financial firms, whose presence outside Canada is significant I might add, are strong participants in this global reality.

New technologies are also propelling change. An institution that does not or cannot adapt to technological changes is not likely to fair well in today's economy. Internationally the removal of regulatory barriers is fostering greater competition among different types of financial institutions and among institutions around the world.

Currently we are awaiting the report of the task force on the future of the Canadian financial services sector which will be reporting in September and which will certainly trigger further debate and change. In the meantime other changes are under way.

All major banks, as hon. members know, now have individual ombudsmen. We also have the Canadian banking ombudsman who deals with retail and commercial disputes as well as complaints regarding securities and insurance subsidiaries of banks. Members of this House and in particular the Standing Committee on Industry have played a critical role in establishing this new Canadian banking ombudsman. As the financial sector continues to change, some have indicated that it might be useful to conduct a review on the effectiveness of this important office within the financial services sector.

We are also expecting draft legislation on foreign bank entry later on this year.

We also have Bill C-82 which gives the government the authority to make regulations in the area of privacy and also amends the Bank Act to prohibit coercive tied selling. Tied selling has become an important consumer issue and one that is presently being examined by the Standing Committee on Finance. The outcome of this review will guide the government's decision on whether or not to proclaim into law C-82 provisions that deal with tied selling activities.

Another example of change is the successful conclusion of the World Trade Organization financial services negotiations under the general agreement on trade in services. The end result of these successful negotiations will mean greater international opportunities for our financial companies, new jobs for Canadians and benefits for consumers.

These are just some of the changes that have been taking place to ensure the competitiveness and currency of Canada's financial sector.

The bill we are debating today, the depository bills and notes act, represents yet another measure designed by the government to help in the modernization of our financial sector. The depository bills and notes act updates and modernizes federal legislation regarding the transfer of ownership of certain types of negotiable financial instruments, primarily bankers' acceptance and commercial papers.

In terms of value and volume, bankers' acceptances and commercial paper are second only to federal bonds and treasury bills in the Canadian securities market. For example in November 1996 there was a total of $36.8 billion in bankers' acceptances and $33.7 billion in commercial paper in Canada.

According to the Canadian Depository for Securities, in January 1996 the average daily gross settlements of bankers' acceptances and commercial paper were $5.6 billion and $5.7 billion respectively, comprising approximately 400 daily trades in each security. As I just said, these two instruments rank second only to federal bonds and treasury bills in value and volume in our domestic securities market.

As hon. members are probably aware, federal government securities are held in the Canadian Depository for Securities debt clearing system. Today banks and other players are increasingly holding financial instruments like bonds, treasury bills and other negotiable instruments in a depository institution.

For financial instruments held in a depository when ownership of the instrument changes, instead of physically exchanging the security, the name of the new owner is simply entered into the records of the depository and it is called a book entry transfer. These practices are more efficient and more secure than settling individual trades by moving financial instruments across town.

While book entry transfers are now an established part of the clearing and settlement system, Canadian financial legislation unfortunately does not fully recognize the practice for all types of financial instruments. Specifically the Bills of Exchange Act still does not acknowledge the use of depositories nor the holding and book entry delivery of financial instruments that fall under its rules.

The Bills of Exchange Act still refers to being in physical possession of negotiable instruments like bankers' acceptances and commercial paper when describing the rights of the parties involved in the transaction. For financial instruments held in a depository, these rules are clearly impractical.

Under the current Bills of Exchange Act for example the term “bearer” means the person in possession of a bill or note that is payable to the bearer. This means that the rights as described in the Bills of Exchange Act are impossible to interpret in the context of a negotiable instrument that is held in a depository and the transfer of ownership is done by the book entry because the instrument itself remains in the depository.

The depository bills and notes act makes the rights and responsibilities of buyers, sellers and holders of negotiable instruments compatible with the use of depositories and book entry transfer of ownership.

Bill S-9 does this by creating two new financial instruments for classes of securities: depository bills and depository notes. Both will be eligible to be held in a securities depository.

Someone buying a depository bill or note will generally have the same legal rights as someone buying a bill or note under the Bills of Exchange Act without actually taking delivery of the instrument. Because the depository notes and bills are intended for relatively wide circulation in trading, the rights and responsibilities will be defined with specific reference to the function of the clearing house and book entry transfer. In addition, to distinguish these new instruments from similar securities, they will be marked with wording that indicates they are depository bills and notes subject to the depository bills and notes act.

In no way will these new financial instruments preclude individuals or institutions from buying and holding other negotiable bills and notes which will still be governed by the Bills of Exchange Act.

As I said at the beginning of this debate, this is certainly very technical in nature and sometimes dry. But there is one other part of this bill that deserves to be mentioned.

Bill S-9 also amends section 70 of the Financial Administration Act to provide added certainty that transfers of Government of Canada securities from one person to another are legally sound under a book based system.

I would like to note that the bill is supported by all elements of Canada's financial community. The Depository Bills and Notes Act is also consistent with the recommendations made by the private sector group concerned with the workings of the international financial system commonly known as the G-30.

The G-30 has been calling for widespread introduction of securities depository systems and book entry transactions recordings as they will improve the efficiency of money markets.

As well, the Canadian Depository for Securities has been pushing to be able to hold negotiable money market instruments in its depository and to be able to make book entry ownership transfers as soon as possible, a far more efficient process, it believes, than having to take physical possession of the instrument. Bill S-9 will allow it to do just that.

I should point out that the federal government is not alone in providing a statutory basis for these activities. The Ontario business corporations act, the Quebec securities act and other provincial legislation govern the holding and book entry delivery of government bonds and corporate securities that are not subject to the Bills of Exchange Act.

Like so many other changes in the financial sector, Bill S-9 is simply keeping up with the times. Its passage will allow trades in securities like bankers' acceptances and commercial paper to be processed in a more secure and efficient manner.

Essentially what Bill C-9 does is put into law an already established and accepted practice and therefore deserves speedy passage. I urge all my hon. colleagues to support the legislation.

[John Williams, Reform, St. Albert, AB]

Madam Speaker, I noted the request for urgent passage and support of the bill. Perhaps we could do a trade-off. If we are to support the bill, perhaps they could support our motion on hepatitis C. It is a wonderful opportunity for the government to do the right thing. Then it would have speedy passage of Bill S-9 which, by its very title, originated in the other place.

As members know, we have talked long and loud about the affront to the House of the fact that we are receiving legislation here after it has been cleared in the Senate. We are quite incensed that we who represent the public at large, we who have been democratically elected, we who stood on platforms and said “This is what we will deliver to you if you vote for us”, have to play second fiddle to the Senate which sent us a bill that it passed.

I wonder when the government will listen to the wishes of the people, to the demands made by the Reform Party that it is time we realize that anachronistic organization at the other end of the hall needs to be replaced by something more modern, which means more representative of Canadian people.

Bill S-9, as my hon. colleague mentioned, is a technical bill and largely will not affect many people. It has to do with more of the efficient workings of our financial systems than our financial industry.

I noted that the member mentioned bankers' acceptances and notes were second only to federal bonds in value and in volume. That in itself spoke volumes. While industry needs to raise funds for investment, for the creation of jobs, for new plants, new factories, and research and development, I have often wondered why the federal government has borrowed all this money and poured it down the drain—

[Lee Morrison, Reform, Cypress Hills—Grasslands, SK]

Madam Speaker, I rise on a point of order. We have one Liberal. I request a quorum.

[The Acting Speaker (Ms. Thibeault)]

Very well. We will ring the bells.

And the bells having rung:

[The Acting Speaker (Ms. Thibeault)]

We now have a quorum.

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

Madam Speaker, I rise on a point of order. Just before the quorum call there was a reference to the presence or absence of members in the House. I wonder if the Chair might remind members that is not allowed under the rules of the House.

[The Acting Speaker (Ms. Thibeault)]

The hon. member is certainly right. I remind members not to forget this rule again.

[John Williams, Reform, St. Albert, AB]

Madam Speaker, I would never want to forget that very important rule. As the Parliamentary Secretary to Minister of Finance pointed out, we are dealing with a technical bill. Perhaps they nodded off and did not pay much attention on the government side as to what was going on in the House because of the technicalities of the bill.

Before I was interrupted I was pointing out that the bill deals with bankers' acceptances and notes. They are second only in value to the value and volume of federal government instruments, bonds and so on which are dealt with by the financial industry. I pointed out how important raising money is for the vitality of our economy to create new jobs, to build new factories, to finance inventory and so on.

The act does not hold true for the federal government which just borrowed the money, spent it, poured it down the drain for little or no value whatsoever. Now we have high taxes. Our economy is being dragged down. We are less competitive than we otherwise would be around the world because the government never learned how to manage its books.

We expect organizations and companies that are borrowing money through bankers' acceptances and so on are able to manage their books properly. They do not have the concept of taxpayers standing behind them. They have only profits standing behind their capacity to pay the interest and repay the principal.

Over the last many years governments including this government have borrowed many billions of dollars. Since the government came to office in 1993 it has borrowed approximately $100 billion, to be precise.

That is an affront to all Canadians. We are the ones who end up paying the interest on the federal government debt whereas it is investors who earn the interest and corporations that pay the interest on the bankers' acceptances through the profits they have generated through extra economic activity they have been able to create, extra jobs they have been able to create, extra sales they have been able to create, and extra efficiencies, productivity and plants they have been able to build. That is how our financial industry works as a service to the industrial world to raise the money it needs in order for us to maintain a healthy economy.

The parliamentary secretary referred to the fact that rather than the instrument itself having to change hands, as is required under a bill of exchange, they just need a bookkeeping entry signed by both sides in the books of the depository to make the transaction legal. It is a bit of an indictment of the legal industry that has evolved over the past number of generations.

I return to the old definition of a bill of exchange, which I learned by heart as a young fellow when I studied banking in my native Scotland. The definition was brought to my attention again by the Library of Parliament. It jogged my mind about the definition of a bill of exchange which is:

An unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or a determinable future time a sum certain in money to order or to bearer.

I know that because I had to learn it many years ago. The bill of exchange was a simple piece of paper, one sheet saying that one was owed an amount of money.

Today the instruments of debt are pages thick, sometimes books in length. Sometimes they refer to all the rest of the conditions posted in the head office of the organization. Therefore it becomes a physical impossibility to keep these books moving around. The legal industry has said to the financial industry that it will have to cover off this liability or that liability and ensure the section is covered and that it can collect the money under these circumstances. They keep getting bigger and bigger.

Now we have to move these books around, so we are going to put them in a depository. They are going to sit there in a depository. We are back to one piece of paper referring to the books in depository. We are now going to pass this piece of paper around for the financial industry.

When originally they passed the piece of paper around they did not need a depository. Now they do. In a few more generations I wonder where we will be putting this piece of paper which has now grown into a book. We will put that into a depository also. We will start off with another sheet of paper that refers to the bookkeeping entry which refers to the underlying agreement, and it goes and on. It is wonderful how the paper war does develop.

I appreciate that the financial industry does need to have some modernization. It does need to have this capacity to be able to work more efficiently, especially now that we are now in the computer age. Lots of these entries are now made by computer.

Let us remember too that today is April 27, 1998. We are less than two years away from the big bash, big blast of the millennium. On January 1, 2000, we are going to find out whose computer works and whose does not. Is the government going to be able to work, not efficiently on January 1, 2000, but at all on January 1, 2000? Or are all these computers going to grind to a stop?

The same applies to this depository we are talking about under Bill S-9, all handled by computers. As the parliamentary secretary said, there are billions of dollars flowing through this each day. What is going to happen on January 1, 2000 if the computer that handles the depository gives up the ghost, the federal government's computers give up the ghost and industry's computers give up the ghost? A half hour ago two people in my office were telling us that there is going to be a major economic catastrophe on January 1, 2000, predictable right to the very day.

It will not be the end of the growth period of the economic cycle that will end in a downturn. It is that the computers are going to grind to a stop on that day. Those people with accounts receivable will not be able to collect their money. Those people who have bills to pay will not be able to write the cheques.

The public accounts committee asked the Treasury Board secretariat last fall, Mr. Rummell, the chief information officer for the Government of Canada, and the assistant deputy minister in charge of information technology, what was the back-up if the computers fail in the year 2000. They said we will have to write the cheques by hand. Imagine such an admission by the Government of Canada. In this day and age when we are totally and absolutely reliant on computers to do virtually everything, the assistant deputy minister says they will have to write the cheques by hand. That is how unprepared the federal government and industry are in meeting this challenge which is right around the corner.

I was reading an article in the Financial Post this morning which said that this was one date that we could not play around with. We cannot postpone it. It will be here on January 1, 2000. When everyone is waking up from the hangover of the great celebration on the eve of the millennium, it is going to be a big bust the next day when the computer is turned on. That is the end of it. It dies. The economy could die too according the people in my office. There are going to be severe ramifications.

While we are talking on Bill S-9, and while we are talking about helping the financial industry improve its effectiveness and its efficiency, let us also send out a clear warning and strongly urge industry and everyone who has a computer to realize that January 2000 is not going to be postponed. If they want their business to survive and to continue making money in the new millennium they had better do a little housekeeping of their own as well as Bill S-9 to ensure their business continues in business on January 1, 2000. The importance of this issue cannot be underestimated.

Last fall when the auditor general tabled his report he said the total cost for the federal government on fixing its computers could be as high as $1 billion. I was reading an article in the paper the other day that said one contract that the federal government has given to a group of computer consultants alone could go as high as $1.4 billion, not to mention all the other hardware acquisitions, software acquisitions and all the thousands of other programmers working diligently for the federal government at this point. The cost of $1 billion has escalated dramatically.

That cost is also going to apply to industry. It will have to address the same issues as the federal government. The federal government has left it far too late. It is still in a situation of denial. It is still running around the problem and it has not come clean with how bad it is. Yet we also know industry is too complacent.

The time will come when there will not be enough programmers around and therefore what is going to happen to their business? What is going to happen to the shareholders? What is going to happen to the bankers' acceptances that are now covered off by Bill S-9?

I hope that as the government continues to help industry through Bill S-9, through the efficiencies it is allowing by the creation of this new type of investment instrument, it also recognizes that it has an obligation to tell industry that the year 2000 is serious, it cannot be delayed. If shareholders are to maintain their investments the companies have to be able to function. If the computers do not function we know that industry will not function.

Let me reiterate. We do not like the fact that this bill is coming to us via the Senate. We think that bankers' acceptances are good. But he pointed out and seemed to be quite proud of the fact that federal government debt instruments were the largest kind of debt instruments in the country. I took issue with that. We do not like it. We feel that industry has to wake up and realize that the year 2000 is just upon us and we are glad to help it as far as the bankers' acceptances and so on are concerned to improve its efficiency.

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Speaker, my colleague, the member for Saint-Hyacinthe—Bagot, has asked me to speak on his behalf. I hope that I will not set the record for the shortest speech in the House of Commons, because what I have to say will not take very long.

My party will support Bill S-9 because it represents a technical improvement in the management of the federal government's obligations.

The Bloc Quebecois will therefore vote in favour of Bill S-9.

[Scott Brison, Progressive Conservative, Kings—Hants, NS]

Mr. Speaker, it is very important to recognize that when we are discussing an extremely dry piece of legislation many people in this House are possibly not particularly interested in delving into the intricacies or the details of it.

One of the most important or interesting areas relative to this legislation is that it originated in the Senate. Recently in his speech, ostensibly on Nunavut, the Leader of the Opposition focused his speech on the need for Senate reform. He engaged in an extended series of character assassinations of many people in the other place, many of the Senators, and engaged in what many senators and also many members of this House found to be offensive.

The important thing to recognize is that while we do have a Senate and that while we do have an upper chamber, that Senate is to be and should be utilized to provide service and expertise on this type of technical legislation to the Canadian taxpayer.

Other members have outlined the purpose of this bill and it is effectively to facilitate the settlement of securities for which the investor does not actually take physical possession. I will not go into great detail about the substance of the legislation. That has been covered quite thoroughly.

Department officials have said that the Depository Bills and Notes Act is a technical piece of legislation needed to support improvements in the efficiency of capital markets in Canada. I would agree with the Reform member speaking earlier relative to the risk given the millennium or the year 2000 factor.

Earlier today I was reading Edward Yardeni, a leading economist from New York. He suggested the year 2000 problem is far more serious than governments like to admit, partially because governments fear the eventual law suits that could emanate from the year 2000 problem. This legislation has the potential to increase the exposure of Canada's financial marketplace to the year 2000 problem and this government has yet to make a serious credible commitment to address this issue.

That the bill was introduced in the Senate should give some of our colleagues in the Reform Party some evidence of the importance, necessity and value of the contribution made by our upper chamber.

The Senate had meaningful committee meetings on this piece of legislation, as we will hear. It even introduced and passed an amendment to clarify the bill. Frankly, on this type of legislation, on financial services, economics or regulatory issues, the Senate is a bountiful supply of knowledge and expertise. The Senate is a valuable resource we should utilize in this House to benefit all Canadians.

To the chagrin of the Leader of the Opposition even his own caucus members have suggested we use the Senate more. In a recent finance committee meeting, the chair announced he was asked recently in writing by the member from Prince George—Bulkley Valley to strike a joint committee between the House of Commons and the Senate finance committee to study the bank merger issue more thoroughly.

I commend the member from Prince George—Bulkley Valley, a Reform MP, for recognizing the institutional knowledge and expertise we have in the Senate of Canada. Taxpayers are already footing the bill for a bicameral government. Why deny Canadian taxpayers the full benefit of their investment in this system? Why does the Reform Party not suggest utilizing the Senate more at this juncture instead of less? Let us make sure Canadian taxpayers are getting their money's worth.

The Senate has introduced some very meaningful legislation recently, including Senator Kenny's tobacco legislation and Bill S-3, which I have already commented on.

Some people will even argue that while the Senate may not be elected it has offered a more effective opposition to the government in the past five years than the official opposition parties in this House. The Senate has also held important and useful debates on electoral boundary redistribution, the Divorce Act, the Newfoundland school issue and assistance for post-secondary education.

Instead, some of the opposition parties have voiced strong concern over this practice of introducing legislation in the Senate. In fact when I consider the amount of time the Reform Party has taken recently to pontificate on the role of the Senate in a parliamentary democracy I tend to think that we have lost a lot of good opportunities for meaningful debates about the real issues in this House.

It is the same Senate that the Leader of the Opposition's father sat in for a number of years. It seems strange to me that someone would go to such lengths to attack a Canadian institution that one's father was actually a member of. I noticed a particularly interesting statement in the Ottawa Citizen made by the Leader of the Opposition's father in defence of the Senate in 1981. In that statement he said:

We constitute more than a chamber of sober second thought. We have been appointed to represent our respective provinces in this House. We have been selected to provide the necessary checks and balances on a parliamentary structure where representation by population results in imbalances that invite the kind of abuse of parliamentary majority power that we are witnessing today.

The Leader of the Opposition contradicts his father's remarks when he speaks as he did last week and said that members of the Senate do not represent provincial or regional interests. I feel it is very important to recognize that our Senate can, should and will, if utilized, provide the necessary leadership, judgment and expertise we need, especially with this type of legislation.

When the Leader of the Opposition was speaking about the Nunavut legislation he engaged in a number of character assassinations. It was unfortunate to hear some of the inaccuracies and the really incredible allegations that he made. After he would attack a member of the Upper Chamber at great length, he would then engage in a bit of a disclaimer and say “Far be it for me to judge that particular member”, when he knew that his words were nothing but character assassinations in vitriol.

I had an opportunity recently to visit the official website of the Reform Party where I read inflammatory and factually incorrect statements about members of the Senate. I could only surmise that the Reform Party has compromised its own position in terms of hate literature on the Internet when in fact it is using the Internet to spread factually incorrect, inflammatory and what I consider to be dangerous character assassinations via the Internet.

It is unfortunate that more members of this House do not recognize the contribution that the Senate has made and can continue to make to this type of legislation. Our party believes and has laid out certain ideas that can be implemented sooner rather than later, including the provinces putting forward lists of names for the Prime Minister to choose from when he is making the Senate appointments and limiting the term of a senator to 10 years.

Indeed, it was our party and the Conservative government under the leadership of Brian Mulroney that appointed the late Stan Waters to the Senate.

In the interim, until we have Senate reform, all members of this House should continue to work on behalf of the Canadian taxpayers to ensure that we are maximizing the level of expertise that we have in the Upper Chamber to provide the maximum level of benefit to the Canadian taxpayer by providing the types of legislation that will benefit the Canadian taxpayer as we enter the 21st century.

[The Acting Speaker (Mr. McClelland)]

Is the House ready for the question?

[Some hon. members]

Question.

[The Acting Speaker (Mr. McClelland)]

The question is on the motion. Is it the pleasure of the House to adopt the motion?

[Some hon. members]

Agreed.

(Motion agreed to, bill read the second time and referred to a committee)