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.