Mr. Speaker, it is my pleasure to present Bill S-9 for third and final reading in the House of Commons. This bill establishes a new act to be known as the depository bills and notes act.
The proposed legislation is rather technical in nature but it is extremely important to the efficiency of capital markets in Canada. The proposed new act updates federal legislation to bring it into line with the way that trades and financial instruments are processed today.
As hon. members are aware, advances in information technology are changing the way that businesses in every sector of the economy operate. There is no doubt that the financial sector has probably been more affected by these changes than most.
Competitive pressures in the financial sector are intense. They ensure that new ways of doing business are constantly being found to make financial practices and markets more efficient. The depository bills and notes act is just one measure being introduced by this government to help support and encourage the modernization of our financial sector.
The specific area of activity covered by this legislation is the processing of transactions in certain financial instruments that come under federal law. A key element of modern market practice is the holding of financial instruments in central depositories.
When an instrument held in a central depository is sold, ownership of that instrument is transferred from seller to buyer by means of an entry on the books of the depository. This means that there is no longer any need to arrange for the physical transfer of the instrument from one party to another.
The use of securities depositories has obvious advantages in terms of both the safety and efficiency of transactions in financial markets. While transfers of many financial instruments are already handled in this way, the proposed legislation will expand the list of eligible instruments to include two new types of instruments, namely depository bills and depository notes. Bankers acceptances and commercial paper will now be eligible to be held in a central depository. Bill S-9 also establishes that changes of ownership of these instruments will be affected by making the appropriate entries in the records of the depository by book entry.
This legislation is necessary because the existing rules governing these types of instruments as set out in the Bills of Exchange Act were written well before the establishment of central depositories and still refer to being in physical possession of a financial instrument when describing the rights of the parties involved in a transaction. These requirements of the Bills of Exchange Act have so far precluded the use of a depository for financial instruments that are subject to that legislation.
In other words, because this legislation has not been amended to accommodate modern practices, the full use of central depositories has been held back. The legislation before us, the depository bills and notes act, addresses this situation.
The new act ensures that in law the purchaser has the same legal rights with such modifications as are necessary in the circumstances as a purchaser of a bill or note under the Bills of Exchange Act without requiring the actual delivery of the instrument.
The introduction of these new financial instruments in no way precludes individuals or institutions from purchasing and holding other bills and notes that still fall under the authority of the Bills of Exchange Act.
To distinguish these new types of instruments from other similar securities they will be marked on their face with wording that indicates that they are depository bills and notes subject to the depository bills and notes act.
The benefits of extending the use of central depositories should not be delayed any further. The Canadian depository for securities would like to make bankers acceptances and commercial paper eligible to be held in their depository this fall. Passage of the legislation would allow them to do that.
The introduction of the depository bills and notes act is 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. This group is calling for the widespread introduction of securities depository systems and book entry transaction recording on the basis that they will improve the efficiency of the money markets. This initiative is also supported by all elements of the financial community.
A related technical amendment to the Financial Administration Act has been included in the legislation. The Financial Administration Act permits negotiable instruments such as T-bills and government bonds to be traded in the market. However, there is a technical legal issue regarding the definition of negotiable instrument and whether it includes government debt for which there is no physical certificate. The amendment will make it clear that government debt of this kind can be traded.
Bill S-9 deserves speedy passage and I urge my hon. colleagues to concur so that we may move on to other legislation.