Mr. Speaker, I welcome the opportunity to present for second reading Bill S-40 which amends the Payment Clearing and Settlement Act.
This legislation provides Canadian securities and derivative clearing houses with legal protection, similar to those in place in the United States and other G-7 countries, in the event that one of the members becomes insolvent or declares bankruptcy. Before discussing the bill, I would like to take a few minutes to provide some background which will put these changes into context.
These amendments are in line with the commitment the government made in the Speech from the Throne in January 2001 to keep Canadian laws and regulations competitive. Bill S-40 helps to meet this commitment. I want to remind the House of the government's long term plan to build a strong economy, a plan that also includes an internationally competitive economy. An efficient and strong financial sector is a key requirement for achieving a strong economy.
With the major contributions to job creation, export growth and tax revenues, Canada's financial sector is vital to the country's economic well-being. Central to a healthy financial sector is the Canadian securities and derivatives industry, its exchanges and their clearing houses.
The Canadian securities derivatives industry is a key player in Canada's financial system. Its contribution is significant. The industry provides a mechanism for raising capital and hedging financial risks through derivative contracts. It is a highly competitive industry.
For example, in recent years the number of security firms in Canada has increased from 170 in 1995 to almost 200 today. These firms are important players in Canada's securities and derivative clearing houses. The size of the industry is significant. Gross revenues in 2001 were $10 billion. In 1999 security firms assisted corporations raising $39 billion in debt and $21 billion in equity. Security firms also assisted provincial governments in raising $25 billion in debt and participated in the sale of $50 billion of Government of Canada bonds.
The Winnipeg Commodity Exchange trades over $2 million agricultural futures and options contracts per year worth about $13.5 billion. Participants trading in the Winnipeg Commodity Exchange include international grain trading companies, brokerage firms, primary and terminal elevator companies, local floor traders, financial institutions and farmers.
The bill we are debating today focuses on Canada's security derivative clearing houses, which are among the most efficient in the world. These organizations enable consumers and businesses to settle securities and derivative transactions in a timely manner and at a reasonable cost. They accomplish this by acting as a central counter party to securities and derivative trades.
In Canada, the clearing and settlement of securities derivative trades is conducted through three clearing houses. The Canadian Depository for Securities, CDS, is Canada's national securities depository clearing and settlement centre. It handles about $57 million security trades each year for banks, brokers, trust companies and other industry members. The CDS is also a custodian of securities for federally incorporated institutions like banks, trust and loan companies, insurance companies and pension funds.
The Canadian Derivatives Clearing Corporation, CDCC, is the clearing house for derivative contracts traded on the Bourse de Montreal.
The third organization, the WCE Clearing Corporation, WCECC, is the clearing house for derivative contracts relating to agricultural commodities traded on the Winnipeg Commodity Exchange, the WCE. The WCECC has an arrangement with CDCC to provide certain clearing and settlement services for the WCECC.
These three clearing houses clear and settle trades carried out on the four major exchanges in Canada. Securities and derivative exchanges underwent a major realignment in 1999 to enable them to better compete with exchanges around the world and new electronic entrants to the Canadian market. Each exchange now specializes in a certain area.
The Toronto Stock Exchange is the sole market for senior equities. Its listed companies represent a broad range of businesses from across Canada, the Untied States and other countries.
The Canadian Venture Exchange, CDNX, in Calgary, which was created through a merger of the Alberta and Vancouver stock exchanges, is the major market for junior equities. The Canadian Venture Exchange recently has been renamed the TSX Venture Exchange. Its companies are particularly active in the mining, oil and gas manufacturing and technology sectors.
The Bourse de Montréal is responsible for all non-commodities derivatives trading and other clearing services to its corporation, the CDCC. Transactions involving agricultural commodity derivatives take place on the Winnipeg Commodity Exchange, which is Canada's only agricultural futures and options exchange. Future contracts traded at the WCE include canola, canola meal, flaxseed, domestic feed wheat, western barley and field peas.
The centralized clearing and settlement services provided by clearing houses for securities and derivative markets are important in three aspects.
First, securities and derivatives markets are critical in providing opportunities to raise capital for investment and hedging financial risks.
Second, securities and derivatives markets rely upon the efficient and timely clearing and settlement of transactions through clearing houses.
Third, these clearing houses take measures to reduce risk and cost and settlement of securities and derivatives transactions.
Any factors that negatively affect the operation of these clearing houses and increase their costs will impact on the securities derivatives markets by reducing their efficiency and increasing trade costs. A potential cost to these clearing houses--