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.