Mr. Speaker, I am pleased to rise to debate Bill S-40, a bill we in my party have supported since its inception.
Last February I wrote to the hon. Minister of Finance calling on the government to introduce amendments to the Payment Clearing and Settlement Act pursuant to recommendations made by the Bourse de Montréal and others in the securities industry to make Canada's securities more competitive, particularly its options markets.
The hon. parliamentary secretary gave a technical explanation of the bill. I will engage in some of the same. In a word, the principle derivatives clearing house in Canada which is an agency of the Montreal bourse called the Canadian Derivatives Clearing Corporation, the CDCC, is at a competitive disadvantage vis-à-vis clearing houses for derivative trades in the United States because our clearing house is not protected from bankruptcy. It has not yet happened, thankfully, but if a partner to a derivative trade defaulted on payment the entire system in Canada could grind to a halt.
Given the legal opening for the entire clearance system of derivatives to grind to a halt, there is an incentive for people in the financial services industry to do trades on American exchanges where they have legal protection from bankruptcy. Such protection would be afforded by the amendments in Bill S-40.
Before I get more deeply into the technical aspects of the bill I will say that we in the official opposition Canadian Alliance object in principle to bills coming to this place which have originated in the Senate. That may seem like an exotic concern to some. However as long as we continue to have an undemocratic, unrepresentative and unaccountable upper chamber it is important that legislation is initiated in the House by the people's representatives and sent to the other place for approval.
Every time a bill comes to this place that is initiated in the upper chamber we indicate our displeasure. We sometimes oppose a bill on those grounds. We will not do so in this instance because Bill S-40 would be an important reform of the financial services sector.
While Bill S-40 is a useful and valuable amendment we will support, much more needs to be done in the area of reforming Canadian securities laws. I submit to the consideration of my colleagues a report recently released by the Vancouver based Fraser Institute and conducted by Dr. Mohindra, formerly of the Department of Finance. The report is an overarching review of securities law in Canada. In it Dr. Mohindra compellingly concludes that Canada has more burdensome, costly and redundant securities regulations than virtually any of our major economic competitors.
Dr. Mohindra concludes, and I concur, that governments in Canada, principally the provincial governments which are responsible for regulating securities exchanges but also the federal government to the extent it is responsible, ought to get together with the four major exchanges in Canada to come up with a much more streamlined and efficient system of securities regulation.
This is not a technical matter of abstract interest only to those in the financial services industry. To the contrary, the capital markets which operate in and through the various stock exchanges and through the derivative exchanges at the Montreal bourse are an essential part of our modern economy.
Essentially these modern capital markets represent the central energy of a free market economy; that is to say, the formation of capital. Virtually no business could begin, operate, conduct its business, employ people or create wealth were it not for the availability of capital. Formation of and access to capital is an essential aspect to being a competitive economy.
We have had an ongoing debate about ways to make the Canadian economy more competitive and about the fact that under the government's tenure we have seen our economic competitiveness slide vis-à-vis our major economic competitors. We have seen the average disposable income of Canadian families decline over the past 20 years in relative terms. We have heard the former minister of industry, now the hon. Deputy Prime Minister, explain that the average family in Ontario has a lower standard of living in relative terms than the average family in Mississippi, the poorest of the 50 U.S. states. Canadian families now have on average $20,000 less in disposable income than the average American family. These are all reflections of our diminishing competitiveness and productivity.
We in the Canadian Alliance frequently propose policy solutions to the problem through rapid and meaningful reductions in tax rates to increase incentives for people to work, save and invest. We talk frequently about accelerating debt reduction so our governments, particularly the federal government, waste fewer public resources on the sink hole of debt servicing. We also talk about deregulation in general.
I am raising this matter with particular reference to our capital markets. One idea which is gaining currency is the notion of establishing not a federal but a national securities regulator which would obviate the need for 10 separate securities regulatory bodies. Under the status quo each province has a separate securities and exchange commission each of which is responsible for administering rules regarding the filing of prospectuses for new companies.
Let us suppose a successful restaurateur in Regina wanted to branch out and start a chain of restaurants across the country like my hon. friend from Regina--Qu'Appelle who is a very successful capitalist. Let us suppose one wanted to raise capital to expand the business. One might want to issue a prospectus to raise equity on, say, the Toronto Stock Exchange, the Bourse de Montréal or the exchange in western Canada, but to do so would require filing the prospectus in 10 jurisdictions many of which have completely different regulations. It would cost tens of thousands of dollars in legal fees. The only winners in the current system are securities lawyers who derive great profit from the multiplicity of securities regulations in Canada.
It would be much more efficient for an ambitious restaurateur wanting to raise equity to have one stop shopping in terms of raising equity on the capital markets through one national exchange such as exists in the United States. The U.S. is a federation like our own in many respects but it has recognized since its inception the value of a single national securities and exchange commission which removes the kind of duplication we have in Canada.
Germany, a federation like Canada which is a major competitor of ours, has a single national securities commission. The United Kingdom which is admittedly a unitary state has one commission for overseeing the operation of equity markets.
I join with virtually every major organization in the financial services industry in Canada, including the Toronto Stock Exchange, in calling for all governments, all of the commissions across the country and all stakeholders to discuss how we could render more efficient the operation of these equity markets .
The bill provides an improvement in the legislation which will protect those who make trades through the Canadian Derivatives Clearing Corporation of the Bourse de Montréal. It will give them a certain degree of stability and security which they currently lack.
Mr. Luc Bertrand, president of the Bourse de Montréal, provided testimony to the Standing Committee on Finance. He told us the “CDCC is the clearing house for the bourse. This means that it makes sure the buyer pays the amount he has agreed to pay. The seller receives payment, and both meet their obligations under the derivatives contract that they have traded.
The CDCC is a wholly owned subsidiary of the bourse. It is the guarantor of interest rate equity and indexed derivative contracts traded on the bourse. As such, the CDCC requires each of its members to maintain margin deposits to cover the market risks associated with each member's position. CDCC members must post collateral to mitigate the risk of insolvency”.
As he pointed out, the bourse competes for this service principally with the Chicago Board Options Exchange which is a branch of the Chicago Mercantile Exchange.
Mr. Bertrand pointed out that there is a certain benefit for Canadian companies wishing to trade derivatives to trade through the CBOE as opposed to Canada's own derivatives clearing corporation.
This is a multibillion dollar industry. This is not some small corner of the financial services industry. This is an enormous and growing part of the capital markets, so we ought to be doing everything we possibly can. That is what Bill S-40 seeks to do.
Bill S-40 would essentially give investors who are trading derivatives the confidence that they will not be risking their investment through no fault of their own if the derivatives clearing corporation is shut down because of a call on trades or because of a court bankruptcy order.
The official opposition supports the bill. We have helped to expedite the bill at all stages. I certainly hope all members of the House will be doing so. I commend the Bourse de Montréal and Mr. Bertrand in particular for their excellent work in presenting this idea to the government and to all parliamentarians, and for the excellent work they are doing in modernizing and rendering more efficient Canada's capital markets.