Derivatives flagged as Canadian regulatory issue
By Lynne Olver
TORONTO (Reuters) - A large institutional investor and Canada's central bank suggest that Canadian securities rules may need to be broadened to deal with derivative instruments.
In submissions to an advisory panel on securities regulation, the Ontario Teachers' Pension Plan, which manages more than C$100 billion in assets, and the Bank of Canada each lauded the new Derivatives Act in the province of Quebec, which was passed in June.
Quebec's legislation "is a constructive step in strengthening the regulatory framework" for exchange-traded and over-the-counter derivatives, the central bank said.
Derivatives can include futures, swaps and options contracts, which are based on the value of other securities, and more complex financial transactions. Quebec is home to the Montreal Exchange, Canada's only derivatives exchange.
Derivatives markets are regulated separately from cash equities and bond markets, but "the interrelationships between these markets should be considered in the regulatory framework," the Bank of Canada said in its submission to the advisory panel.
Canadian securities markets are regulated by 13 provincial and territorial authorities, and the panel, led by former Conservative politician Tom Hockin, is supposed to develop a model Common Securities Act for federal and provincial finance ministers by the end of 2008.
Ontario Teachers' Pension Plan told the panel that the range of investment products trading in capital markets now goes well beyond the previous concept of "securities," and many areas are not covered by current laws.
"For example, the derivatives market is to a large degree unaddressed by securities legislation in Canada," Ontario Teachers' said. Continued...