international securities regulation sandy jakab kwantlen polytechnic university – poli-2150...
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International securities regulation
Sandy JakabKwantlen Polytechnic University – Poli-2150States, Markets, Globalization: An Introduction to International Political EconomyNovember 18, 2008
The BC Securities Commission Government agency—funded by industry,
not tax dollars We do three things
1. Set the rules for securities trading
2. Ensure compliance & take enforcement action when necessary
3. Educate investors and industry
Enforcement
Cooperation with other regulators (national, international)
Cooperation with police … limits Different purposes and results
Regulatory—to protect from future harm Criminal—to punish for past misconduct
The BCSC cannot …
Put criminals in jail Approve investments Insure investments Give investment or legal advice Undo a transaction
The BCSC can …
Ban from trading Impose monetary penalties Disgorgement Disciplined persons list Red Alerts
What we’ll cover today
Content of securities regulation
Regulatory structures
International organizations and relationships
International cooperation in action
Content of securities regulation Protect investors and market integrity
We do that through
1. Disclosure
2. Adviser and fund manager registration
3. Structural oversight
4. General market conduct prohibitions
Dealers and portfolio managers
Proficiency
Financial viability
Character and ongoing business conduct
Structural oversight
Exchanges Alternative trading systems Clearing houses Self regulatory organizations Investor protection funds
General market conduct prohibitions
Manipulative and deceptive trading Trading or tipping on inside information Front running Misrepresentation Trading without registration Distributing without a prospectus
Securities regulatory tools
Rules and guidance Industry education Compliance examinations Compliance action Enforcement action Investor education
Regulatory structures - Canada Provincial and territorial responsibility Federal, too? Direct government regulation (e.g. NWT) Independent securities regulatory agencies
(e.g. BC) Financial services regulatory agencies (e.g.
SK)
Regulatory structures – Canada (cont’d)
Self regulatory organizations – IIROC, MFDA
Exchanges – TMX, TSX-V, CNQ
Trade associations - IIAC
Regulatory structures – the U.S.A.
Federal regulators – SEC & CFTC
State regulators
Self regulatory organizations - FINRA
Regulatory structures – the U.K.
Financial Services Agency (FSA)
Exchanges – e.g. LSE, LSE-AIM
E.U. Directives – UK signatory
International organizations
IOSCO – International Organization of Securities Commissions
CESR – The Committee of European Securities Regulators
NASAA – North American Securities Administrators Association
Tools for international regulation MOUs (Memoranda of Understanding)
Information sharing rights & responsibilities
Process for conducting investigations
Evidence gathering rights & responsibilities
International regulation in action Enforcement - Rocky Mountain Gold case
Market policy - Temporary short-selling prohibitions
Intermediary policy – Mutual recognition projects (Australia and USA)
Rocky Mountain Gold case
Rocky Mountain Gold – shell – Delaware
RMG Mining Inc – BC
Sole officer & director for both in BC
Rocky Mountain Gold case (cont’d)
Delaware co sells shares to intermediary in Panama
Panama co uses boiler rooms in Spain UK investors think they are buying shares in
a British Columbia mining company Victims share purhase $ to Ontario bank
Chain of events
BCSC and OSC get anonymous tip from bank about unusual account activity
BCSC visits RMG office – say they are not raising capital but $2.4 million in account!
OSC starts work to freeze accounts – order & accounts frozen two days later
After that, no additional $ to accounts from investors
Chain of events (cont’d)
Banking records showed European origins – eventually able to track 168 UK investors
Enlisted help of UK’s FSA – wrote to 168 investors & got 125 responses within 3 weeks
All purchased from 6 or 7 “dealers” – Spanish boiler room
Rocky Mountain Gold lessons
Bring all international regulators together early – invaluable
Sort out differences between legal systems early
Use practical tools early Think outside the box – here, cost of receiver
to return $ prohibitive so OSC, BCSC, FSA did it themselves, with court oversight
Short selling
Short selling = placing order to sell securities you have borrowed
Short sell when believe price will decrease
Improves price discovery & liquidity
Temporary short selling prohibitions Tied to vulnerability of financial institutions Regulators feared excessive short selling
could cause unnecessary volatility in price SEC ordered no short selling in publicly
traded financial institutions Canadian regulators acted immediately to
ensure issuers listed both in US and Canada were treated the same
Temporary short selling prohibitions Timing tied to first availability of bail-out
money to US financial institutions SEC tied its actions to those of European and
Australian regulators Order amended twice before expired Twice, Canadian regulators followed
immediately Prevented “regulatory arbitrage”
Mutual recognition projects
Established project = EU = operational
New projects = SEC initiated
SEC and ASIC have signed a MOU framework – not operational
Regulatory change is in the air Market stability regulator (s)
Clearing facilities for credit default swaps
Convergence (CFTC with SEC?)
Dawn of new age of international regulation