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

Contact us at ….

www.bcsc.bc.ca

www.investright.org

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

Disclosure

Prospectus

Timely and regular disclosure

Abbreviated disclosure

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

What part do they play?

Consultants to G20 nations

Possibly stronger oversight of members

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

Questions?

Sandy Jakab

(604) 899-6869

sjakab@bcsc.bc.ca