Securities Law

24-303 - CSA SRO Oversight Project Review of Oversight of Self-Regulatory Organizations and Market Infrastructure Entities [CSA Notice]

Published Date: 2006-12-08
Effective Date: 2006-12-08
Document(s):

Table of Contents

EXECUTIVE SUMMARY 4

A. RELIANCE ON SELF-REGULATORY ORGANIZATIONS (SROS) AND MARKET INFRASTRUCTURE ENTITIES AND THE CSA SRO OVERSIGHT PROJECT 4
B. HOW DO WE DETERMINE AN APPROPRIATE LEVEL OF RELIANCE? 5

Public Interest Criteria 5
Governance 6
Enforcement Powers 6

C. GAPS, DUPLICATIONS AND INCONSISTENCIES 7

Transparency of Role of SROs and Market Infrastructure Entities and Streamlining 7
SRO Consolidation 7

D. IMPROVING THE CURRENT OVERSIGHT APPROACH 8

Review of rules 8

E. CONCLUSION 9

I. ROLE OF SROS AND MARKET INFRASTRUCTURE ENTITIES IN A CHANGING ENVIRONMENT 10

A. THE PRINCIPLE OF RELIANCE AND THE CSA SRO OVERSIGHT PROJECT 10
B. THE CSA'S OVERSIGHT EXPERIENCE 13
C. CHANGES IN THE SECURITIES INDUSTRY AND THE SCOPE OF THE CSA SRO OVERSIGHT PROJECT 13

II. HOW DO WE DETERMINE AN APPROPRIATE LEVEL OF RELIANCE? 14

A. PUBLIC INTEREST 15

1. Overview 15
2. Definition of Public Interest and How SROs Meet the Public Interest 15

B. GOVERNANCE 17

1. Overview 17
2. Independence 17
3. Nomination and Election Process 20

C. ROLE OF MEMBERS IN THE RULE-MAKING AND POLICY DEVELOPMENT PROCESSES 22
D. SROS' ENFORCEMENT TOOLS 22

1. Overview 22
2. Request for Statutory Enforcement Powers 23
3. Current Status 23
4. Evaluation of Request 24
5. Checks and Balances to Ensure Procedural Fairness and Protections 27
6. Application of Powers 27

III. GAPS, DUPLICATIONS AND INCONSISTENCIES AMONG SROS 27

A. COORDINATION AMONG SROS AND MARKET INFRASTRUCTURE ENTITIES 28

1. Multiple SROs 28
2. Regulatory gaps 28
3. Public transparency regarding role of SROs and market infrastructure entities 29
4. U.S. Developments 29

B. CIPF'S OVERSIGHT ROLE OVER THE IDA 30

1. Duplication between CIPF and IDA 30
2. Proposed industry solution 31

C. SRO CONSOLIDATION 31

IV. EFFECTIVE CSA OVERSIGHT 33

A. IMPROVING THE CURRENT OVERSIGHT APPROACH 33

1.  Current oversight approach 33
2. Oversight review coordination 34
3. Rule review and approval 34
4. Issues and options for improvement of oversight processes 34

B. OVERSIGHT REVIEWS 36

1.  Nature of Oversight Reviews 36
2. Process for Conducting Oversight Reviews 38

C. REVIEW OF RULE PROPOSALS 39

1. Timeliness and the level of review of rule proposals 39
2. U.S. Approach 40
3. Self-certification by Canadian SROs and market infrastructure entities 42

D. INCONSISTENT APPROACHES TO REGULATION AND POLICY INTERPRETATION 43
E. LACK OF CLEAR CRITERIA FOR DIVISION OF RESPONSIBILITIES 44
F. TRANSPARENCY OF OVERSIGHT ACTIVITIES 44

V. IMPLEMENTATION 46
VI. CONCLUSION 47

APPENDIX A 48

CFTC'S AND SEC'S STUDIES ON SELF-REGULATION 48
(A) CFTC's SRO Study 48
(B) SEC's SRO Study 48

APPENDIX B 50

REPORTS OF THE FIVE YEAR REVIEW COMMITTEE AND THE STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS OF ONTARIO 50
(A) Five Year Review Committee 50
(B) Standing Committee on Finance and Economic Affairs (SCFEA) 51