TORONTO - Ontario is moving to police the lucrative derivatives market that played a role in the global financial crisis and oversee credit rating agencies and alternative trading systems.
As part of their fall economic statement, the governing Liberals introduced a bill Thursday that would allow the Ontario Securities Commission to develop and implement a "robust" regulatory framework for over-the-counter derivatives.
It would allow the provincial securities regulator to create new rules for derivatives and include them within the scope of existing insider-trading offences.
It would also allow the provincial securities regulator to oversee credit rating agencies and strengthen oversight of alternative trading systems or ATS -- securities marketplaces that perform some of the functions of a stock exchange.
Alternative trading systems -- such as the Alpha trading system for large-volume issues -- have become major competitors to traditional stock markets like the TSX.
Alpha Group, a trading system launched by a group that includes the brokerage arms of Canada's six biggest banks, has maintained lower trading fees in its attempt to grab market share.
The government argues the changes will help Canada deliver on its commitments to financial reform, but it had to move quickly to protect consumers and investors in the absence of a national securities regulator.
Anyone who says regulation will choke the market is wrong, said Finance Minister Dwight Duncan.
"I say we have to move under the current system to make sure consumers are protected," he said.
"Has everybody forgotten what happened two years ago?"
Derivatives are financial instruments in which the value is limited to the price of something else, such as interest rates or shares. Some are traded on open markets like the Montreal Exchange, but many deals are made behind closed doors.
Europe and the United States are making similar efforts to shed light on the murky world of derivatives in the wake of the global banking crisis.
Some have raised concerns that Ontario is pre-empting similar efforts by the Bank of Canada, but Duncan insists Ontario is not jumping the gun.
"We're not duplicating," he said.
Toronto is home to the vast majority of Canada's capital markets and should be the home of a national regulator, Duncan added.
"It looks like people in other parts of the country are suing the federal and provincial governments not to move ahead with a common securities regulator," he said.
"So we just think in the interest of consumer protection and in the interest of a stronger economy, it is prudent to pass this."
