Tom Atkinson, President and CEO of Market Regulation Services Inc. (RS), the independent national regulation services provider for Canadian equity markets, including the TSX and TSX Venture Exchanges, and chair of the task force's steering committee, said investor protection and the fairness, efficiency and integrity of the capital markets - "certainly among the safest markets in the world" - could be seriously undermined if the public perception of illegal insider trading continues to grow.
"We need to determine if there are systemic deficiencies," Atkinson said. "If the public believes that insiders can take advantage of material information - without fear of repercussion - then public confidence in the fairness and integrity of our markets is eroded."
The initiative has brought together senior regulators from the Canadian Securities Administrators (CSA) and self-regulatory organizations (SROs) from across the country in a cooperative effort to examine illegal insider trading. Illegal insider trading involves the buying or selling of a security while in possession of undisclosed material information about the security, and includes related violations such as "tipping" information and securities trading by the person "tipped".
"We're not sure if the problem is actually as large as the public perception ? so one of our key tasks will be to determine just how widespread illegal insider trading is, and then how best to address it," said Douglas Hyndman, CSA Chair. "Perception or reality ? we need to find out which one it is. Unfortunately, in this case, perception may be seen as reality. Perceptions can move markets."
Atkinson said the task force will concentrate its efforts on leaked information in advance of major announcements - including mergers, acquisitions and earnings statements - normally detected through real-time surveillance; "off-shore" accounts in foreign jurisdictions whose laws attract business by helping the account holders disguise their financial transactions; and the improper use of nominee accounts to obscure the link between the insider and the trader. A high proportion of possible insider trading investigations are frustrated because of the inability to establish whether an insider is the beneficial owner of the trading account.
Members of the task force, which has a longer-term mandate to formulate a comprehensive package of reforms to reduce illegal insider trading, will reconvene in mid-November after project teams have scoped out work plans and timetables. Their work is expected to include in-depth research, analysis, benchmarking best practices and policies, conducting focus groups and establishing relevant metrics.
Members of the task force steering committee also include: Paul Bourque, Senior Vice-President, Member Regulation, Investment Dealers Association of Canada; Jean Lorrain, Director, Enforcement, CVMQ; David Linder, Executive Director, Alberta Securities Commission; Mike Watson, Director, Enforcement, Ontario Securities Commission; Steve Wilson, Executive Director, B.C. Securities Commission; and Charles Caty, Vice-Chair, Market Regulation Services Inc. (RS).
