Canada Gets FinReg Process Right: U.S. Trader

Terry Flanagan

Collaboration between market participants and regulators is less toxic and more productive in Canada than it is in the U.S., one prominent trading executive says.

As financial regulators around the world move forward with new rules for markets, regimes are being implemented differently across borders. In the eyes of at least one prominent U.S. trading executive, Canada is moving forward in a positive and constructive manner.

“Perhaps we can borrow a page from our friends from the North in Canada, where the dynamic between the participants in the industry and the regulators is more professional and collaborative, and less antagonistic,” said Bernie Dan, president of Chicago-based Sun Trading LLC.

Dan, who spoke at Markets Media’s Chicago Trading and Investing Summit on Oct. 6, said that high-frequency trading has been demonized by some media reports and politicians, which has prompted reactions on the part of U.S. regulators.

“Regulators, policy makers and elected officials have a duty to educate themselves,” Dan said. “Off-the-cuff remarks from influential people undermine confidence in the markets and engender confusion.”

“We simply must have greater open dialogue between regulators and industry,” Dan continued. “All too often regulators react to the politicians and their atmospherics rather than turning to knowledgeable industry participants for guidance.”

Face-to-face interaction between Canadian market participants and regulators can be more civil than in the U.S., but the Canadian regulatory system has its downside, said Renee Colyer of consultancy Forefactor. Namely, the Canadian system suffers from weak enforcement measures — in other words, the system lacks teeth — compared with the U.S.

“In Canada, the regulators almost always have advisory panels, which include the brokers and other industry professionals, for any new legislation,” Colyer told Markets Media. “It takes a long time to sort everything out and then get the regulations written.”

The Canadian Securities Administrators has said that crafting rules to address high-frequency trading and other comparatively newer market phenomena is important to manage systemic risk and also ensure fairness for market participants. The CSA has set forth a framework for how regulation should work, though specific rules have yet to be finalized and implemented.

“Our Senate (Parliament) is not usually involved in regulatory issues though there is a provision that it may insert itself should it deem necessary,” Colyer said. “In Canada, Rules (laws) that need to be changed, added or eliminated are approved or rejected by the Minister of Finance.  There is a 60-day approval or rejection timeline and if after 75 days there has been no response, the regulator is free to implement the Rule that was submitted.”

“It seems to me that our regulators have more latitude with the institution of rules than perhaps the U.S. does.  Here, the regulators are viewed as the experts with respect to the markets and are treated as such,” Colyer continued. “This may serve to circumvent some of the politicking and posturing by politicians often complained about by the public.”

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