Managing Conflicts of Interest at the TSX - FAIR Canada Releases Expert Report
July 2010 |
Background
FAIR Canada has released an expert report with options for improving the management of conflicts of interest at the Toronto Stock Exchange (the TSX), in connection with the TSX's regulation of listed companies. FAIR Canada has expressed concerns since its establishment about the inherent conflict at the TSX between the TSX's listings business and listing regulation functions, and has pushed for regulators to address this conflict of interest in a way that is consistent with international standards. Expert Report- Managing Conflicts of Interest in TSX Listed Company Regulation
"The purpose of the Report is not to make specific recommendations, but to stimulate debate with a view to encouraging the TSX and its supervising regulators to address the issue in a timely and constructive way," said Ermanno Pascutto, Executive Director at FAIR Canada. "We wish to thank the TSX for its cooperation in providing information for purposes of this Report. We also wish to thank John Carson, author of the Report, whose extensive knowledge and expertise were crucial to this initiative."
"This Report outlines how these types of conflicts have been addressed in several important developed markets, including the US (both NYSE and NASDAQ), the UK, Scandinavia, Australia, Japan and Hong Kong. Like the TSX, the exchanges reviewed are all self-listed, commercial enterprises with strong listing businesses."
Main Conclusions
The Report finds that the seven major exchanges reviewed for the Report have addressed the conflicts of interest that arise between their business and regulatory responsibilities by implementing specific and sound conflict management mechanisms. The TSX is the only exchange among this group that has not implemented specific measures to manage its conflicts of interest in regulating listed companies. The TSX carries out listings regulation as part of a unified Listings Department that is responsible for both listings regulation and the listings business.
Implications for Alpha Entering into Listings Business
The Report is particularly timely since Canadian securities regulators are currently considering Alpha's application for exchange recognition so that it can list companies in competition with the TSX. The same conflicts of interest between the commercial and regulatory responsibilities of an exchange arise in the context of Alpha's application for exchange recognition and its proposed business model (with both a listing business and listings regulation function). In fact, the potential for the lowering of listing standards is even greater, given the potential competition between Alpha and the TSX for listings.
