Analysis of the TMX/LSE marriage of convenience has thus far focused on its potential impact on companies, Canadian securities sovereignty and the flight to Swinging London of Canadian market talent and resources.
Not much deep thinking, however, has been applied to the merger’s pros and cons for investors.
March being fraud prevention month as federal Minister of National Revenue Keith Ashfield has kindly reminded the masses, it’s a good time to share a thought or two about investor protection in Canada.
It’s far from best of show, and a royal wedding of the country’s flagship exchange with its larger Brit suitor is unlikely to improve it.
As a quick review, the merger of the TMX Group, operator of the Toronto and Toronto venture exchanges, and the London Stock Exchange Group would have more than 6,000 listings. A lot of those would be resource companies, which is big-bread-and-butterman stuff out this way.
For the exchanges, which make most of their money from listings fees, a merger would reduce operating costs and increase economies of scale. The market marriage, they add, would swing wide the Euro investment door for Canadian companies and conversely provide Canadian investors with a more exotic menu of investment opportunities. And therein lies the potential for the cons mentioned above. Even with the more familiar options on offer from Canadian exchanges, investors need to be on high hoodwink alert.
A new report from FAIR Canada (the Foundation for the Advancement of Investor Rights) provides an inventory of notable financial chicanery.
A Decade of Financial Scandals’ findings include:
- approximately 78% of the losses in the cases documented involved companies or individuals registered with securities regulators; and
- approximately 61% of the losses from the scams were with companies governed directly by a securities regulator.
As pointed out in a previous Public Offerings (issue 1108; January 18-24), Canada’s decision to switch to International Financial Reporting Standards from Generally Accepted Accounting Principles as the rules governing audited financial statements will make it easier than ever for unethical operators to dupe investors. And while the country has committed to establishing a national securities regulator, the likelihood of its being a reality any time soon is distant.
B.C. recently announced that while it still likes the idea of a national securities regulator, it doesn’t like the federal government’s version of it. Alberta’s court of appeal has also rejected the national regulator plan.
Aside from a national regulator, Canada needs an independent national securities enforcement organization with the muscle to effectively prosecute stock market frauds. So fixing what we already have should be a higher priority than merging it with what’s on offer from another country. As Toronto-based forensic accountant and Swindlers author Al Rosen pointed out, protection for shareholders in the new merger would be “zero. Because we have stock exchanges now not even able to stay on top of some of the worst scumbags in Canada. And you’re going to have 3,000-plus companies that [Canadians] have never heard of being touted by [brokers]. Nobody is going to be monitoring that in Canada.”
That sounds like an unhappy marriage party ahead for a lot of unsuspecting Canadian investors on the wedding’s guest list.