Inefficiency and Path Dependency in Canada's Securities Regulatory System: Towards a Reform Agenda

We analyze the claim that Canadian capital markets are inefficient and examine reform proposals in light of this claim. We argue on the basis of empirical evidence that the Canadian securities regime is burdened by four types of cost inefficiencies: lack of harmonization, duplication, opportunity cost risk and uncertainty. We then argue that another type of efficiency - dynamic efficiency - is important in analyses of capital market regulation. We seek an explanation for inefficiencies in the current regime. We argue that the securities regulatory system has resulted from a path dependent legal trajectory that is heavily influenced by federal-provincial tensions over securities regulation as well as the institutions responsible for dispensing regulation. Any reform proposal must either intervene in the development of this path dependent trajectory or be conceived on the basis of existing institutions. A single regulatory model is an example of such an intervention but may be less practicable than a "passport" or "principal regulator" system that allows existing provincial regulatory institutions to remain in place