How regulators protect investors

Regulators protect investors by making and enforcing rules for the securities industry in Canada.

2 main bodies protecting investors

1. Provincial and territorial securities regulators

In Canada, provincial and territorial securities regulators, such as the Ontario Securities Commission (OSC), administer and enforce rules around how securities are issued, bought and sold and set minimum entry standards for market intermediaries who deal with investors. Securities regulators also regulate marketplaces and clearing agencies, oversee the Investment Industry Regulatory Organization of Canada (IIROC)Investment Industry Regulatory Organization of Canada (IIROC) National self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.+ read full definition and the Mutual FundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition Dealers Association of Canada (MFDA), approve individuals and firms for registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition based on proficiency and educational requirements and discipline firms and individuals. Securities regulators work together through the Canadian Securities Administrators (CSA).

2. Self-regulatory organizations (SROs)

In Canada, SROs regulate their members’ standards of practice and business conduct in order to promote investor protection. Canada has two main SROs:

  1. IIROC sets and enforces rules for investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition dealers and for equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition marketplaces like the Toronto Stock Exchange and TSX Venture Exchange. It also monitors trading on those marketplaces, approves training courses and disciplines member firms and individuals.
  2. The MFDA sets and enforces rules for mutual fund dealers and disciplines member firms and individuals.

In Quebec, the Montréal Exchange is also considered an SRO. MX is the only financial derivatives exchange in Canada, and currently lists equity optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition, options on ETFs, currency options, indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition derivatives, and interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition derivatives.

Role of securities regulators

Securities regulators in Canada oversee advisers, dealers, investment fund managers, reporting issuers and securities markets. The OSCOSC See Ontario Securities Commission.+ read full definition, the securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition in Ontario, is an independent Crown corporation that:

  • provides protection to investors from unfair, improper or fraudulent practices and fosters fair and efficient capital marketsCapital markets Where people buy and sell investments.+ read full definition and confidence in capital markets.
  • uses its rule-making and enforcement powers to help safeguard investors, deter misconduct and regulate participants in Ontario’s capital markets.
  • regulates firms and individuals who sell securities and provide advice in Ontario, as well as public companies, investment funds and marketplaces, such as the Toronto Stock ExchangeStock exchange A market in which securities are bought and sold.+ read full definition.
  • gets its power from the Securities Act (Ontario) the CommodityCommodity A raw material that trades in large amounts on a stock exchange. For example, grain, gold, and oil.+ read full definition FuturesFutures A derivative contract that commits you to buy or sell a commodity, currency or stock market index at a set price on a set date in the future. Unlike an option, you can’t change your mind later; you must do what your contract says you will do.+ read full definition Act (Ontario) and certain provisions of the Business Corporations Act (Ontario).
  • is funded by fees paid by public companies and intermediaries.

Fast fact

61% of companies listed on the Toronto Stock Exchange (TSX)Toronto Stock Exchange (TSX) Canada’s largest stock exchange, North America’s third largest stock exchange, and the sixth largest in the world.+ read full definition are based in Ontario. These 912 companies also represent 47% of the total TSX market capitalization of $2.58 trillion. Source: TMX Market Intelligence Group Report, July 2016.

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