Assessing Internal and External Threats to Canada's Capital Markets

Grant Vingoe:
There were calls at different points in time for us to pause our crypto approach, have a comprehensive consultation, try and have some ideal state. That's never been possible.
Peter Haynes:
Welcome to episode 75 of Bid Out, a Market Structure podcast from North of 49. I'm your host, Peter Haynes. And today we peek back in on another fireside chat at the recent 26th annual Portfolio Management and Market Structure Conference held earlier in November. In today's podcast, we hear from Grant Vingoe, CEO of the Ontario Securities Commission, who provides us with his perspective on the role of a regulator in Canada's fight for global capital and listings, steps the CSA has taken to help Canada's capital markets, the Commission's approach to market structure regulation, and whether Canada can stray from the pack in terms of rulemaking. And finally, its oversight of digital assets, prediction markets and tokenization. Episode 75 is coming up right now.
So Grant Vingoe joins us today. He's the CEO of the Ontario Securities Commission. We're going to talk about market regulation and evolution. In my personal opinion, and we've heard it here this morning on some of the panels, I don't think we've ever been at a state of so much flux, at least in my career. Maybe you feel the same way. So let me start with an overarching question which we hear a lot. Canada and the US are closely linked. In fact, most of the largest stocks in Canada, as you heard earlier, are also traded and reporting issuers in the US, so-called interlisted securities. As the current SEC administration takes on a more libertarian approach, which you heard from Brett earlier today, this is going to attract more companies to the pro-business environment in the US. What do you as a Canadian regulator do in this market dynamic where participants are giving you an ultimatum, either you do what they're doing or we're leaving? Do you participate in a race to what some might perceive to be zero or the lowest common denominator?
Grant Vingoe:
It truly is a challenge given the interconnection of the market. And when you look at the SEC, obviously there's been this incredible and dramatic shift in perspective from Gary Gensler's regime to the Atkins regime. And there's that volatility in the US system. It's not particularly stable in ideological viewpoints that are entering into discussions of securities regulation. So a future administration, a future SEC chair might take a completely different view. So I actually worry about how dramatic the shifts are in regulation.
Peter Haynes:
Following the very dramatic differences between the two political parties in the United States which seem to be getting more extreme.
Grant Vingoe:
Yeah. Which really falls under the concept that elections have consequences. And to some degree, securities regulation, we'd all be better if changes were more incremental and there was stability. People don't like uncertainty. I look at our rule book and look at changes at the SEC, there are different categories. For large cap issuers, I think to a very large degree we're going to have to conform to disclosure standards that are similar, there could be differences, but similar to the US. We don't want unnecessary friction, so we're not going to debate over small points. If there's a reduction in burden in the United States in an area of disclosure and it doesn't go to the heart of investor protection, the whole system is better off if the rules are largely conformed. Now, we have to go through a process to get there, but unnecessary frictions that disadvantage the ability to obtain listings and have corporate financing transactions and grow capital markets in Canada should be avoided.
But on the other hand, Canada is a country that's characterized by the very important role of venture issuers and smaller issuers in the capital markets ecosystem. And the US system fundamentally hasn't really been designed for that market segment. So in that area, we can make potentially more dramatic changes and differentiate that marketplace and try and promote the small company capital formation ecosystem. It's been really hard. So many of those stocks are illiquid. It's been a challenging space for many, many years. There are thousands of companies, these micro cap issuers. But if the potential for those issuers could be unleashed, it could really have a strong differentiating factor with the US. So that's a different category. And then for obviously the US has gone in or is attempting to go all in to a greater extent in the crypto asset area, which I think everyone, based on this morning's discussion, understand it has many different categories and crypto is not one thing. In that particular space, we should have more flexibility for investor protection and stability to potentially avoid excesses that we see in other markets.
Peter Haynes:
I know that as a regulator, you read the newspaper and one of the most talked about issues in our country right now is the relevance of our market. US is clearly in the driver's seat for attracting global IPOs. Even though they worry about it, they don't I think appreciate how much they're winning. I say that all the time, the US market is the envy of the world. It seems like there's an endless stream of companies from Canada and elsewhere, as we heard from James, trying to become more US-centric in order to get in more US indices and maximize shareholder value. Last week in what I would describe as I think an unsettling or disturbing news development, CBOE, which was a major player in our market, announced that it was selling its Canadian marketplace after their strategic review determined that Canada and Australia, they're selling both, were non-core and that there were better opportunities for growth at home in the US and in the derivatives space. In your opinion, is there more to read into the implications of this CBOE decision? And are you worried about where Canada fits into the global investing landscape?
Grant Vingoe:
I'm not particularly worried about that individual strategic decision. I think it's been probably under consideration for some time. It's a change in direction. I don't know obviously the particular impetus for the decision. But it's very hard for foreign marketplaces, for example, it's hard for the TSX to make progress in the United States. They unbox, they have other market involvements. It's very hard for exchanges to cross borders and go into a local market and make a big impact in relation to an environment where there's strong incumbents. So I actually don't take it as an incredibly negative sign that there would be a strategic realignment involving both Australia and Canada, perhaps in other markets, where they've moved away from the potential that they were exploring to have 24 hour trading in multiple venues to seeing that there were stronger opportunities in the present environment in the US. The question will be what other types of competition and entrants will come into the Canadian market? Who will buy that asset and show confidence in the Canadian market." And time will tell.
Peter Haynes:
Yeah, look, that auction is going to be very, very interesting. CBOE seemed to approach this in a way that most people wouldn't anticipate, and that is to make an announcement without having an advisor and already have a direction of travel. So it's wide open. Anyone in the room wants to buy CBOE Canada, then I'm sure there's people around here who can help make that transaction happen. Let's talk about strategic reviews. I've heard from a few Canadians across the country that they've had reach outs from provincial regulators that have initiated what they're calling strategic reviews.
Grant Vingoe:
On competitiveness issues primarily.
Peter Haynes:
Competitiveness issues around the Canadian market, or asking about the role of the regulator, expectations for future of markets and market structure. Can you tell us about the outreaches that you've had here in Ontario? What have you heard to date? And I would say why wouldn't this outreach have been done at the CSA level across Canada uniformly rather than done by the provincial regulators? If you can just explain that nuance.
Grant Vingoe:
I think markets tend to be, like our marketplace and our stakeholders are truly national, although we clearly have an Ontario perspective. In other provinces that participate in the CSA, they have very strong local connections, they take the pulse of their marketplace. We take the pulse in Ontario and nationally to a very large degree, and we bring all that back into the CSA discussion. So there's always been an acceptance that we take the pulse of our marketplace and then we consolidate the input back into the CSA, and it's had a substantial influence on the CSA business plan. We did receive a lot of commentary about some very granular issues about reducing burden, streamlining the rule book, streamlining our continuous disclosure requirements. We were also looking for really major ideas to be transformative. And a lot of those ideas end up being a combination of tax reform and securities reform in a way, whether it's flow through shares. The focus is how to promote more investment in Canada and in Canadian equity.
So it's everything from what requirements or influence should be exerted on our largest pension funds and investors to invest more in Canada. How can we encourage that to, how to unleash more retail investing in Canadian infrastructure in Canadian junior companies? Have we gone... And many of my colleagues in the regulatory world are considering this fundamental issue about whether as a regulatory system for retail, we've driven too much of an anti-risk agenda, to try and eliminate risk in the interest of investor protection rather than fully recognizing that portfolios can be suitable and appropriate and have a greater degree of risk capital. That interrelates with our point of view about the junior market. Why are junior stocks not being marketed by the major distribution channels in Canada? Is it because of the regulatory rule book? Is it other factors? And how do we change that?
Peter Haynes:
You could say the same thing, I'm not saying that we just want to get into a full risk on world for retail, but you could say the same thing about derivatives and the fact that historically the large distribution networks in Canada didn't want their advisors promoting the use of derivatives because they felt like it was a time bomb to a lawsuit of some sort.
Grant Vingoe:
Yeah. So there's the legal risk insurance policy, that kind of approach that institutions are taking. But if we're going to build Canada, we need to accept and promote the idea that was more prevalent in the past that retail will help build by taking an appropriate amount of their portfolios and employing it in risk capital in the junior sector to help produce the next champions in Canada. And how do we bring that about? So a lot of the commentary that we've received in that area has suggested a rebalancing of our regulatory approach, proportionate regulation that could be altered between senior and junior companies. And a lot of the commentary is pointed to the tax system and looking at countries like Sweden and others that have quite robust tax programs to encourage more local investing. And there's been a strong theme of asking our largest institutions to step up.
Peter Haynes:
So that's been a theme that's come from the federal government of Canada, whether it's Stephen Poloz reaching out to the pensions. I'm curious, has the commission been part of those discussions with the federal government around ways to improve our markets?
Grant Vingoe:
We're definitely engaged with the federal government and taking kind of a whole-of-government approach. And the Ontario government itself and the Ministry of Finance would be having those discussions as well. As part of this competitiveness outreach, getting the federal point of view and expressing our views to the federal government about what we're hearing, I would say there's more of that dialogue than ever before to try and have a whole-of-government approach.
Peter Haynes:
Well, that's encouraging. We certainly know we have a government or a prime minister now that has familiarity with the business community and particularly Bay Street. So I'm glad to hear those conversations are happening. So Trump's gotten America first push and it's been disruptive to Canada. The rhetoric's been very hard for Canadians to listen to. However, there have been some positives, frankly, that have come out of this US protectionism. In the case of the capital markets, I would argue it's forced us Canadians to realize that we're in competition for capital, that it sees no borders, and that it is cutthroat and it's binary. You win or you lose. How do you as Canada's most important regulator balance your role over overseeing markets and capital formation with helping Canada's capital markets be more competitive? And what steps have you been taking in order to help with those improvements?
Grant Vingoe:
Yeah, it's a really interesting question because the traditional view of a securities regulator is one that's neutral, completely neutral. It doesn't exhibit any home court advantage to Canadian enterprises because we have to be very careful. Canadians have to reach out to the world. We don't want other jurisdictions to take actions that disadvantage Canadian issuers when they're seeking to raise capital elsewhere as well. But is there, the question is there room without imposing undue burden or putting our thumb too heavily on the scale as a whole-of-government approach to encourage more capital formation in Canada? And the Ontario government specifically gave us the mandate to promote capital formation in Ontario. So I think that we should move in that direction while always maintaining the principle that we're acting in accordance with fundamental principles of securities regulation. And I think we have more leeway in our disclosure regime to highlight and encourage Canadian investment.
Who is a Canadian company? The classic case that everyone talks about is Tim Hortons, which is owned by a Brazilian conglomerate. But when you look at capital markets, which companies are Canadian? And do retail investors understand the contributions to R&D investing in Canada by particular companies? Do they understand the relative tax receipts, employment levels? Those are all stats that are contained in IFRS financial statements. And if we want to have a form of impact investing to harness the same sentiment that's existed with buy Canadian, we have to support our local community who might not travel as much to the US, it's probably legitimate, both for our largest investors, the pension funds and for retail investors, ironically relevant to both, to have access to metrics readily available from IFRS financial statements, but potentially highlight it to a greater degree and create a narrative about whether people are investing to support their community. So I'm very interested in exploring that idea, which I don't think is heavy-handed and still respects the neutrality of a securities regulator.
Peter Haynes:
Can you just talk about the blanket orders that were put in place a few months ago around IPOs, which I don't think people fully appreciate, as well as some of the rollbacks on some of the requirements that were pending?
Grant Vingoe:
Yeah. So we very quickly, when the circumstances were changing in geopolitics and our fear was when the IPO market would come back. It's cyclical we're told periodically, and at the moment there's a large backlog of potential IPOs.
Peter Haynes:
That's encouraging.
Grant Vingoe:
It is encouraging.
Peter Haynes:
I don't hear the OSC CEOs say that or haven't heard that for a long time.
Grant Vingoe:
Yeah.
Peter Haynes:
It's partly the mining industry that's helping us right now.
Grant Vingoe:
Well, that's true. That's definitely true. So what we did was we conformed the financial statement requirement to two years for IPOs similar to the US. We created... And we did this through blanket orders. So there was Brad earlier and you were talking about the idea of sandbox programs at the SEC. Well, we do have through the blanket order ability, an instrument that allows us to put things into effect very, very quickly and more quickly than the SEC can do with a pilot. So the financial statement requirement was conformed through the use of blanket orders. We created a pretty novel exemption that enabled a newly public company, because they had gone through a rigorous review process so recently, they could now raise capital basically on a term sheet for a period of over a year after their deal closed to do subsequent rounds of financing. So it was sort of an exemption that recognized an effective regulatory over allotment option essentially.
And then we changed the OM exemption to allow OM limits to be upped again based on redemptions. There's an exemption that's from the prospectus requirements known as the LIFE exemption, the listed issuer financing exemption, that allows companies within pretty generous limits to raise capital without a prospectus based on their continuous disclosure record. And it's been very intensely used in Canada with hundreds of millions of dollars of small cap and medium cap companies utilizing this financing tool. And we increased the limits for that exemption, made it easier to use. I'd say I'd put also, and many might disagree, the pause that we put on moving forward with mandatory climate disclosure requirements as at least a temporary measure that sought not to impose an immediate burden while we think that through into the future. And then finally, the work we're doing on semi-annual reporting, which we were exploring well in advance of the statements in the US, and now we've used the blanket order to make it no longer mandatory for venture stage companies with less than $10 million in revenues to have quarterly reports. And we're committed to a broader consultation to consider its expansion.
So those are some, just some of the steps. And if there are suggestions that people have, bring them forward. There are a number of other areas that we're looking at including testing the waters of rules that are more generous than the United States, and we're looking at that as well. So it's a constant effort to look at the US rule book, look around the world, and try and ensure that offering activity will take place in Canada and that Canadian companies won't bypass the Canadian market and to list exclusively in the US.
Peter Haynes:
When you made the decision to pause the more rigorous climate disclosures and some of the work that you're doing around ESG, you received some feedback from the industry that was pushing for that. The critics of what people refer to as the creep of ESG policies and market regulation will argue that many of the rules that are being proposed and some that you're proposing are implementing are virtue signaling, reflecting political views rather than issues of materiality and that investors should be left to judge for themselves what policies are right and wrong. Can you tell us about the feedback that you've received? And in your role as Canada's chief market regulator, how do you balance the investor protection with what some perceive to be politically or socially motivated rules?
Grant Vingoe:
On climate disclosure, although we were not adopting the ISSB or CSSB rules as mandatory requirements in the short term, to us it's unquestionable that the risks and opportunities arising from climate considerations are central to financial materiality. In my view, the ideology is actually on the other side on the part of those who deny it. It's just so clear that for many issuers... For those or for that maybe limited universe for which it's not financially material, there should be an exemption. But when you see the effects of catastrophic events, or just look how intensely insurers are looking at this issue, even down to the point of geolocating particular sites and considering risks, they are unquestionable financial risks that need to be addressed. So the issue of social policy is one that we always have to be alive to, but I think ideology is on both sides of that question.
We also paused our approach to broader diversity. And the case for diversity in terms of corporate decision-making was always very strong as well. But the approach there was not heavy-handed. It was certainly for women on boards, simply have a disclosure regime that talked about how people are approaching the issue of increasing participation in the boardroom and in executive offices. You could argue it's social policy. I argue it leads to better corporate decision-making and that our largest investors were encouraging us to assemble this information so it would be easier for them to digest in engagement with companies, and it was meaningful to their decision-making processes in many cases. And our definition of materiality includes what is important to investors. And perhaps these issues ebb and flow, the diversity issue will ebb and flow. And we've stepped back somewhat from broader diversity. But I think our approach to women on boards is being well received and was very important in the development of our markets. And I think in areas like that, we really should differentiate our approach from some of the more retrograde activities in other jurisdictions.
Peter Haynes:
And the challenge is that sometimes people are led to that lower standard and then you're put in a position of either matching it or trying to stick to your values and potentially we end up losing. But this is a tricky balance.
Grant Vingoe:
It's a tricky one, but I'd hate to think that because of disclosure of how you're filling vacancies on a board, that that would be a material factor and moving to the US.
Peter Haynes:
Yeah, no, I agree. That seems, again, it's not one thing, it's everything combined. It's the creep. Okay. So I want to carry on on the theme of the role of regulators in capital markets. In early October, SEC Chair Paul Atkins laid out his vision to, quote, "Make IPOs great again." And he has three main targets of focus for the commission. And I want to compare what he wants to push for in his term with the rules that exist in Canada or the thoughts that you have. So the three things, and I'm going to go one at a time here and I'm going to ask you to answer each one. So we'll start with issue number one. He wants to reduce the costly and frivolous litigation by endorsing arbitration, the use of arbitration over class actions, which we read about all the time in the US. So why don't we first of all have class action lawsuits in Canada? We don't hear about that very often. And what rules would reduce this burden for Canadian public companies and what does it mean to be focusing on arbitration versus class actions?
Grant Vingoe:
Yeah, we do have class actions and they are an important part of investor redress in Canada, but they're not as prevalent or as expensive as they are in the US. The US has a long tradition of so-called strike suits of questionable potential merit, but the risks are high, and there's a tradition of settling them after the stage of a motion to dismiss. They've taken measures in the US in recent years to try and deter that through the certification of class actions, but they're still extremely prevalent. And it's always been, like if a Canadian company is considering a listing in the US, it's always been a really material consideration that the litigation environment is very, very different and they have to harden themselves to withstand the US litigation environment. It's also fueled in the US or I suppose deterred in Canada by our cost rule. So in litigation, if someone doesn't prevail, they can be responsible for at least a portion of the costs of the prevailing party. In the US, it's a free for all, and US lawyers will be motivated to take 30% of the resulting damages and they won't be liable for the costs. Their principal or in some cases the law firm, they won't be responsible for the costs of the prevailing party. So the litigation dynamic is different too.
So I think we already have a Canadian advantage and we also have features in our securities law that have caps on secondary market liability as well. So getting to arbitration, I don't think the Canadian market needs it as an alternative to class actions, and it's probably unnecessary. And the ability of the SEC to really encourage that approach will depend on state securities laws, state corporate laws, and it won't be an easy road for them with all the industry behind all of the strength of the litigation bar and others.
Peter Haynes:
The ambulance chasers.
Grant Vingoe:
Yeah. So I think it's going to be a tough road, but I don't think it has that much relevance given where we are on class actions.
Peter Haynes:
Okay. Next issue, simplified disclosure requirements to reduce the burdens on public companies. So I'm going to start with on the case of simplifying disclosure. In a recent study prepared by University of Calgary professor, Daniel Wilson, the number one negative factor of being a public company mattering most to company executives was pressure to meet quarterly targets. So we know Chair Atkins has announced that he wants to follow President Trump's messaging in pushing for semiannual versus quarterly reporting for issuers. Are you going to support that initiative? You mentioned it on the small caps, but will you support it across the entire spectrum of issuers if the US moves to mandate that rule?
Grant Vingoe:
Well, I think if the US mandates a rule, that might fall into the... And I'm not prejudging it because we actually have even the rule for semiannual reporting for the sub 10 million companies out for comment. So I'll be very interested in reading the comment letters, and I'll also be very interested in seeing what the take-up is for those companies. But then one of my earlier points was we should avoid unnecessary frictions between Canada and the US. And if the US went to a uniform standard on semiannual reporting and really encouraged issuers to go down that path, the question, I pose it as a question, would that fall into the category where we... Perhaps there's been some discussion of do no harm and whether that's a relevant consideration. In this particular context, it would be doing no harm if we conform to the US. Is that the right approach to Canada? The comment process will help inform that, but the US moving in that direction would be a relevant consideration for sure.
Peter Haynes:
I've spent quite a bit of time on this topic. I've written about it and I'm going to do a podcast on it sometime shortly. My feedback so far has been from the institutional community generally negative. I'm surprised by that. I thought that they would be in favor of it. But I think it's almost, I use the example of it's a bowl of candy. It's like take the candy away from the kids, they cry.
Grant Vingoe:
It's hard to take something away.
Peter Haynes:
You're taking information away from what they're used to. So again, I think that institutions should be thinking about this one as something that could help differentiate their ability to be managers, reduce the burden on management teams to be constantly managing for the quarter.
Grant Vingoe:
Other jurisdictions that have done it, the take-up has been really low.
Peter Haynes:
And that's why I think I would say my advice to the SEC is it needs to be a rule and not voluntary. That's the case in Europe, it's voluntary since MiFID II. And the companies don't take it up because they're following, the shareholders are saying, "No, no, the US is still quarterly and you're comparable to a US company, so we need to see your quarterly comps." So that's frustrating. Next on that topic, the same list, ranked 24th on that list was short selling. Yet short selling, and it's driving me crazy, but short selling is always an issue with the regulators. Is illegal short selling still a problem in Canada?
Grant Vingoe:
There's perception and reality, and it depends how you define a problem. There's no problem in the way the Canadian marketplace operates in where we have a very high level of fails. So that would be one way of defining the problem. If there were a lot of fails occurring because of naked short selling, we would need to deter that activity. But the CNS system works so effectively in Canada that the system is covering the fails for the most part. There are some pockets with junior companies where the fails are more prominent. But then the related issue, which is more of a conduct issue in my mind, is is it appropriate to have brokers competing for hedge fund and other business where they're not holding their clients to account for delivering the stock even if the system covers it for them?
So my view is that that shouldn't be a competitive element where some brokers would say, well, yeah, you have to come up with the stock, others are going to cover it. To me, it's a conduct issue that should be addressed by, in all likelihood, policies and procedures approach that requires at the broker customer level to truly make sure that they come up with the stock and aren't just riding the system. And if we were able to effectively implement that type of process and we didn't force it with appropriate examinations, we could avoid a more onerous type of systemic approach with mandatory closeout and the rest. So I do think it's an issue. The perception is never going to go away. It's a particularly acute issue for junior companies. And again, if we want that part of the ecosystem to thrive, we have to make sure their stock can't be roiled by naked short selling activity, but it should be dealt with at the conduct level.
Peter Haynes:
A third issue that is on Atkins' agenda is to depoliticize the weaponization of corporate governance. And we've already covered that with some of the issues around social programs. So I want to turn in the time we have left here to crypto regulation, a space that Canada was probably on the forefront of. US regulators seem to be using a bit of a fear in policymaking around crypto and securities trading that's going to take place outside of the traditional finance pillar, suggesting that without a flexible regulatory apparatus, the US is going to run the risk of losing the innovation game. So once again, this puts you, Canada in an awkward position. We either follow the US lead in order to maintain common capital markets integration, or we go a different route, we get the risk of being left behind. How do you balance investor protection concerns related to crypto oversight in general with calls from the innovators to loosen regulations to perhaps a lower common denominator?
Grant Vingoe:
Yeah. And I do accept that crypto assets and the related technology does pose differences that don't always fit properly into the securities regulatory framework. So the approach that we've taken... There were calls at different points in time for us to pause our crypto approach, have a comprehensive consultation, try and have some ideal state. That's never been possible because the crypto industry and the innovators are moving so quickly. So our approach has been kind of catch and release. But the catch and release is apply principles of securities regulation and then impose terms and conditions on particular applicants after a dialogue that are adapted to their business model, do it cautiously. And then again, it's sort of like a pilot or a sandbox approach. Those terms and conditions are flexible. They can be adjusted over time. Whether we always get it right and are loosening the requirements quickly enough is a valid question. But the other issue for us is there's one market participant in this space that tells me they have 16 applications pending with the OSC. So are all those applications of equal merit? Do they all constitute good ideas, and should we consider them on a first in and first out basis?
Peter Haynes:
They're essentially clogging the pipeline.
Grant Vingoe:
Clogging the pipeline. So how do we address that as a regulator? And so it's leading us to a more triage based approach. Let some things go if we feel that there's the right balance, be more rigorous on others, and try and modulate a terms and conditions approach using securities regulation. I think that's going to be a better approach than some grand scheme to rebalance our crypto regulatory approach. Stable coins might be a separate, in my mind, that's a separate issue where the federal government's going in based on the budget and the direction of regulating stable coin issuance as a payment mechanism with the Bank of Canada's involvement. But the use of it in trading by crypto asset trading platforms and as a medium of exchange and clearance and settlement is clearly within the realm of securities regulation. So again, I don't think there should be hard and fast lines, but we should learn from experience and impose pretty tailored requirements.
Peter Haynes:
So if I was a crypto platform registered in Canada, or in Ontario I should say, and I wanted to trade a token on TD Bank shares, could I do that today? And if not, how would I go about doing that?
Grant Vingoe:
That would constitute a security, and in their due diligence process, they couldn't trade that instrument without seeking an exemption or approval from the OSC.
Peter Haynes:
So is that the type of exemption that you would consider giving in light of the direction of travel in the United States, sort of the so-called sandbox approach that they're having?
Grant Vingoe:
I think that in that particular case, we'd have to figure out how we could contain that trading so that, and how if we found that the experiment, it didn't pan out and it caused undue fragmentation, there was confusion, that it was affecting the clearing system in different ways, it was operating outside of a clearing because of the blockchain, we'd have to address all of those issues. I wouldn't foreclose that from being a sandbox type approach. But it's pretty fundamental to start on-chain peer-to-peer trading for retail, a token representing one of our largest issuers in a sandbox environment and then having a realistic ability to pull it back if it didn't work.
Peter Haynes:
Yeah, that's a very important issue. Prediction markets. Are there any prediction of markets that have been approved in Canada currently? And if I'm a Canadian resident, am I allowed to trade in the US on Kalshi or Polymarket.
Grant Vingoe:
Haven't been prediction markets that have been affirmatively approved in Canada. There's no prohibition per se. So a marketplace could come in and seek approval. Canadians shouldn't be able.
Peter Haynes:
Well, you heard Brett say earlier he was on something that he wasn't supposed to get on.
Grant Vingoe:
I did. Yeah, exactly. So the regulatory... And of course you can only... People geolocate, they do all these things. If they take those steps, it's hard to protect investors seeking out those opportunities. But the way the regulatory system should work is they should be able to access those US markets through a registered intermediary. And there are intermediaries in Canada that'll facilitate those trades. So you can trade through a Canadian broker if you wanted to do that. But you're right, the global system is very porous, and this is a challenge to the regulatory environment that those controls aren't adequately in place. So I think we have to tamp down in those cases where there are investor risks through appropriate enforcement activity.
Peter Haynes:
Okay. So on the prediction markets, I just want to take this one step further. As we talked earlier about fusion between speculating and hedging and financial markets risk with these prediction markets that are trading non-financial risks including elections, Fed, well, a Fed decision could be argued as a financial risk, sports events. Where are you going to draw the line in terms of what you think should be the approved products traded on a prediction market? And if it was sports, would that then mean you'd have to have a division of gaming inside the OSC? How would this work?
Grant Vingoe:
I should say, for the particular instrument, which is a yes or no question related to an event... And it arose in a different context, but probably many of you will remember very sad retail events involving binary options. So many of these contracts fall within the CSA's binary option ban. It's not an outright prohibition, but for retail investors, it prohibits a binary option which would include a type of yes no election event that has an expiry of less than 30 days. That's one issue. The issue about are we offended by some of the types of contracts that could arise? We can all imagine ones that we would find offensive. Is it the role of securities regulators or legislators or others to say from a public interest standpoint, during an election campaign, do we or do we not want to have prediction markets in addition to polling potentially influencing behavior?
That's an interesting social question on sports betting. Normally you would think that sporting events should be subject to the jurisdiction of the Alcohol and Gaming Commission of Ontario. We're now cooperating with them, given the coming together of sports betting and other contracts. We're really speaking more to Alcohol and Gaming to understand who's going to do what in what context. They normally defer to us where it involves financial markets, but we have a lot to learn from them as well. And on the other hand, some of these markets are quite legitimate. Like you could say, as you gave the example of Fed decisions, it could be of elections too, but that's kind of a sliver of a material financial decision. So we're not opposed to it, but we need to really look at each and every case and have dialogue with the political side too that has to make determinations of public interest when it comes to some of these contracts.
Peter Haynes:
And that leads me to my final question, which I think is a tough one. I'm going to ask you it anyways. It's been on my mind for a while. And that's the role of the regulator to protect the less sophisticated investors from themselves. I was taken aback a few months ago when I heard an executive at one of the do-it-yourself firms suggesting that in their surveys with customers that were interested in 24-hour trading, the demand was coming from teachers. And teachers who like to do their homework at night, and they finish at 10 o'clock and realize they want to buy Amazon, so bang, they hit the button and they want to buy Amazon. And I felt like saying at that time, why aren't you spending more time with that client educating them as an educated person on why it's bad to trade at 10:00 PM at night instead of during the regular trading day. So they want to focus on democracy for all. Where does the regulator come in and say enough already, this is not a good idea?
Grant Vingoe:
Well, I was interested in some of the earlier discussion and one of the panelists saying, "Oh, it's going against the tide, but maybe a shorter trading day is a better idea because you promote liquidity, and of course it recognizes the reality around the US open," and so on. I'm not a great fan of 24-hour trading.
Peter Haynes:
You're going to have to get used to it.
Grant Vingoe:
Yeah, but not for... For retail, I think for an institutional investor that wants to take advantage of special situations or they want to staff up to do it, it makes a lot of sense. So your question is a tough one. Are we simply going to rely on education alone as the tool to tell people about the perils of trading after a couple glasses of wine at 10 o'clock at night in Amazon when the liquidity is absent and the market isn't fully absorbing relevant information? Do we have enough confidence in education as a tool that that's sufficient? Again, you could say it's the nanny state to prevent the Chardonnay drinker from doing that. But I think actually there's a place for limiting trading by unsophisticated investors in the middle of the night and that people shouldn't be aghast at regulators drawing some lines there.
Peter Haynes:
Yeah, I think that democracy at all costs is a concern. On behalf of TD, Grant, thanks for coming back. We missed you last year. Hope to have you back next year.
Grant Vingoe:
I'm looking forward to it. Thanks.
Peter Haynes:
Yeah, thank you.