Commercial law in Ontario needs to be brought into the 21st century, says Toronto-based business law firm McMillan Binch LLP, and one sorely needed reform is introduction of a uniform securities transfer law that would pave the
way for straight-through processing and same-day settlement of stock trades.
McMillan Binch has submitted a Proposal for Ontario Business Law Reform to the provincial government, calling for three key legislative changes. These include enactment of the Uniform Securities Transfer Act (USTA), a piece of model legislation that would bring securities law more in line with the way securities are actually traded today and allow for the changes that can be expected in the next few years.
McMillan Binch is also calling for updates to the Ontario Business Corporations Act and the Personal Property Security Act.
“Having laws that are completely up to date, working toward global harmony and supporting our businesses is important to the economic well-being of Ontario and the country,” said David Butler, a partner at McMillan Binch. “Our corporate and commercial laws are suffering from what I would call arrested development.”
Robert Scavone, another McMillan Binch partner, said securities trades in Ontario – and the rest of Canada – are now governed by laws that are decades out of date.
Scavone said existing laws don’t provide an adequate framework for straight-through processing, which would replace a flurry of phone calls, e-mails and faxes among shareholder, portfolio manager, broker and securities custodian with a fully automated electronic process that would be significantly faster and less error-prone.
The Canadian Capital Markets Association (CCMA) is aiming to have straight-through processing systems implemented this year. By the middle of 2007 the CCMA wants to see all institutional trades settled on the same day as they are initiated, said Tom Marley, chair of the CCMA’s legal and regulatory working group and legal vice-president and corporate secretary of the Canadian Depository for Securities (CDS).
For that to happen, Marley said, Canada will need to update its securities laws soon. He is hopeful that this will happen – the CCMA has been lobbying the Ontario government to place the issue on its agenda for this spring’s sitting, and is encouraged by the response. “We’re very hopeful,” he said. “This project has got the most traction at the present time that it has ever had.”
For faster, more automated trading to work, Marley said, the securities industry needs the legal certainty and clarity that updated legislation would provide.
Supporting straight-through processing is not the only reason for adopting the USTA, said Marley. Already stock issuers have decided not to do financing in Ontario or face additional complications because of outdated laws, he maintains. “The primary risk is that investors and issuing companies will take their business elsewhere.”
All 50 U.S. states have implemented the USTA, Butler noted. Marley said the model legislation is based on Article 8 of the Uniform Commercial Code developed in the U.S. in the mid-1990s.
Getting the USTA implemented in Ontario is seen as a critical step. Wayne Gray, a partner at McMillan Binch, said both British Columbia and Alberta are poised to implement the legislation, “but they’re waiting for Ontario.” And Ontario is home to the largest portion of the Canadian financial services industry.
Marley and the McMillan Binch lawyers say the USTA is not being held up by opposition – “it’s really a non-partisan issue,” Butler said – but by political inertia. “Reform of corporate law is not a very politically sexy issue,” Scavone said.
Straight-through processing could save the Canadian securities industry some $140 million annually, according to CCMA estimates.
“This legislation will enable significant deployment of IT,” Butler said. “You can imagine there are millions of pieces of paper floating around – those are going to be eliminated.”