Three Goals of Security Regulation – Law School Notes

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Three Goals of Securities Regulation
3 purposes:
1) Protection of investing public;
2) Ensuring the Efficient Operation of Canadian Capital Markets;
3) Increasing and Maintaining Public Confidence in Capital Markets / In the Persons and  Institutions Operating Them

Found in s.1.1 of the Ontario Securities Act (OSA) under the purposes of the act! The purposes of the Act are (a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets

Danier case: The securities act is remedial legislation and is to be given a broad interpretation (Pezim). It protects investors from risks of an unregulated market, and by its assurance of fair dealing and by the promotion of the integrity and efficiency of the capital markets it enhances the pool of capital available to entrepreneurs.
The act supplants the buyer beware mindset of the common law with the compelled disclosure of relevant information… at the same time, recognizes burden it places on issuers and Part XV sets limits on what is required to be disclosed…
(para 32) – Binnie J

1. Protection of investing public
Should not protect public against loss, but ensure that public has knowledge needed to make a decision about the company – assurance that its losses are genuine economic losses (correct pricing via prospectus)
b. Very high-level consumer protection legislation

2. Ensuring the Efficient Operation of Canadian Capital Markets
Ensure capital markets facilitate mobility and transferability of financial resources and provide facilities for continuing valuation of financial assets
b. Achieved through a free and open securities market with regulator correcting for market failure
i. More info prevents problem of adverse selection in the market (drive out high quality securities, leaving only low quality securities which would be a misallocation of financial resources)

3. Increasing and Maintaining Public Confidence in Capital Markets/In the Persons and Institutions Operating in Them
Investors will be WTP more for new issues of securities in primary market if confident they will be able to sell securities fairly on secondary market (want to know its fair, you can make money!)
b. With investors paying more for new issues, more savings would be channelled into investment, thereby improving allocation of financial resources (see goal #2)
c. Creating confidence in market, adverse selection is overcome – of assured of accuracy of info, investors WTP more, therefore, higher qual securities more likely to survive
*However, reg must not be at excessive cost (therefore, tension between protecting investing public and eff capital markets)


  • Certainty in almost every circumstance is a bad thing, takes away judgment
  • judgment is what we need to make the right decisions
  • The Securities Act –> don’t care what act actually says, care what it ought to say or intended to say. Don’t care about geniuses that spend lives devising schemes to get around SA (Securities Act). Securities regulators or courts say you’re  smart, but who cares… if you’ve done something you think outsmarts securities act, they’ll shut the door on you = no smart guys.


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