Northern Securities is under investigation. It's technical, but the relevant isues involve an adjournment in which the Toronto Stock Exchange had not gotten a rule formally adopted at the time it claimed Northern Securities fell afoul of the rule:
In the context of the RS regulatory proceedings, on August 2, Northern delivered a motion record to RS in which the Northern claimed, among other things, that the TSX had not sought or obtained approval from the OSC to amend its rules to adopt the Universal Market Integrity Rules (UMIR) as required by the Protocol for Commission Oversight of the Toronto Stock Exchange Rules dated Oct. 3, 1997. The TSX is required to comply with the Protocol as a term of its recognition order by the OSC.
Looks like case closed, right? If the rule wasn't in place, then Northern Securities could hardly be blamed for not following it. So what happens? The OSC changes the rules...retroactively!
Following receipt of Northern’s motion materials, and after RS had sought and obtained an adjournment of the RS hearing, on September 21, the TSX applied to the OSC for purported retroactive approval of the UMIR amendments. Neither the TSX nor RS informed Northern or the hearing panel of its intention to do so either prior to or following RS’s request for an adjournment of the hearing. On September 29, the OSC published the UMIR Amendments in the OSC Bulletin and purported to approve these amendments.
Got that? Faced with losing this one, the TSX went to the OSC to backdate the rule change, and do it on the sly.
And the OSC did it!
What the...?
Well, the OSC was caught, and the case against Northern Securities was adjourned, probably permanently. Now the OSC is being investigated:
The purported retroactive approval of the UMIR Amendments prompted the RS hearing panel to adjourn the RS proceedings without a fixed hearing date so as to permit Northern to apply to the OSC for a hearing and review of the actions of the TSX and OSC staff with respect to the purported retroactive amendments to the TSX Rules to adopt the UMIR Amendments.
You know, these news releases are very dry. You read them, and it's easy to miss the point entirely. I had to read it a few times, first the understand what was being said, then to convince myself that it was for real. Retroactively changing the rules in order to win a case? What grade are these guys in? Kindergarten?
Seriously, though, this is bad. Very bad. It suggests that the OSC is being run by people who feel that the rules are details, or even impediments. If they get in they, push them out of the way. On the other hand, maybe I should give the OSC a break. I'm sure the police sometimes feel like this too.
But then that's why we have the courts, an organization separate from the police, charged to protect the integrity of the system, and in doing so, protects all of us. Who protects the rules from the OSC? In short, no one does, because the government has determined that the OSC ought to both define the rules and enforce them. It should come as no surprise that the OSC has lost sight, in the case anyway, that those two functions are supposed to be in tension, and for good reason. Without that tension, the rules become fluid, shifting and altering to favour the enforcers as the situation of the moment requires.
It seems like such a little thing, a short news release that just floats by without notice. But I think it is revealing of a serious problem that I have been discussing a lot recently. I think these kinds of issues are important. I hope you do to.
