Balkanization is a word used to describe the fragmentation, duplication, and inconsistency across Canada’s capital markets regulatory framework, where there are multiple sets of rules and regulators for similar activities.  

Canadian marketplace rules contribute to balkanization. Each marketplace has their own rulebooks even though they are all meant to conform to the same overarching Canadian Securities Administrators (CSA) (eg. National Instrument 21-101(CP) Marketplace Operation) and Canadian Investment Regulatory Organization (CIRO) (where one may find further duplication) frameworks.

Multiple overlapping regulators and rules, and the resulting fragmented oversight of marketplaces, leads to increased costs and compliance burdens and may decrease innovation and competitiveness.

The Montréal Exchange (the “MX”) Regulatory Division Consultation Paper on the regulatory framework applicable to Approved Persons presents an opportunity to consider a more harmonized, streamlined regulatory system for derivatives that brings greater efficiencies and enhanced proficiencies for the benefit of the Canadian market.

The MX framework for Approved Persons and Participants can be further integrated with CIRO and CSA requirements. In addition, within CIRO’s revised proficiency requirements, continuing education credits may address escalating requirements based on the risk associated with the Approved Person’s functions including algorithmic trading, market structure, technology, and operating risk management. See CFFiM detailed recommendations here.