AT long last, the 97-year-old Vancouver Stock Exchange appears set to get the cleanup many say it desperately needs.
The British Columbia government last week announced that it would pass new legislation in the spring to clean up the exchange. It will do this by tightening rules and strengthening regulators with new resources to fight fraud.
But James Matkin, author of the government's investigative report on the exchange, isn't fully endorsing the action taken. He calls for further reforms.
Tarnished by a long history of stock swindles and scams that bilked millions from investors, the Vancouver Stock Exchange (VSE) was dubbed the ``scam capital of the world'' by Forbes magazine in 1989. The label stuck. In response, last year, the British Columbia government appointed Mr. Matkin, a respected lawyer, to delve into the mess and recommend changes.
Matkin's January report was a blockbuster, suggesting a total overhaul of the exchange and its regulator, the British Columbia Securities Commission. His key recommendation: Convert the toothless BCSC into a hard-biting regulator like the United States Securities and Exchange Commission. ``We strongly agree with Mr. Matkin that the abuses in the system cannot continue,'' said Finance Minister Elizabeth Cull, at an Oct. 6 press conference announcing the reforms. ``We need renewed public confidence in the VSE and in securities regulation in B.C.''
Changes Ms. Cull announced include:
* Giving the BCSC more independence. It will have its own budget and will enact its own legally binding regulations, making it the first securities commission in Canada with that ability.
* Raising the number of BCSC commissioners from nine to 11, allowing the current chairman to focus on policy and planning.
* Enabling investors to file class-action law suits to recoup losses due to misleading press releases, other false disclosures, or manipulations.
* Requiring detailed ``prospectus level'' information of reverse takeovers, a maneuver in which shares of an inactive company are aquired and operations restarted, usually in an area unrelated to its prior activity.
* Making brokers guarantee that they have conducted ``due diligence'' with regard to the reverse takeovers they are promoting.
* Creating a new securities fraud office in the Ministry of the Attorney General and adding officers to the Royal Canadian Mounted Police's Vancouver-based market-manipulation group.
* Boosting the number of non-security-industry members on the VSE board to one-third of the total.
Stock exchange officials across Canada hailed the action. VSE Chairman Ross Sherwood told the Financial Post that ``the beefing up of the commission is terrific.''
But longtime critics of VSE practices say the reforms do not go far enough, in part because they do not get rid of BCSC regulators who have proven ineffectual. The BCSC, for example, has not been able to convict a single person for stock fraud since 1986.
The reforms target stock promoters, a group many blame for the most flagrant abuses. Ironically, Murray Pezim, a well-known and flamboyant promoter, says the government reforms do not go far enough. ``There was too much talk and they came up with measures that were not very meaningful,'' Mr. Pezim told the Canadian Press.
While the government's reform proposals fell well short of Matkin's recommendations, he joined Cull in endorsing them at the press conference. Later, in a phone interview with the Monitor, Matkin called the government initiative a ``good first step'' at reform but hopefully not the last.
``The government went far enough in stage one,'' he said, ``but they have yet to go to stage two to change the people involved [in enforcement at the BCSC] and bring in more rigorous and effective representatives.''
Matkin said his January report identified a structural and systemic problem the government has addressed. But he was critical of the ``culture and the people problem'' that he said will persist and undermine the reforms if further changes are not made.
``I'm optimistic that they will take the next step, but I'm cautious about fully endorsing the plan until they do so,'' Matkin said. ``The restructuring will enable reform to occur, but only if they take the next step and find the right people to perform the regulatory function.''