IDA, RS agree to merge

And then there were two. The Investment Dealers Association and Market Regulation Services have announced a plan to merge into a single self-regulatory organization to oversee the country’s brokerages and stock markets.

The plan, which is still subject to various regulatory approvals and the blessing of their memberships, is built on the ashes of a failed attempt to consolidate the IDA and the MFDA last year.

The unified SRO is being called a merger of equals. It is expected to create a greater clarity for investors and further improve regulatory effectiveness by eliminating duplication and gaps.

According to a joint release, the new entity would be expected to operate on a not-for-profit basis. Stakeholders would initially include all those currently regulated by the IDA or RS, as well as marketplaces that have contracted with RS for outsourced regulation services.

According to Tom Atkinson, RS’s president and CEO, an informal group of IDA and RS directors have been meeting since December to lay the groundwork for the merger. The boards have recognized the benefits of a stronger, streamlined SRO that provides greater clarity to process for investors and members “It should improve market oversight nationwide,” he says.

The IDA’s decision to spin off of its trade association function from its regulatory role also facilitated the merger talks, says Joe Oliver, president and CEO of the IDA. “I don’t want to characterize it as a done deal but I will say I am optimistic about the end result.” If all goes well, he expects this merger will be complete by year end.

“We are completing the process of separating the ownership and the regulation of the market. That was the rationale for creating RS in the first place,” says Oliver.

At the outset the merger is not expected to have an impact on fees, although there could be some operational efficiency. As Atkinson points out, “This is about regulatory excellence; it is really not a cost cutting exercise.” In his view, he would like to see a risk-based fee model.

While the new entity leaves the door open for a merger with the MFDA, they are not inviting the mutual fund regulator back to the table. “The governance structure will be such that we can accommodate other entities but there is no push on to bring them in at this point,” says Atkinson, who wouldn’t speculate what role he might have with the new SRO. “That’s really up to them.”

The merger is something of a coup for Oliver who has made it his goal to spin off the IDA’s trade association side and to consolidate self-regulation. Interestingly, the merger could accelerate Oliver’s retirement plans. Oliver says he is planning to retire next year.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(04/26/06)