A new organization has been formed to make sure Canadian retail investors are fairly represented on securities regulation matters.

The Foundation for the Advancement of Investor Rights, or FAIR for short, intends to identify emerging issues, make submissions to securities regulators and government policy makers, and also track bad conduct by public companies and players in the markets.

The organization has been given $3.75 million in start-up money from the Investment Industry Regulatory Organization of Canada (IIROC). The money comes from discretionary and restricted funds derived largely from fines imposed on market rule breakers.

Ermanno Pascutto of Toronto, a lawyer, international consultant and investor who formerly headed the Ontario Securities Commission (OSC) and later served as deputy chairman of the Hong Kong Securities and Futures Commission, is executive director of the organization.

“Basically, we’ll be representing the interests of investors,” he said. “When securities commissions ask for comments on issues, the only sophisticated comments they tend to get are from the financial industry, the listed companies, their advisors, the lawyers and accountants.

“Often you don’t get any submissions from retail investors and, even more rare is a professional submission where they really understand all the issues. I felt investors needed a voice that was knowledgeable and had a lot of expertise in securities regulation issues.”

The board of the new organization is chock full of high-profile industry players, including: Claude Lamoureux, recently retired head of the Ontario Teachers’ Pension Plan and co-founder of the Canadian Coalition for Good Corporate Governance; Ed Waitzer, former chair of the OSC and partner in the law firm Stikeman Elliott; and Neil de Gelder, a Vancouver corporate lawyer, investment executive, and former executive director of the B.C. Securities Commission. The board is chaired by former OSC chair Stanley Beck.

While Pascutto and his staff are just getting settled into their offices at Osgoode Hall Law School in Toronto, he has already identified a number of issues the organization will be working on, such as coming up with better ways to protect investor and shareholder rights and provide for earlier disclosure of takeover negotiations.

“There are lots of issues on the table and we have a number of issues that we are already working on.”

The organization has already filed a submission on a proposal put forward by the TSX to allow special purpose acquisition corporations, or SPACs, to be listed on the exchange. The submission was filed with both the TSX and OSC. A SPAC is a holding or shell company with no operations that completes a public offering to raise capital to acquire businesses at a later date.

“They’re basically blank cheque companies,” said Pascutto. “You have to scratch your head sometimes and wonder whether people are paying attention to what’s going on in the world when they decide to bring something like this to the market.”

Pascutto said another national concern is that when two companies engage in a transaction the directors can structure it so that only shareholders from one of the firms are allowed to vote on it.

“Bizarre as it may seem, they tend to give the vote to the shareholders who are getting a premium, who are benefiting from the merger, and they don’t give a vote to the shareholders who are suffering dilution and seeing their share price go down. Anyone who thinks about it would say that doesn’t make a lot of sense but that’s the way our system works.”

More timely disclosure of takeover bids is another issue the organization intends to work on.

“We think there’s rampant insider trading in Canada in advance of takeover bids and obviously the commissions have not been effective in deterring insider trading and prosecuting it. So the better thing would be to prevent insider trading and one of the best ways to do that is to require earlier disclosure of takeovers and mergers,” said Pascutto. “Right now, more often than not, you read about an impending takeover in the newspaper from industry sources as opposed to actually from the companies. That’s just ludicrous. If there’s a takeover in the works the information should come from the companies themselves.

“Obviously, it’s getting into the media because it’s been leaked and the companies have not been able to contain the information, so people are trading on the market based on insider information. We could prevent all this if we required earlier disclosure.”

The idea of a national organization that would develop a credible, well-resourced and coherent voice for consumers affected by Canadian securities regulations was first proposed in 2005 by a task force that was set up to look at ways to modernize securities legislation.

The task force found that while there were many committed and active individual consumer advocates in Canada, larger, established national consumer advocacy bodies weren’t active in securities regulation. Formation of the new organization is drawing praise from both IIROC and the Common Front for Retirement Security (CFRS), a group that lobbies on behalf of seniors associations for legislative reforms that will make pensions and other retirement savings more secure.

“The foundation will support a stronger voice for the investor community in Canada which often lacks the legal, accounting and research resources that are available to other stakeholders when they seek to articulate and advance their views,” said Susan Wolburgh Jenah, CEO and president of IIROC. “Regulators, the investing public and the Canadian capital markets will all benefit from a more diverse and broader input in the development of regulatory policies.”

Common Front for Retirement Security founder Dan Braniff said he supports the concept of FAIR because investors are often lost in the shuffle.

“I think it’s good and one thing we want to do is consolidate the voice of investors. The problem is that we really don’t have the sophistication that’s needed to deal with the modern markets and the gyrations of the markets.”

Braniff said he’d also like to see a specialized investor protection agency established with powers of investigation and enforcement, as well as the authority to order redress for losses suffered, especially by smaller retail investors.

“The current situation with the sub-prime and asset-backed paper and related junk has got everybody scared and if there’s maybe something that could come out of this, it’s the recognition that we do need some additional surveillance and regulation of the system,” he said.