AuthorChristopher C. Nicholls
ProfessionFaculty of Law, Western University
The capital markets and the regulatory environment have been utterly
transformed since Joseph Norman Dolley posted his short advertise-
ments to Kansas newspapers in 1910, paving the way for the f‌irst Amer-
ican “blue sky” securities statute. The advances in f‌inancial theory, the
development of computers and communications technology, and the
increasing inter nationalization of markets have expanded opportun-
ities for industry and investors worldwide. But they have al so, sadly,
expanded the scope for chicaner y. Regulators have been told they must
be “nimble” to be eective in the complex and constantly changing
world in which they now must operate.
Some of the innovations and challenges t hat call for such nimble regu-
latory approaches have been discussed elsewhere in this book. However,
there have been many other import ant recent developments relating to
securities regulation which have not yet been dealt with. It is impossible
to survey all of these topics. This chapter will touch upon three develop-
ments with immed iate and specif‌ic implications for securities regul ation:
the inf‌luence of behavioural f‌inance on securities regul ation;
shareholder activism a nd regulatory initiatives relating to proxy
rules and shareholder voting; and
f‌intech and regtech.
Conclusion 563
1) Behavioural Finance and Securities Regulation
Securities regulation, as discussed in Chapter 2, traces its history to
government initiatives introduced in response to f‌inancial crises or a
perceived proliferation of investor abuse. The optimal role of government
in responding to cri sis or preventing abuse was, and continues to be, a
subject of considerable debate. However, the dominant trend in secur-
ities regulation in most developed countrie s, including Canada, has been
to rely principally upon mandated disclosure to protect investors and
promote the fairness and eciency of capital markets. As the Supreme
Court of Canada stated in 20 07, “disclosure lies at the heart of an eect-
ive securities regime.”1
The importance of disclosure animates prospectus rule s, insider-
trading rule s, take-over bid rules, and even the relationship disclosure
regime of phase 2 of the Canadian securities reg ulators client relation-
ship model (CRM2).2 Regulatory reliance on the sanitizing and protect-
ive power of mandated disclosure3 i s premised on the assumption that
people to whom disclosure is made have sucient time a nd expertise to
review and fully underst and the disclosures of f‌inancial a nd other infor-
mation provided to them. That assumption ha s long been the subject of
considerable doubt.4 Indeed, whether the cost of mandated d isclosure
is invariably justi f‌ied by its benef‌its has also been cal led into question.5
But the general skepticism about the value of disclosure ha s now been
augmented by behavioural f‌in ance research that suggests th at investors
may be subject to a host of cognitive limitations a nd biases that mean
that they may not necessa rily respond to information and incentives in
quite the way the framers of our di sclosure-based system would expect.
Behavioural f‌in ance has emerged from the academic hinterland to
become an increasingly well-respected branch of f‌inancial economics.6
Several leading behav ioural economics scholars have now been honoured
1 Kerr v Danier Le ather Inc, [2007] 3 SCR 331 at 337.
2 For a discu ssion of the development of CRM and CR M2 see Chapter 5, section B(5).
3 Every securit ies lawyer is fami liar with Louis Bra ndeis’s famous aphorism,
“Sunlight is s aid to be the best of disinfe ctants; electric light t he most ecient
policeman.” Louis D Bra ndeis, Other People’s Money and How the Banke rs Use It
(Washington: Nation al Home Library Foundation, 1933) at 62.
4 See, for example, Homer Kr ipke, “The Myth of the Informed Lay man” (1973) 28
Business Lawyer 631.
5 See, for example, Omri B en-Shahar & Carl E Schnei der, More Than You Wanted
to Know: The Failure of Mandated Disclosure (Pr inceton, NJ: Princeton Unive rsity
Pr ess, 2014).
6 For a general discussion, se e Christopher C Nicholls, Corporate Fina nce and
Canadian Law, 2d ed (Toronto: Carswell, 2013) at 116–18.

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