Industries can easily stagnate when there are no fresh viewpoints and, luckily, there are people in the financial services industry who are thinking big — about issues such as the markets, corporate governance and the future role of regulators.

Bill Cara, a securities industry veteran, maintains a Web log, or blog, (www.billcara.com) from which he frequently weighs in on market events and issues.

Among his treatises on stocks, commodities and run-of-the-mill market issues, Cara also occasionally rails against the industry establishment. He complains that the system is rife with inherent conflicts of interest that tend to be exploited to the detriment of small investors, and to the benefit of powerful players.

He's particularly scathing about the sell-side of the industry, where he once worked. Cara is most troubled by the inherent conflicts that can hurt clients — such as brokerage firms exploiting their knowledge of client orders to make principal trades against the client. "In no other facet of society does such a blatant conflict of interest exist," he writes. "Time after time, there are reports of client abuse, which are systemic, but nothing is done to change the system.

"It would be laughable, for instance, if lawyers from the same firm were allowed to represent opposing litigants and use their knowledge of the clients against them, and have other partners in the same law firm sit in judgment of client complaints," he maintains.

Cara imagines fixing the system from the ground up by restructuring it to eliminate the sort of built-in conflicts that can end up harming investors. Essentially, he argues, the capital markets part of the business needs to be separated from the financial services end, with the two sides regulated by different legislation.

Financial advisors and planners would still provide essential services, but, Cara argues, there's no good reason for the capital markets to be linked to the financial services side.

He foresees a day when the owners of capital will trade with one another electronically, without much intrusion from intermediaries. "We should all just send our financial assets to an independent depository offshore, trade when and where we like, and settle trades instantly against the depository," he says. "Most of our problems would disappear."

National markets could list and trade issuers headquartered in their countries. Trading would be electronic, offering full transparency of the order book and trades would be cleared and settled with straight-through processing. By taking the human element out of the trading side as much as possible, he says, the source of conflicts can be eradicated. By rigorously separating the various parts of the industry along functional lines, he says, most other conflicts could be eliminated, as well.

"The owner of capital has to be 100% separate from those who are the service providers and sales vendors. The credit end of the industry has to be totally separate from the debit end. Unencumbered capital must be allowed to be 100% free of involvement by the credit system and the sell side," he says. "Digital technology exists today to facilitate such a free capital market system."

The technology may exist, but there are innumerable practical obstacles that ensure that much of his vision will never materialize. Even Cara is not optimistic — there are far too many powerful, entrenched interests opposed to such radical restructuring.

Nevertheless, his ideas do suggest some interesting ways to reform the system. Concepts such as divorcing financial services and financial advice from the capital market and enforcing business divisions to prevent conflicts deserve greater consideration.

It is also conceivable that a direct access, all-electronic trading system could transform capital trading the way services such as Google and eBay have transformed the way people gather information and shop. Online trading markets have emerged to allow punters to lay down bets on everything from sports to the identity of the next pope. Could securities do the same?

One big difference is that a vast legal and regulatory bureaucracy controls the flow of information to the trading public. However, the quality of the information flow has been partially discredited in recent years through a succession of corporate accounting scandals.

As a result, U.S. lawmakers and regulators led a series of corporate reforms that are largely embodied in the Sarbanes-Oxley Act. Many of those reforms are being mimicked in Canada. Most recently, Canadian regulators proposed that issuers be required to follow a version of the controversial SOX 404 provision, which requires firms to assess and report on the quality of their internal controls, among other things.

Critics of the measure claim that it is excessively costly for companies, and that the costs do not justify the benefits. Caught between this inconclusive cost analysis and the apparent desire of regulators to introduce rules that push Canadian issuers to keep up with U.S. rules, securities lawyer Simon Romano proposes an innovative solution: allow shareholders to vote on whether they want issuers to comply or not.

In a comment letter addressing the Canadian Securities Administrators' proposed internal control rule, Romano says: "Given the fact that the cost/benefit analysis found that, based on mid-ranges, measured costs exceeded measured benefits for all issuers, may I suggest that an issuer be entitled to opt out of [the proposed rule] with express approval of shareholders."

He proposes that approval could be decided by a simple majority vote; that the decision be required to be revisited every three years; and that the vote be prominently disclosed. Romano, a partner at Stikeman Elliott LLP in Toronto, says that such a direct shareholder democracy could work. "Big companies would presumably not ask their shareholders," he says, "while small ones might — when they thought it reasonable to do so."

While Romano's idea targets the contentious internal control reporting proposal, issuers are subject to numerous other rules in which costs may arguably outweigh benefits, particularly for small companies. So, if this proposed rule deserves to be optional, perhaps numerous other regulatory requirements do, too. Indeed, the idea is intriguing that shareholders should have a vote, not just over corporate decisions such as whether to adopt a stock option plan or elect a particular slate of directors, but over compliance with regulatory requirements, too.

Again, there are numerous practical and legal issues that will almost surely prevent regulators from adopting the stance. Nonetheless, the idea stretches the concept of shareholder democracy. It highlights the trade-off between corporate autonomy and efficiency and the need for market standards, and it proposes a new way to accommodate the slew of small public companies in Canada.

Such a fresh idea is not uncommon in Romano's frequent responses to regulatory proposals. In another recent comment letter, he scolded the regulators for privileging paperwork and procedures over substance in corporate governance matters, and questioned the limits of regulators' jurisdiction to force issuers to play fair.

Exploring the limits of the authorities' jurisdiction and forcing regulators to play fair has become a full-time job for Robert Kyle. The former futures trader has been waging a long-running legal battle with the Investment Dealers Association of Canada and the Ontario Securities Commission ever since the IDA tried to discipline him in 1997. The battle culminated in a court case, heard last fall, in which Kyle is trying to get the courts to declare that the self-regulators are merely associations that contract with their members, or agents of the government.

Beyond his court case, Kyle has been particularly inventive in using all available tools to attack the extent of regulatory authority. He recently filed a complaint about the IDA with the federal Competition Bureau, accusing it of deceptive marketing. He previously initiated complaints under new privacy legislation, agitated for legislative hearings into the regulatory system and worked endlessly with disgruntled investors and their advocates on a vast array of complaints, letters and legal actions, as well as maintaining a Web site to document much of the work and other regulator-related stories.

The common link of all his efforts seems to be the idea that the foundations of industry authority should be considered suspect and open to challenge. Ordinarily, firms and investors acquiesce to authority. Kyle's insistence on questioning authority, and his ingenuity at using all available means to keep the authorities in check, seems to have permeated the industry, since firms and reps appear to be increasingly challenging the limits of regulators' authority. For example, the disciplinary committee of the Bourse de Montreal Inc. recently tossed out allegations against a former rep, ruling that its authority is limited to the contractual relationship it has with members, and its authority doesn't extend beyond that contract.

Kyle is still waiting for a decision in his case. While his fight will likely prove futile, at least it appears to be raising the consciousness of investors, market players and possibly even the regulators themselves.