|
FAIR Canada Newsletter
October 2012 |
Leveraging Strategies Continue to Harm Investors |
|
Last year, FAIR Canada identified leverage as a retail investor protection issue and wrote an open letter to the Canadian Securities Regulators ("CSA"), calling for better investor protection from unsuitable advice with respect to borrowing to invest. Leverage is a problem that needs to be addressed urgently.
The Investment Industry Regulatory Organization of Canada ("IIROC") has found an increasing number of cases where inappropriate leveraging strategies have been recommended to consumers and has become aware of situations where consumers were not provided with sufficient information to properly understand the risks associated with such strategies or the details of the debt servicing obligations that the consumers had taken on as a consequence of using leverage. There have been two recent class actions which also involve the recommending of leverage to consumers.
In July, IIROC issued draft guidance regarding borrowing for Investment purposes (the "Proposed Leverage Guidelines"). Last week, FAIR Canada made a submission supporting the Proposed Leverage Guidelines but noting that regulators must do more.
FAIR Canada is of the view that there is simply no reasonable basis for an advisor to conclude that a highly leveraged sale of investment products is suitable for any but the most sophisticated investor with a high tolerance for risk. In these times of low interest rates and potential volatility, the use of leverage, particularly for the purchase of high-fee products, is simply a meritless strategy that will result in significant financial losses to the majority of consumers. Canadian securities regulators (including provincial commissions and self-regulatory organizations) need to implement a harmonized approach to protect investors from inappropriate use of leverage.
Please click here to read the rest of the story.
|
|
Targeting Manipulative Trading Strategies of HFT
FAIR Canada has provided comments in support of IIROC's regulatory approach with respect to the use of trading strategies involving high frequency trading ("HFT") and any form of automated order system that are manipulative or deceptive. In our submission, FAIR Canada advocates that Canadian regulators adopt the following fundamental principle: Sophisticated users of automated order entry and direct electronic access that deploy very short term trading strategies should not be permitted to take unfair advantage of investors who rely on the provision of fair and efficient securities markets for investment purposes.
FAIR Canada also stresses the importance of ensuring equal access to information, questions the practice of permitting of co-location services by exchanges and others, and questions whether the "maker-taker" fee model has unintended effects including to reward HFT for trading that is of no benefit to the market and may undermine investor confidence in market integrity. Further, FAIR Canada notes that IIROC is undertaking a study of HFT activity in Canada and that it will be important for regulators to act on the study's findings in a timely manner. |
|
Investor Protection Concerns of IIROC's Restricted Dealer Member Proposal
FAIR Canada has made a submission in response to IIROC's Concept Proposal to facilitate the migration of certain registrant firms to a new "Restricted Dealer Member" category. Our understanding is that certain Exempt Market Dealers ("EMDs") and Restricted Dealers are carrying on brokerage activities in Canada while not physically present in Canada and are U.S. securities firms that are members of the U.S. Financial Industry Regulatory Authority ("FINRA"). These firms are conducting a broad range of dealer-related activities in Canada including securities brokerage, trading prime brokerage and securities lending. Through exemptions granted by provincial securities regulators, many of the firms are able to lend money, extend credit and provide margin to many of their clients. This broad range of activities has generally only been permitted through investment dealers who are members of IIROC and who are subject to additional regulatory requirements and supervision and enhanced investor protection.
Please click here to read the full story. |
|
FAIR Canada Supports Proposal for Unclaimed Intangible Property Program
In response to a consultation by the Ontario Ministry of the Attorney General, FAIR Canada has endorsed the Ministry's proposal to introduce and develop a program to reunite owners with their unclaimed intangible property, including interests recognized by such instruments as share certificates and bonds. We recommended that the public registry of unclaimed intangible property be made as accessible and user-friendly as possible, in order to make it effective at reuniting owners with their property. FAIR Canada also provided suggestions aimed at reducing the further accumulation of such unclaimed intangible property. Similar programs already exist in the provinces of Alberta and Quebec and the Bank of Canada administers a program for unclaimed bank balances.
|
|
BCSC Helps Investors Protect Themselves
The British Columbia Securities Commission continues its campaign against investment fraud with two new YouTube videos, Stolen Dreams and Two-Faced. These videos compliment other longer videos the BCSC has developed, aimed at helping investors, including Fraudster Exposed and Fraudster Exposed, Part 2. While the videos are aimed at British Columbians, the tips provided are equally useful for all Canadian investors. For more resources and information, see befraudaware.ca and investright.org.
|
|
Upcoming Conferences by Securities Regulators
Two upcoming regulatory conferences may be of interest to investors. First, the Ontario Securities Commission is holding its OSC Dialogue 2012 on October 30, 2012. Second, the British Columbia Securities Commission is holding its Capital Ideas Conference on November 14, 2012.
|
|
Search for New Executive Director
The Board of Directors of FAIR Canada has commenced a search for a new Executive Director. Ermanno Pascutto, the founder and initial Executive Director plans to step down from this position once a new Executive Director has been recruited. Ermanno noted that "after 4 years as FAIR Canada's Executive Director, I believe that it is time to commence the transition. FAIR Canada has developed a strong voice as an advocate for investors and has made considerable progress toward improved investor protection in Canada. I strongly support the mandate of FAIR Canada and will continue to stay involved in its work."
To apply for the above position, email your resume with cover letter to jessica.chen@faircanada.ca or fax to 416-214-3406 by November 2, 2012.
Click here for the job posting.
|
|
