For sending initial expressions of interest to underwriting syndicates for new issue deals without having confirmed bona fide interest from clients – that is genuine or real interest – before he traded the extra securities for profit, former Investment Industry Regulatory Organization of Canada (IIROC) registered representative, Bardya Ziaian is being fined $150,000.
Ziaian is also prohibited from working in supervisory positions, including as an Ultimate Designated Person (UDP), chief compliance officer, or supervisor, as defined in IIROC’s rules for a period of 18 months.
According to the settlement agreement accepted by an IIROC hearing panel, between August and December 2013, Ziaian “failed to make bona fide offerings of new issues to public investors in circumstances where he ought to have known that the expressions of interest were not bona fide.”
Specifically, IIROC states that the former representative was a selling group member for a number of new issues. Rather than requesting new issues based on client interest, Ziaian requested allocations that were greater than any interest expressed by clients of BBS Securities Inc. (Ziaian was the founder, director, sole shareholder, supervisor and UDP for the firm.)
They say the vast majority of securities received were taken into a BBS account or other non-arms’ length client accounts over which Zianian had control. Clients received all of the securities requested, but the total that went to client accounts represented a small percentage allocated to the firm.
“On numerous occasions, after the respondent received confirmation of an allocation for a new issue, the respondent sold short a corresponding number of securities,” IIROC’s settlement agreement states. The rep then covered his short position using the securities received from the underwriting syndicate when the distribution closed. “On other occasions, shares were disposed of immediately upon receipt through either the BBS inventory account or accounts controlled by the respondent.”
In addition to the trading that IIROC describes as being profitable, the firm also received benefit in the form of drawdown prices and selling concessions, for the new issues.
(The drawdown price is the price set by the underwriting syndicate’s manager for transfers to the selling group, while the selling concession is the difference between the public offering price and the drawdown price. “The selling concession represents the commission earned by the broker for distributing the new issue to clients.”)
IIROC says the monetary sanctions imposed reflect a portion of the benefits received. In addition to the $150,000 fine, Ziaian was also ordered to pay costs in the amount of $35,000.
