The Investment Industry Regulatory Organization of Canada (IIROC) announced it has accepted a settlement agreement with National Bank Financial Inc. advisor, Emmanuel Martel, wherein Martel agrees to pay a fine of $12,500 and IIROC costs totaling $2,500 after admitting he recommended he recommended trades that were unsuitable for two of his clients.

Registered with IIROC and its predecessor organization, the Investment Dealers Association of Canada since 1999, Martel has been employed with National Bank since 1999.

According to the settlement agreement, two clients, dubbed AN and RD in the settlement agreement documents, opened a joint account with Martel in April 2005. At the time the couple, medium risk investors, had more than $2-million in total wealth and an annual income over $75,000. July 2010 the joint account’s terms were revised to suggest the clients at the time had a low tolerance for risk. (Their assets and income had also declined to $1.1-million and $50,000, respectively.) Finally, in September 2013 they opened a fee-based, level 4 options account, stating they had a high tolerance for risk, total wealth of less than $1.2-million and an annual income of $60,000. Between September 2013 and May 2018, Martel recommended and mainly executed short-selling call option transactions on AN and RD’s behalf.

In September 2017, the advisor then proposed the clients engage in an uncovered put strategy, which ultimately backfired, obligating the couple to buy the underlying securities. The unrealized net loss at the time reached US$107,269.36. AN and RB chose to retain the underlying securities in the hope that they would appreciate in value. October 2017, the clients then decided to liquidate their holdings. The net loss resulting for the sale of the underlying assets rose to US$259,395.07.

After filing a complaint, National Bank offered the clients compensation, settling with AN and RB in December 2018. In addition to IIROC’s sanctions, National Bank imposed internal penalties requiring Martel to make a charitable donation in the amount of $15,000. He is also prohibited from trading options for any of his clients, must have his trades reviewed quarterly by a regional manager for one year, and must rewrite the Conduct and Practices Handbook course.

Martel admitted that when the trades were executed in September 2017, he did not make sure that his clients understood all the risks associated with the strategy.