The Investment Industry Regulatory Organization of Canada (IIROC) announced today that it has accepted a settlement agreement, with sanctions, between IIROC staff and RBC Dominion Securities, Scotia Capital and TD Securities.
Under the agreement, each of the firms admit to trading in a security by means other than the entry of an order on a marketplace. Each firm will pay a fine in the amount of $500,000 and costs in the amount of $10,000.
According to the settlement agreement, all three firms were invited by Goldman Sachs & Co. LLC to participate in an underwriting syndicate when Royal Dutch Shell plc disposed of its position in Canadian Natural Resources Limited (CNQ), an oil and gas producer whose shares are interlisted on the Toronto Stock Exchange and the New York Stock Exchange. Before the deal, Royal Dutch held about eight per cent of CNQ’s issued and outstanding shares.
Late in the day Goldman Sachs advised RBC DS that it was not in a position to deliver the shares to Canadian institutions who did not have accounts with the company or who required currency conversion. To settle allocations to their retail investors and Canadian institutional accounts that Goldman Sachs was not in position to settle, the respondents accepted shares from Goldman Sachs and settled the trades in the company’s place on behalf of the syndicate. The companies settled the CNQ shares by way of journal entries and did not enter the trades on a marketplace.
Did not harm clients
IIROC says the breach did not cause harm to any of the respondent’s clients. The regulator also took into consideration the fact that the syndicate had expected Goldman Sachs to settle all trades before it communicated that the last minute that it was not in a position to do so.
They add that the agreed penalty represents a significant portion of the revenues generated by the respondents for the CNQ shares they settled for Canadian clients.
“Pursuant to UMIR (IIROC’s Universal Market Integrity Rule) 6.4, the trades settled by the respondents ought to have been entered on a marketplace unless they obtained an exemption,” say the settlement’s authors. “UMIR 6.4 and the requirement to enter trades on a marketplace promotes transparency and a level playing field for market participants.”
