Disciplinary Proceedings: In the Matter of John Warwick Holland (“Holland”) (October 29, 2002) OOS 2002-006
Facts – Between April 1, 1999 and July 31, 1999, Holland, an investment advisor employed by Yorkton Securities Inc., facilitated the purchase of shares of a Vancouver Stock Exchange listed company for five clients. The acquisition of the shares was conducted by way of journal entries and not on an exchange.
Disposition – Subject to specific exemptions, which do not apply to these circumstances, all trades of exchange-listed securities must be conducted on a marketplace.
Requirements Considered – VSE Rules C.1.08. Comparable UMIR Provision - Rule 6.4.
Sanction - $10,000 voluntary payment and $3,500 for costs.
Disciplinary Proceedings: Rule 6.4 was considered In the Matter of Louis Anthony De Jong (“DeJong”) and Dwayne Barrington Nash (“Nash”) (July 29, 2004) Decision 2004-004. See Disciplinary Proceedings under 2.1.
Disciplinary Proceedings: In the Matter of Credit Suisse First Boston Canada Inc. (“CSFB”) (December 3, 2004) SA 2004-007
Facts – On April 15, 2003, CSFB entered into an agreement to purchase, as principal, 9,047,092 BCE shares. Shortly thereafter CSFB and its affiliates began to contact clients (including Canadian clients) to line up purchasers for the shares. The indicated interest was greater than expected, and CSFB faced a significantly over-subscribed book. To avoid the displacement obligations associated with conducting the trade as a block trade or wide distribution on the TSX and on other markets, the firm decided to execute the take-on trade (principal buy) through the over-the-counter (“OTC”) market in London and the unwinding trade (principal sell) in the OTC market in the United States. On April 16, 2003, as part of its unwinding trade to Canadian clients, CSFB executed the trade of 7,701,000 BCE shares to Canadian accounts on the New York OTC market prior to the opening of the market. CSFB subsequently reported details of the unwinding trade the NASD and NYSE. Later the same day the take-on trade was crossed through London with details of the transaction being reported to the Financial Services Authority (“FSA”).
Disposition – Compliance with Rule 6.4(e) required that the “take-on” trade be reported to a marketplace, stock exchange or organized regulated market that publicly disseminates details of trades in the market. To the extent that the FSA does not publicly disseminate transaction reports, the take-on trade was not conducted in accordance with Rule 6.4.
Conducting a trade to Canadian clients in the OTC market in the United States outside of market hours, even if that trade is subsequently reported to the NYSE and NASD, does not constitute execution of a trade on “another exchange or organized regulated market that publicly disseminates details of trades in that market” within the purview Rule 6.4(d). CSFB executed the unwinding-trades to Canadian clients before the opening of the market with the knowledge that trades conducted prior to the opening of the markets would not be printed on a consolidated tape.
Requirements Considered – Rules 6.4 and 10.11(1).
Sanction - $1,350,000 fine and costs of $150,000.
Disciplinary Proceedings: Rule 6.4 was considered In the Matter of Salman Partners Inc. (“Salman”), Sameh Magid (“Magid”), William Burk (“Burk”) and Ian Todd (“Todd”) (February 18, 2005) SA 2005-001. See Disciplinary Proceedings under Rule 3.1.
Disciplinary Proceedings: In the Matter of Scotia Capital Inc. (“Scotia”) (February 26, 2007) DN 2007-001
Facts – In the period April 4, 2002 to April 18, 2005 an agency trader at Scotia Capital Inc. (“Scotia”) and the registrant responsible for trading Scotia’s proprietary book of preferred shares, engaged in a pattern of soliciting client orders during periods when Scotia was involved in a distribution of the subject securities. In total, 39 client orders were solicited in 16 new issues at times when Scotia was involved in a distribution. In respect of 15 of the solicitations, on or about the first day of trading, off-marketplace trades were conducted in the newly listed shares by selling them “short” from an inventory account at the distribution price. In respect of 24 of the solicitations, the trades to clients from an inventory account took place before the security was listed, in the “grey market”. The short positions were covered by purchasing shares of the newly issued shares in the secondary market, in most cases at prices lower than the distribution price paid by clients during the distribution. The profit to the inventory account from shorting the shares was $731,959, of which Scotia received 80% ($571,167).
Disposition – The sale of securities from an inventory account were secondary market transactions, and as such, purchasers of the shares were not afforded the inherent rights that they would have been otherwise entitled to as purchasers of a “new issue” under a prospectus. In addition, the off-marketplace trades were improper and resulted in market participants potentially being misled as to the true nature of the demand for the shares and may have affected their investment decisions. Scotia is liable under UMIR for contraventions by its representatives between April 4, 2002 and October 14, 2003 of UMIR provisions related to trading by a Participant involved in a distribution of securities (28 occasions) and the requirement that trades be on a marketplace (5 occasions).
Requirements Considered – Rules 6.4, 7.7(5) (pre-May 2005 version), 10.3(1) and 10.3(4).
Sanction – $571,167 fine and costs of $67,000.
Disciplinary Proceedings: In the Matter of David Berry (“Berry”) (January 17, 2013) DN 13-0018
Facts – Between April 2002 and April 2005 (the “Relevant Period”), Berry, Head of Preferred Trading and the registrant responsible for trading Scotia Capital’s proprietary book of preferred shares, solicited Canadian client buy orders in new issues on or about the dates the new issues were publicly announced. Clients agreed to pay the distribution prices for the new issues prior to the date on which the securities were assigned a CUSIP number and the new issue began trading on the TSX. On the first day of trading, Berry conducted off-marketplace trades in the newly listed shares by selling them short from his inventory account to clients at the distribution price. The trades were not printed on a marketplace or organized regulated market. Berry subsequently covered the short positions in the newly listed shares created in the inventory account by buying shares in the marketplace, either on the first day of trading for the newly listed shares or at a later date or dates. IIROC alleged this was contrary to UMIR 7.7(5) [as it existed prior to May, 2005] and UMIR 6.4. Scotia Capital previously acknowledged breaches of UMIR 7.7(5) and 6.4.
Held – Berry was entitled to the presumption of innocence and the fact that third party Scotia Capital acknowledged breaches of UMIR 7.7(5) and 6.4 did not in any way affect Berry. Berry traded in new, unlisted securities and thus did not contravene UMIR 6.4. The panel also determined that UMIR 7.7(5) was meant to prevent price manipulation of existing shares. Berry did not contravene UMIR 7.7(5) because he traded new, unlisted securities at the distribution price, and was therefore not capable of influencing the price of the securities.
Requirements Considered – Rules 7.7(5) [as it existed prior to May, 2005] and 6.4.
Disposition – The charges against Berry were dismissed.