Regulators to relax rules for e-trading 'Suitability rule': Investors could trade without broker notification
Katherine Macklem
Financial Post
Canada's securities regulators are ready to allow investors to make trades electronically without being vetted by their brokers -- a move long called for by the country's discount brokers and one that may help ease the backlog in discount brokerage trading.
However, it may still be a few months before the rules are relaxed, Frank Switzer, spokesman for the Ontario Securities Commission, said yesterday.
The Canadian Securities Administrators, the umbrella organization for the 13 provincial and territorial securities regulators, decided yesterday in a conference call to take an important step towards dropping the so-called suitability rule for investors making trades when there is no advice given and when the business hasn't been solicited by a broker.
The suitability rule, which has been in place for decades and was designed to protect investors, requires brokers to ensure that the trades ordered by clients match their investment profiles.
However, with the advent of electronic trading, the rule has been called obsolete, at least for the class of investors who buy and sell securities directly online or by telephone.
"It's getting the ball rolling," said Mr. Switzer of the OSC, the largest and most powerful of the CSA members. The OSC has already signalled that the rules should be relaxed for investors who trade directly without advice.
The CSA decided yesterday to publish a concept proposal on the issue, which will call for comments from industry players, before the rules are officially changed.
"We had hoped they would come out with a rule because of the urgency of the matter," said Joseph Oliver, president and chief executive of the Investment Dealers Association. "The suitability rule impacts on the speed of execution and to some extent on the cost. To be competitive with the U.S. market, which doesn't have the suitability rule for unsolicited trades, the issue has to be dealt with."
The IDA, which regulates investment dealers, is considering shortening the required training period from 90 days to 30 days for discount brokerage employees who process trades.
The fully registered investment advisors would continue to have the 90-day training requirement.
"This is a matter of real urgency because it would permit the discount brokers to hire employees more quickly and be better able to cope with the order flow," Mr. Oliver said. "It's not only an issue for today, but in the event there is a market correction, this could be critical."
Many discount brokers have said it would be easier to ease the massive trading backlog of recent weeks if trainees could process trades after a shorter training program.
Paul Bates, president and chief executive of Charles Schwab Canada, said dropping the suitability rule for online traders would result in better efficiency and could lead to better prices for clients.
The securities regulators would require the self-traded accounts be provided within a separate business from any investment accounts where an investor receives advice from a broker, Mr. Switzer said.
Mr. Bates called this measure "completely counterproductive."
"The one piece that I'm troubled by is that you'd have to have a separate legal entity" for accounts where the suitability rule does not apply, Mr. Bates said.
"It does not look at the solution to the issue through the eyes of the client." |
