OSC and TSE commence proceedings against RT Capital and others - Part 2
TORONTO, June 29 /CNW/ -
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF RT CAPITAL MANAGEMENT INC.,
K. MICHAEL EDWARDS, TIMOTHY K. GRIFFIN, DONALD E. WEBSTER,
JENNIFER I. LEDERMAN, PETER B. LARKIN, PETER A. RODRIGUES,
GARY N. BAKER, PATRICK SHEA AND MARION GILLESPIE
STATEMENT OF ALLEGATIONS OF STAFF
OF THE ONTARIO SECURITIES COMMISSION
Staff of the Ontario Securities Commission (the "Commission") makes the
following allegations:
The Respondents
---------------
1. RT Capital Management Inc. ("RT Capital") is an indirectly, wholly
owned subsidiary of Royal Bank of Canada and was established in 1986. RT
Capital is registered as an Investment Counsel and Portfolio Manager and
provides investment management services for approximately 700 client accounts,
the majority of which are institutional pension funds. RT Capital currently
has approximately $34 billion in assets under its management in both pooled
and segregated funds, as well as cash funds. Of that $34 billion in assets,
approximately $13.5 billion is held in Canadian equities.
2. During the period October 30, 1998 to March 31, 1999 (the "material
time"), there were six members of the Board of Directors of RT Capital, each
of whom was also an officer of the company. The Directors were:
(a) K. Michael Edwards ("Edwards"): appointed as a director and as the
Chairman and CEO on December 7, 1998. Edwards is also the President and CEO of
RT Investment Management Holdings Inc. ("RTIM"), the principal common
shareholder of RT Capital. RTIM is itself, indirectly, a wholly owned
subsidiary of Royal Bank of Canada. Edwards is a former Chairman of the
Toronto Stock Exchange (the "TSE") who has extensive experience in all aspects
of the securities industry. Edwards is approved as a Non-Trading Officer of RT
Capital.
(b) Timothy K. Griffin ("Griffin"): appointed as a director on January 1,
1991. Griffin has been an employee of RT Capital or its predecessor since its
inception approximately 15 years ago. Griffin was appointed President of RT
Capital on January 17, 1996. Prior to being appointed President, he held the
position of Executive Vice-President, and before that, Vice-President. Griffin
is approved as a Non-Counseling Officer of RT Capital.
(c) Donald E. Webster ("Webster"): appointed as a director on August 22,
1990. Webster was an employee of RT Capital or its predecessor since its
inception in 1986 until his retirement on March 31, 2000. During the material
time, Webster was the Senior Vice-President, Fixed Income and a portfolio
manager in that department. Webster was registered as an Investment Counsel
and Portfolio Manager.
(d) Jennifer I. Lederman ("Lederman"): appointed as a director and
officer on August 30, 1994. Lederman is a lawyer and is the Senior Vice-
President, Compliance and the Corporate Secretary. Lederman is the officer
designated by RT Capital as the compliance officer responsible for discharging
the obligations of RT Capital under Ontario securities law. Lederman is also
an officer of RT Capital's principal shareholder, RTIM. Lederman is approved
as a Non-Trading Officer of RT Capital.
(e) Peter B. Larkin ("Larkin"): appointed as a director on August 22,
1990. Larkin has also been an employee of RT Capital or its predecessor since
its inception in 1986. Larkin is the Senior Vice-President, Canadian Equities.
Larkin is the senior portfolio manager in the Canadian Equities section to
whom the six other portfolio managers in that section report. Larkin has been
employed in the securities industry in one capacity or another in excess of
thirty years. Larkin is registered as an Investment Counsel and Portfolio
Manager.
(f) Peter A. Rodrigues ("Rodrigues"): appointed as a director on August
22, 1990. Rodrigues is the Vice-President, Finance and Operations. Rodrigues
has also been an employee of RT Capital or its predecessor since its
inception. Rodrigues was responsible for the administrative aspects of the
management and operation of RT Capital's trading activity, including the
taping system used to record calls to and from RT Capital's order
executioners. Rodrigues is approved as a Non-Counselling Officer of RT
Capital.
3. Gary N. Baker ("Baker") is a Vice-President of Canadian Equity. Baker
has been an employee of RT Capital for approximately ten years. Baker is
registered as an Investment Counsel and Portfolio Manager. During the material
time, Baker was solely responsible for managing RT Capital's Canadian Equity
Small Capitalization Fund, in addition to managing approximately 16 to 17
regular Canadian Equity portfolios. After Larkin, Baker is the longest serving
Canadian Equities portfolio manager at RT Capital.
4. Patrick Shea ("Shea") is an "order executioner" at RT Capital. Shea's
job title is that of "Senior Equity Trader" but he is not a registrant. Shea
has been an employee of RT Capital for approximately 13 years.
5. Marion Gillespie ("Gillespie") is also an "order executioner" at RT
Capital. Like Shea, Gillespie's job title is that of "Senior Equity Trader"
and she is not a registrant. Gillespie has been an employee of RT Capital for
approximately 12 years.
6. Between them, Shea and Gillespie were responsible for carrying out all
of the trading activity of the portfolio managers in the Canadian Equities
section of RT Capital, including Larkin and Baker, during the material time.
High-Closing Trading Activity Engaged in by RT Capital
------------------------------------------------------
7. RT Capital intentionally engaged in trading activity on 53 occasions
designed to create or maintain an uptick in the closing price of a security;
or, alternatively, to prevent or rectify a "downtick" in the closing price of
a security. A total of 26 different Canadian equity securities, all listed on
the TSE, were the subject of this high-closing activity on at least one
occasion.
8. The high-closing activity occurred on the following dates:
Friday, October 30, 1998
Monday, November 30, 1998
Wednesday, December 30, 1998
Thursday, December 31, 1998
Friday, January 29, 1999
Friday, February 26, 1999
Tuesday, March 30, 1999
Wednesday, March 31, 1999
9. Each of the foregoing dates was the last trading day of a month, with
the exception of Wednesday, December 30, 1998 and Tuesday, March 30, 1999,
which were the next-to-last trading days of the month. Nineteen of the 53 high-
closings occurred on December 30 and 31, 1998 (year-end); ten of the high-
closings occurred on March 30 and 31, 1999 (quarter-end).
10. Of the fifty-three high-closings identified, Larkin was responsible
on forty-three occasions for instructing either Shea or Gillespie to carry out
a trade, or engage in a trading strategy, designed to create or maintain an
uptick, or prevent or rectify a downtick, in the closing price of a security.
11. Of the remaining ten high-closings, Baker was responsible for
instructing either Shea or Gillespie to carry out a trade, or engage in a
trading strategy, designed to create or maintain an uptick, or prevent or
rectify a downtick, in the closing price of a security.
12. On each of the fifty-three occasions, either Larkin or Baker
discussed the high-closing with either Shea or Gillespie, who was then
responsible for contacting a broker and orchestrating a trade, or a trading
strategy, designed to create or maintain an uptick, or prevent or rectify a
downtick, in the closing price of a security. On several occasions, the
trading strategy involved executing cross-trades involving RT Capital client
accounts in order to effect the desired closing price. These cross-trades had
no legitimate investing purpose for the client.
13. The total increase in the value of the Canadian Equities component of
RT Capital's portfolios as a result of Larkin's high-closings was $30,186,168,
more or less.
14. The total increase in the value of the Canadian Equities component of
RT Capital's portfolios as a result of Baker's high-closings was $8,376,110,
more or less.
15. The high-closing trading activities of Larkin and Baker are
summarized in Schedules "A" (Larkin) and "B" (Baker) appended hereto.
16. The monthly increases in the market capitalization of the 26 issuers
affected by RT Capital's high-closings are summarized in Schedule "C" appended
hereto.
17. The high-closings carried out by way of cross-trades involving RT
Capital client accounts are summarized in Schedule "D" appended hereto.
The Model Portfolio
18. Almost all of RT Capital's Canadian Equities portfolios were run on
the basis of a "model portfolio". The model portfolio comprised in excess of
200 securities, selected from all sectors of the economy, each of which was
assigned a specific weighting within the model portfolio. The Canadian
Equities Small Capitalization Fund was a pooled fund managed exclusively by
Baker and was not subject to the constraints of the model portfolio.
19. Larkin was responsible for determining which securities were included
in the model portfolio and the weighting to be assigned to each. Larkin
updated the model portfolio every two weeks, either adding or deleting
securities from the model portfolio, or changing the weighting of a given
security. The revised model portfolio was then distributed to the other six
portfolio managers in the Canadian Equities section.
20. Each of the Canadian Equities portfolio managers was required to re-
balance the portfolios under his management to ensure that they were
consistent with the composition of the revised model portfolio, in terms of
both content and weighting, subject to a narrow discretion: approximately 7%
of the value of any portfolio was permitted to be composed of securities not
contained in the model portfolio.
21. All of the securities which were the subject of Larkin's high-closing
activity were in the model portfolio. As a result, Larkin's high-closings
affected all of RT Capital's Canadian Equities portfolios which followed the
model portfolio, whether or not those funds were directly under Larkin's
management.
22. Several of the securities which were the subject of Baker's high-
closings were in the model portfolio. The remaining securities were in the
Canadian Equities Small Capitalization Fund managed exclusively by him.
Fund Valuation and Performance Measurement
------------------------------------------
23. RT Capital determined the value of the Canadian equity component of
any given portfolio by multiplying the number of shares of a particular
security in the portfolio by the closing price of the security as posted on
the TSE, for each of the securities held in the portfolio.
24. RT Capital measured the performance of its Canadian Equities
portfolios by comparing the portfolios' performance against certain benchmark
indices, most commonly the TSE 300 index. The portfolio managers were expected
to match or better the index.
25. RT Capital distributed monthly reports to each of its Canadian
Equities portfolio managers setting out an analysis of the performance of the
portfolios under his control.
Reporting to Clients and Invoicing for Management Fees
------------------------------------------------------
26. RT Capital operated on a calendar year for the purpose of: (i)
calculating its annual portfolio performance measures, which were provided to
existing clients and were also published generally; (ii) reporting to its
clients quarterly on portfolio performance; and (iii) invoicing its clients
quarterly for management fees.
27. The management fees which RT Capital charged its clients each quarter
were calculated on the basis of agreed upon percentages of the average value
of the client's assets under management, as set out in an "Investment
Counselling Agreement" executed by RT Capital and its clients. The percentages
charged were usually subject to a "sliding scale", such that the percentage
charged increased as certain thresholds of asset value were crossed. Subject
to any specific terms which may have been negotiated between RT Capital and a
client, the Investment Counselling Agreement provided that the average value
of a client's assets during any given quarter was calculated by taking the
average of: the value of the client's assets on the first day of the quarter
and the value of the client's assets on the last day of the quarter.
Compensation and Incentives
---------------------------
28. The Canadian Equities portfolio managers and order executioners at RT
Capital each received a base salary and participated in a profit sharing plan
based on the company's profitability. Each portfolio manager was allocated a
certain number of "phantom equity" shares annually, which entitled him to a
proportionate share of the company's profits. The allocation of phantom equity
shares was based on, among other factors, the portfolio manager's performance
in the preceding year. The order executioners were not allocated "phantom
equity" shares but received an annual bonus based on the company's
profitability.
Trading Activity Not Monitored
------------------------------
29. The Compliance Manual (March 1999) of RT Capital provided that:
The President and RT Capital's Directors are responsible for ensuring
that investments for client accounts are appropriately made and that practices
within the organization do not violate securities regulations. In addition,
they are responsible for ensuring that the Compliance Manual and Employee Code
of Conduct and Privacy Code are adhered to in all respects. (emphasis added)
30. The Compliance Manual further provided that every employee of RT
Capital was required to sign a consent form on an annual basis acknowledging
his or her agreement to comply with the terms of the Compliance Manual and to
confirm his or her compliance for the previous year. In March 1999, Griffin,
Rodrigues, Larkin, Baker, Shea and Gillespie each executed the consent form
applicable to the material time.
31. Despite the terms of the Compliance Manual and the requirement that
every employee of RT Capital was required to agree to comply with its terms,
RT Capital did not in fact monitor the trading activities or practices of its
Canadian Equities portfolio managers and order executioners to ensure their
conduct was in compliance with applicable securities regulations and was not
contrary to the public interest. Nor did RT Capital have any systems or
protocol in place for monitoring the trading activities and practices of its
portfolio managers and order executioners.
32. As a result, Larkin, Baker, Shea and Gillespie were able to
intentionally, repeatedly and openly (within RT Capital) effect high-closings
of securities on significant month-, quarter-, and year-end dates for the
purpose of improving the appearance of portfolio performance. On no occasion
did they attempt to conceal, alter or destroy the internal records of their
trading activity. They acted without fear of detection by anyone at RT Capital
and/or safe in the knowledge that RT Capital impliedly condoned their activity
or was wilfully blind to it. None of the fifty-three high-closings was ever
"red flagged" or made the subject of scrutiny by RT Capital to ensure
compliance with applicable securities regulations.
33. During the entire periods of their respective employment at RT
Capital, none of Larkin, Baker, Shea or Gillespie ever had the propriety of
any of their trades questioned by RT Capital.
34. Contrary to the statements in the Compliance Manual, the Board of
Directors of RT Capital (the "Board") performed a largely ceremonial function,
mostly relating to the passing and signing of resolutions and the execution of
other corporate documents as needed from time to time. The Board did not
convene on a regular basis and rarely, if ever, met in person. Larkin was not
aware that he was a director of RT Capital and was unable to identify the
other members of the Board, beyond speculating that Edwards and Griffin
presumably held positions on it. The Board did not monitor, or ensure that
systems were in place to monitor, the trading activities and practices of RT
Capital's portfolio managers and order executioners.
35. During the material time, Griffin, Webster, Larkin and Rodrigues, all
four of whom are founding members of RT Capital, also sat on the "management
committee" of RT Capital. The management committee met once every two weeks,
more or less, to deal with matters pertaining to the management, operation and
performance of RT Capital. The management committee did not monitor, or ensure
that systems were in place to monitor, the trading activities and practices of
RT Capital's portfolio managers and order executioners. Edwards and Lederman
did not attend the meetings of the management committee.
Deceptive Trading Practices
---------------------------
36. Larkin, Baker, Shea and Gillespie were aware that TSE Market
Surveillance was monitoring end of day trading for the purpose of detecting
high-closing activity. Larkin, Baker, Shea and Gillespie authorized, permitted
or acquiesced in strategies designed to avoid detection by TSE Market
Surveillance. Shea and Gillespie had discussions with the brokers engaged by
them to effect the high-closings. In those discussions, the brokers advised
Shea and Gillespie that they had misled TSE Market Surveillance, or would
mislead TSE Market Surveillance if the need arose, to ensure that RT Capital's
trades were processed before the close of trading.
Response of RT Capital to Investigation
---------------------------------------
37. Prior to September 1999, as a matter of routine business practice, RT
Capital recorded all telephone calls between Shea and Gillespie and the
brokers engaged by them to carry out trades on behalf of RT Capital. The RT
Capital taping system also recorded, however, all internal telephone calls of
Larkin and Baker to and from Shea and Gillespie. In September 1999, after RT
Capital became aware that its trading activity was under review, RT Capital re-
configured its taping system so that the telephone calls of Larkin and Baker
to and from Shea and Gillespie would no longer be recorded. RT Capital
permitted Larkin, Baker, Shea and Gillespie to continue to perform their
normal duties.
38. During the course of Staff's subsequent investigation, Larkin and
Shea denied carrying out any trades, or engaging in any trading strategies,
designed to create or maintain an uptick, or prevent or rectify a downtick, in
the closing price of a security during the material time, with the exception
of two securities. Larkin and Shea admitted that they established the closing
price at month end of "Multibank" and "Dia Met A", two securities which Larkin
felt were undervalued by the market. Gillespie admitted that numerous of the
trades carried out by her on behalf of both Larkin and Baker which Staff was
investigating were in furtherance of an attempt to determine the closing price
of securities. Baker denied that he engaged in any high-closing activities.
39. On June 23, 2000, Royal Bank Financial Group and RT Capital issued a
press release in respect of Staff's investigation which acknowledged that
"....these transactions had the effect of overstating the value of certain
portfolios for the quarters in question" and further that "Although the impact
on portfolio values and fee revenues was small, RT Capital and Royal Bank
Financial Group regard the matter as very serious".
Conduct Contrary to the Public Interest
---------------------------------------
40. The conduct alleged above contravened Ontario securities law and
constituted conduct contrary to the public interest for the following reasons:
(a) by engaging in trading activity designed to create or maintain an
"uptick", or prevent or rectify a "downtick", in the closing prices of
publicly traded securities, RT Capital was interfering with the market forces
of supply and demand to set artificially high prices in those securities on
specific month-, quarter- and year-end dates. Trading activity of this nature
undermines the integrity of the capital markets and erodes investor
confidence.
(b) the high-closing activity occurred on, or immediately before, month-,
quarter-, and year-end dates. To the extent that these artificially high
prices were used by RT Capital in representing or calculating monthly,
quarterly and annual portfolio performance, RT Capital misled its existing and
prospective clients as to the true level of investment returns and RT
Capital's portfolio management performance. By so doing, RT Capital, Larkin
and Baker failed to deal fairly, honestly and in good faith with RT Capital's
clients.
(c) by carrying out cross-trades involving client accounts without a
legitimate investing purpose, RT Capital failed to deal fairly, honestly and
in good faith with its clients;
(d) the high-closings which occurred on a quarter- or year-end date
resulted in an artificially high valuation of any client account holding one
or more of those securities. As a result, the management fees charged to those
clients, which were based on the average value of the assets under management
during the quarter, were overstated. The high-closings which occurred on a
month-end within a quarter contributed to this phenomenon by sustaining or
increasing the valuation of the securities in the client accounts over the
course of the quarter. By charging unwarranted management fees, RT Capital
failed to deal fairly, honestly and in good faith with its clients.
(e) to the extent that the month-end closing prices of the securities at
issue were used by dealers and brokers to establish capital and margin
requirements, the artificially high closing prices set by RT Capital resulted
in inaccurate calculations of these capital and margin requirements; and
(f) the issuers of the securities which were the subject of the high-
closings were misled as to the true market value of their securities as at
these month-, quarter- and year-end dates, which are frequently used for
reporting purposes. Any shareholders of those issuers, including other pension
and mutual funds and their unit holders, were similarly misled as to the true
market value and performance of the securities during the material time. As a
result of the high-closings, other pension and mutual funds and their unit
holders may also have been charged excessive management fees by their
respective portfolio managers.
41. Staff reserves the right to make such further and other allegations
as Staff may submit and the Commission may allow.
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF RT CAPITAL MANAGEMENT INC.,
K. MICHAEL EDWARDS, TIMOTHY K. GRIFFIN, DONALD E. WEBSTER,
JENNIFER I. LEDERMAN, PETER B. LARKIN, PETER A. RODRIGUES,
GARY N. BAKER, PATRICK SHEA AND MARION GILLESPIE
NOTICE OF HEARING (Section 127)
TAKE NOTICE that the Ontario Securities Commission (the "Commission")
will hold a hearing pursuant to section 127 of the Securities Act, R.S.O.
1990, c. S.5, as amended (the "Act") at the offices of the Commission, located
at 20 Queen St. West, Toronto, Ontario, in the Large Hearing Room, 17th Floor,
on Wednesday, July 19, 2000 at 10:00 a.m. or as soon thereafter as the hearing
can be held:
TO CONSIDER whether, pursuant to sections 127(1) and 127.1 of the Act, it
is in the public interest for the Commission to make an Order that:
(a) the registration of the Respondents RT Capital Management Inc. ("RT
Capital"), Peter B. Larkin ("Larkin"), and Gary N. Baker ("Baker") be
suspended or restricted permanently or for such time as the
Commission may direct;
(b) terms and conditions be imposed on the registrations of the
Respondents in (a) above;
(c) the Respondents Larkin, Baker, Patrick Shea, and Marion Gillespie
cease trading in securities permanently or for such period as the
Commission may direct;
(d) RT Capital submit to a review of its practices and procedures and
institute such changes as may be ordered by the Commission;
(f) the Respondents K. Michael Edwards, Timothy K. Griffin, Jennifer I.
Lederman, Donald E. Webster, Peter A. Rodrigues and Larkin be
prohibited from becoming or acting as a director or officer of an
issuer;
(e) the Respondents be reprimanded;
(g) the Respondents pay the costs of the Commission's investigation;
(h) the Respondents pay the Commission's costs of this hearing; and
(i) contains such other terms and conditions as the Commission may deem
appropriate.
BY REASON OF the allegations set out in the Statement of Allegations of
Staff of the Commission and such additional allegations as counsel may advise
and the Commission may permit;
AND TAKE FURTHER NOTICE that in the event that the Commission determines
that any of the Respondents has not complied with Ontario securities law,
Staff will request the Commission to consider whether, in the opinion of the
Commission, application should be made to the Superior Court of Justice for a
declaration, pursuant to section 128(1) of the Act, that such persons or
company have not complied with Ontario securities law and that, if such a
declaration is made, the Superior Court of Justice make such orders as it
considers appropriate, pursuant to section 128(3) of the Act.
AND TAKE FURTHER NOTICE that any party to the proceeding may be
represented by counsel if that party attends or submits evidence at the
hearing;
AND TAKE FURTHER NOTICE that upon failure of any party to attend at the
time and place aforesaid, the hearing may proceed in the absence of that party
and such party is not entitled to any further notice of the proceeding.
DATED at Toronto this day of June, 2000.
_____________________________
John Stevenson
Secretary to the Commission
TO: McCarthy T‚trault
4700 TD Bank Tower;
PO Box 48, Stn. Toronto Dom.
Toronto Ontario M5K 1E6
Paul Steep, Rene Sorell and Jeremy Devereux
Counsel for RT Capital Management Inc.
AND TO: McCarthy T‚trault
4700 TD Bank Tower;
PO Box 48, Stn. Toronto Dom.
Toronto Ontario M5K 1E6
Paul Steep, Rene Sorell and Jeremy Devereux
Counsel for K. Michael Edwards
AND TO: McCarthy T‚trault
4700 TD Bank Tower;
PO Box 48, Stn. Toronto Dom.
Toronto Ontario M5K 1E6
Paul Steep, Rene Sorell and Jeremy Devereux
Counsel for Timothy K. Griffin
AND TO: Donald E. Webster
AND TO: Goodman Phillips & Vineberg
Box 24, 2400-250 Yonge St.
Toronto Ontario M5B 2M6
Benjamin Zarnett
Counsel for Jennifer I. Lederman
AND TO: McCarthy T‚trault
4700 TD Bank Tower;
PO Box 48, Stn. Toronto Dom.
Toronto Ontario M5K 1E6
Paul Steep, Rene Sorell and Jeremy Devereux
Counsel for Peter A. Rodrigues
AND TO: Lenczner Slaght Royce Smith Griffin
2600 - 130 Adelaide St. West
Toronto Ontario M5H 3P5
Linda Fuerst
Counsel for Peter B. Larkin
AND TO: Torys
Suite 3000, Maritime Life Tower
PO Box 270, Stn. Toronto Dom.
Toronto Ontario M5K 1N2
James C. Tory
Counsel for Gary N. Baker
AND TO: Blake, Cassels & Graydon LLP
Commerce Court West
2800 - 199 Bay Street
PO Box 25, Stn. Commerce Court
Toronto Ontario M5L 1A9
Nigel Campbell
Counsel for Patrick Shea
AND TO: Fogler, Rubinoff
Royal Trust Tower
Toronto Dominion Ctr
Ste. 4400, PO Box 95
Stn. Toronto Dom.
Toronto Ontario M5K 1G8
Joel Wiesenfeld
Counsel for Marion Gillespie
TSE REGULATION SERVICES CHARGES
13 TRADERS WITH "HIGH CLOSING" OF
STOCK
- Charges stem from 1 year joint TSE/OSC investigation
- TSE to implement new trading supervision standards for securities firms
JUNE 29, 2000 (TORONTO) - TSE Regulation Services has charged 13 traders,
from 11 brokerage firms at the time of the offences, for violating TSE rules
against manipulative trading. The charges stem from a year long investigation
into the failure of traders to question and prevent trades when there was
reason to believe that the intended purpose of the trades was to establish an
artificial high closing price.
This is the largest slate of charges ever issued on one file by the TSE
and according to Senior Vice President of Market Regulation, John Carson,
"these charges should serve as a reminder that TSE Regulation Services will
take firm action against any trading practices that impair the operation of a
fair market".
"The TSE expects high standards of conduct and integrity from traders and
employees of firms," said Mr. Carson. "It is disappointing to see that so many
traders appear to have failed to comply with a rule that we have regularly
reminded people of." The investigation commenced when TSE Market Surveillance
detected "high closing" trades executed on or near the last trading days of
certain months and quarters. Further review by the Investigations and
Enforcement Division revealed that the trades were made in a number of
different stocks on behalf of a common client, RT Capital Management Inc., a
wholly owned subsidiary of the Royal Bank of Canada. The TSE forwarded this
aspect of the investigation to the Ontario Securities Commission, since the
TSE only has jurisdiction over its Participating Organizations. ...2
Investors and other market participants closely track the closing price
of stocks and investment funds when making investment decisions. Artificially
inflated closing prices by institutional fund managers on key dates such as
month and year-ends can misrepresent both a stock's price and a fund's
performance and value.
The comprehensive parallel investigations, involving both the OSC and TSE
Regulation Services, took approximately one year to complete. The successful
conclusion of the investigation is a result of the co-operation between the
two agencies.
"The large number of high closing allegations indicates a need for
brokerage firms to increase supervision of trading operations to help us
prevent and detect this type of activity, although in this case the trades
were directed to a number of different firms which made it difficult for any
one firm to detect a pattern of high closing activity," said John Carson.
TSE Regulation Services is developing new minimum standards to ensure
brokers firms effectively supervise trading operations. These standards are
being developed in consultation with the securities industry and will be
released by the end of this year. The objective is to clarify the TSE's
expectations of its brokerage firm |
