Brokerages should disclose more: Committee
TORONTO - Small investors are often not treated fairly and investment firms don't tell clients enough about their own stock trading, a committee set up to look at conflicts of interest in the brokerage industry says.
In an interim report Thursday, the industry committee recommends new rules designed to align the interests of brokerage firm employees with their clients.
The rules would require a brokerage firm to disclose when employees and the firm together hold more than 10 per cent of a company's stock and prevent employees from cashing out quickly on shares bought at a deep discount in private deals.
The committee concluded there is a public perception that small investors are often not given an opportunity to take part in attractive financing opportunities for small and mid-sized companies.
"Many small investors tend to view the financing process for emerging companies as an "insiders game,' with the attractive offerings taken up by the insiders and other sophisticated investors and less attractive offerings left to the public retail investor," the report says.
John Hagg, chairman of the 12-member committee and chief executive of Calgary-based Northstar Energy Corp., told a news conference the regulators should rigorously enforce existing conflict-of-interest rules.
"We're just reinforcing to the regulators: "You've got rules now, use them,' " he said.
The committee was set up by the country's four stock exchanges and the Investment Dealers Association of Canada in September. It was in response to a Globe and Mail investigation that revealed a group of eight men at Toronto-based First Marathon Securities played multiple roles as major investors, promoters and underwriters in at least nine penny stock promotions, including one for Cartaway Resources, an infamous junior mining firm.
The industry was also rocked last summer by revelations that brokers from Yorkton Securities of Toronto were involved with Timbuktu Gold Corp., described as one of the great scams of Canadian market history.
The committee, made up of eight securities industry representatives and four executives, had a mandate to review the adequacy of existing rules faced by brokerage firms and their employees.
"What impressed me was how little dirt we were able to surface," Hagg said. "For every transaction like the Timbuktu and Cartaway stories, there's dozens and dozens of bona fide transactions."
The committee is asking the industry to comment on its interim report and urging the regulators to implement its recommendations as soon as possible.
It said members strongly opposed an outright ban on having brokers participate in private placements.
Instead, it wants brokers to hold cheap shares bought through private placements for anywhere from six months to two years. That would prevent them from selling their cheap shares quickly into the market at a higher price.
The committee also urged provincial securities regulators to adopt personal trading rules governing mutual fund companies and their employees. |
