By Tom Bradley
It was revealed last week that regulators are looking into potential conflicts of interest between the banks and their clients.
According to the Globe and Mail, the enforcement division of the Investment Industry Regulatory Organization of Canada (IIROC) is looking into a growth initiative by the Alpha Group, which operates an alternative trading exchange. The plan, called the ‘Momentum Initiative’ was implemented to encourage Alpha’s shareholders, which are Canadian banks and brokerage firms (Royal, National, BNS, TD, BMO, CIBC, Desjardins Group, Canaccord), to push more trades through the Alpha exchange as opposed to other exchanges including the TMX. (Note: We own shares in TMX in two of our funds)
Friday’s article referred to a presentation slide used at an Alpha shareholder meeting which described the Momentum Initiative as “establishing a market place driven by profit and the best interest of the industry.” Interesting.
This initiative, along with an ownership structure that rewards shareholders with more shares for putting more volume through the exchange, raises questions as to whether the banks/dealers are giving their investing clients the best possible execution for their stock orders. It’s hard to see how there isn’t a risk of abuse.
To that point, the article points out that last month BMO Nesbitt Burns agreed to pay a $250,000 fine after a settlement with IIROC “for not making strong enough efforts to guarantee that clients got the best price.” Hmmmmmm.
This news reinforces how lax Canada has become on conflict issues in certain parts of the investment and banking industry. As we pointed out in a previous posting (Conflicts of Interests? What Conflicts?), the regulators are hyper strict in some areas (we know because Steadyhand is a licensed mutual fund dealer), but totally relaxed in others.
I am delighted IIROC has taken on this issue. To me, it would be an unforced error for our regulators to stand by and watch as the banking oligopoly abuses its privilege. As I said in the previous posting, “We need to spend less time and resources trying to keep them [banks] out of business areas they will be good at, and more on monitoring and regulating areas of potential conflict that arise from their broad range of services.”