CFTC LAW | Forex, Futures and Derivatives Regulatory News » Canada IIROC

Global derivatives clearing worries Canadian regulator

Felix Shipkevich — Tue, 20 Sep 2011 21:30:15 +0000

Global derivatives clearing worries Canadian regulator

In remarks to the Society of Worldwide Interbank Finance in Ontario on Monday, the Bank of Canada’s Deputy Governor Tim Lane outlined the pros and cons of using large global clearing houses to trade OTC derivatives. While large offshore central counterparties (“CCPs”) can bring costs down through economies of scale, Lane points out that the undue concentration of risk in the hands of a few institutions might counteract the very reforms that regulators are trying to implement.

Canada, like many countries, is in the midst of creating and implementing financial reform legislation. As a member of the G-20, it is further obligated to specifically address OTC derivatives clearing, exchange-trading and data reporting. The country has already begun work on a new CCP specifically for repo loans and fixed-income transactions. However, says Lane, “fulfilling the G-20 commitments on OTC derivatives is a more complex task, requiring coordination among many stakeholders, with a wide range of possible outcomes.”

The Bank of Canada has two primary directions it can steer the reform of Canada’s $9 trillion OTC derivatives market. Either it can encourage Canadian firms to trade on large offshore CCPs, via clearing members, or it can create its own national clearing service. Using global CCPs is appealing on the surface, but Lane fears the concentration of so much risk in so few hands. Clearing member or institutional failure, or market abuse by the larger firms, could undo any benefits created by clearing requirements. In order to avoid these scenarios, the Deputy Governor says that “direct access has to be broadened.”

The alternative, creating a Canadian CCP to clear OTC Canadian-dollar interest rate derivatives, has a few advantages. It would be easier for Canadian regulators to oversee its activity, and might insulate (or at least cushion) Canada in the event of another global financial crisis. However, the creation of many national CCPs fragments the market and all but ignores the G-20′s call for international harmony.

Lane says that the Bank of Canada is still weighing its options: “In assessing the best clearing strategy for Canadian OTC derivatives, [we] are working with our domestic and international counterparts to ensure that global CCPs, particularly those of systemic importance to Canada, are able to deliver the intended benefits of financial stability. Second, we are actively exploring the possibility of developing a Canadian-domiciled CCP, in collaboration with the financial industry and other public policy institutions. We must choose the arrangements that best support the stability and efficiency of Canada’s financial system.”

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Economy Likely to Improve in 2011, Says Canada Bank

Felix Shipkevich — Thu, 24 Mar 2011 15:02:00 +0000

Economy Likely to Improve in 2011, Says Canada Bank

According to predictions by the National Bank of Canada, the economy will improve over 2011. However, just as the U.S. economy starts feeling its oats, a shock from Japan, temporary in nature, could slow the pace of monetary policy normalization in emerging Asia, keeping global liquidity abundant. Thus despite the Japanese disaster and a modest headwind from the recent rise of energy prices, the global economy is likely to do well in 2011, provided that geopolitical tensions remain contained.

Read the full report: http://www.forexstreet.net/profiles/blogs/economic-monitor-the-global

Penalty Hearing for Nott, Sadeghi, Kaplan, Nemy & Poulstrop Set

Felix Shipkevich — Thu, 13 Jan 2011 23:50:25 +0000

Penalty Hearing for Nott, Sadeghi, Kaplan, Nemy & Poulstrop Set

The Investment Industry Regulatory Organization of Canada (IIROC) will hear the case of Kenneth Nott, Aidin Sadeghi, Christopher Kaplan, Robert Nemy and Jake Poulstrop for purposes of imposing the correct penalty against them on January 26, 2011 (10 am) at the JRP Meeting Rooms in Toronto, ON.

The five individuals had violated the Universal Market Integrity Rules (UMIR) by entering artificial closing bids in 323 instances over a six-month period, in violation of UMIR 2.2. (2)(b) and UMIR Policy 2.2.

The penalty hearing to be conducted by the Hearing Panel of the IIROC is open to the public, unless the latter declares otherwise.

(Source: http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=6EB5C7FCC5C14FBDBCEF695F256CD4B9&Language=en)

Gateway Securities Inc.’s Offer to Settle Case to be Heard

Felix Shipkevich — Thu, 13 Jan 2011 23:50:00 +0000

Gateway Securities Inc.’s Offer to Settle Case to be Heard

The Investment Industry Regulatory Organization of Canada (IIROC) is set to hear on January 14, 2011 (10:00 am), at the Reportex Agencies Ltd. in Vancouver, BC, the offer of settlement filed by the Gateway Securities Inc.

Gateway Securities Inc. is charged of failing to meet IIROC’s minimum capitalization requirement as enunciated in Rule 17.1 and has been suspended under such charge since March 20, 2009.

The hearing is not open to the public until the Hearing Panel accepts the agreement.

(Source: http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=2B89527E1BA749BC96C38E3CCA2D0D41&Language=en)

CFTC ACTION: Scotia Capital Inc.

Felix Shipkevich — Fri, 29 Jan 2010 05:46:04 +0000

CFTC ACTION: Scotia Capital Inc.

The CFTC issued an order filing and simultaneously settling charges against Scotia Capital Inc., for prearranging trades in the natural gas futures contract on the New York Mercantile Exchange (NYMEX) during November and December of 2006.

The CFTC order imposes a $250,000 civil monetary penalty on SCI, an investment dealer in Toronto, Ontario, Canada and a wholly owned subsidiary of The Bank of Nova Scotia. Additionally, SCI was ordered to cease and desist from future violations of the Commodity Exchange Act.

On one or more occasions in November and December 2006, SCI prearranged natural gas futures trades on the NYMEX for its customers, according to the order. The trades were part of a strategy involving the purchase and sale of the same quantity of NYMEX natural gas futures contracts by one customer and the opposite sale and purchase of the same quantity of NYMEX natural gas futures contracts by the other customer, according to the order.

Prior to the trades being entered on the NYMEX, SCI employees arranged for the trades to be executed with a minimal price difference between long and short positions by seeking trades such that there was no more than a half a cent price differential between the buy and sell orders. These prearranged trades negated market risk and price competition and constituted fictitious sales and non competitive transactions, according to the order.

CFTC ACTION: Pinemore, L.P. and Birchmore, L.P.

Felix Shipkevich — Fri, 29 Jan 2010 04:48:28 +0000

CFTC ACTION: Pinemore, L.P. and Birchmore, L.P.

The CFTC issued an order filing and simultaneously settling charges against Pinemore, L.P. and Birchmore, L.P. , two Canadian limited partnerships based in Calgary, Alberta, Canada, for engaging in unlawful wash sales in the natural gas futures contract on the New York Mercantile Exchange (NYMEX) during November and December of 2006.

The order imposes a $250,000 civil monetary penalty each on Pinemore and Birchmore, two limited partnerships controlled by the same general partner and with substantially identical ownership. Additionally, the firms were ordered to cease and desist from future violations of the Commodity Exchange Act (CEA).

According to the order, on one or more occasions in November and December 2006, Pinemore and Birchmore ordered through their broker certain natural gas futures trades on the NYMEX that were wash sales. The trades were part of a strategy involving the purchase and sale of the same quantity of NYMEX natural gas futures contracts by Pinemore and the opposite sale and purchase of the same quantity of NYMEX natural gas futures contracts by Birchmore.

Because the trades ordered by Pinemore and Birchmore were designed to give the appearance of submitting trades to the open market, while negating the risk incident to the market and producing a virtual financial nullity, they constituted wash sales in violation of the CEA.

New complaint handling standards for IIROC-regulated firms

Felix Shipkevich — Tue, 22 Dec 2009 00:49:06 +0000

New complaint handling standards for IIROC-regulated firms

The new complaint handling rule sets standards and timelines for IIROC- regulated firms to acknowledge, investigate and respond to client complaints about their accounts.
Under the new standards the firm has five business days to acknowledge receipt of the client’s complaint. The firm must investigate the complaint and provide its response to the client within 90 calendar days. When firms are unable to respond within 90 days, they are expected to explain the reason for the delay to the client and to IIROC.
The new rule sets clearer standards on how firms should handle investor complaints. This includes appointing a Designated Complaints Officer with the knowledge, experience and authority to manage the complaint handling process and to act as a liaison with IIROC. Firms must provide clients with clear and easily accessible information about their complaint handling process.
The rule also aims to promote more effective communication with clients. Clients will be informed about complaint handling procedures and other options available to pursue complaint disputes at account opening, when they make a complaint, and when the firm provides them with its final response. These communications will include the IIROC-approved An Investor’s Guide to Making a Complaint brochure.

IIROC invites public comment on arbitration program

Felix Shipkevich — Thu, 17 Dec 2009 01:00:15 +0000

IIROC invites public comment on arbitration program

IIROC issued a Rules Notice Request for Comments on its Review of IIROC Arbitration Program.
Commencing in the fall of 2008, IIROC undertook a comprehensive review and evaluation of the arbitration program. The results are discussed in the Notice.

IIROC invites public comment on the matters raised in the Notice and, particularly, the following:

1. the benefits of arbitration and the viability of the program;

2. the experience of parties to arbitration cases under the program and suggestions to improve effectiveness and utilization of the program; and

3. IIROC’s proposal to increase the award limit under the program from the current limit of $100,000.

Comments will be accepted until March 16, 2010. Comments will be posted on the IIROC web site.

Request for Comments – Proposed Amendments to the Universal Market Integrity Rules

Felix Shipkevich — Fri, 13 Nov 2009 16:36:47 +0000

Request for Comments – Proposed Amendments to the Universal Market Integrity Rules

The Proposed Amendments would:
•repeal the rule and policies respecting the “best price” obligation of Participants;
•provide that the Order Protection Rule can not be avoided when a Participant is considering a trade on a foreign organized regulated market;
•require a Participant or Access Person to have adequate policies and procedures for the
handling of orders that do not rely on a marketplace to ensure compliance with the Order
Protection Rule;
•make a number of consequential changes to UMIR including:
repealing those portions of the rules and policies on trading supervision and gatekeeper reports dealing with the “best price” obligation from, confirming that the “best execution” obligation is subject to the Order Protection Rule, introducing a marker for a “directed action order” as defined for the Order Protection Rule, and extending the existing provisions of UMIR governing foreign currency translation and the calculation of the value of an order to the determination whether the execution of certain trades on a foreign organized regulated market may give rise to an obligation to fill “better-priced” orders on a marketplace.

Unregistered dealer Horizon FX Investments lost millions

Felix Shipkevich — Wed, 11 Nov 2009 04:29:03 +0000

Unregistered dealer Horizon FX Investments lost millions

B.C. Securities Commission issued a notice of hearing against a Cem Ali, president and sole director of Horizon FX Investments, alleging that he fraudulently induced nearly 1,000 people to invest $34 million in foreign exchange contracts. The money was placed with a New York foreign exchange trading firm called Razor FX, which was exposed as a Ponzi scheme in January 2008 and has since collapsed. Horizon FX investors, most of whom are B.C. residents, have so far lost $25.5 million, the commission said.