Scotia Capital Inc. has admitted it failed to adequately supervise clients who were doing “high closing” trading manipulations to boost share prices at the end of trading days in 2009.
The Investment Industry Regulatory Organization of Canada, which is Canada’s brokerage industry regulator, approved the settlement details at a hearing Tuesday, requiring Scotia Capital to pay $150,000 in penalties and $10,000 to cover IIROC’s investigation costs.
IIROC alleged Scotia Capital did not have adequate policies in place between June, 2009, and November, 2011, to detect potential wash trades and high closing practices.
“As a result of these deficiencies, the respondent failed to prevent and detect patterns of potentially manipulative trading by two clients,” IIROC said in a statement of allegations in the case.
High closing is a practice of artificially boosting share prices late in a trading day by to give the appearance a stock closed the day at a higher price.
Wash trades are trades in which the same person is both buyer and seller, which gives the appearance of activity in a stock and can temporarily create an artificially high share price.
IIROC alleged one Scotia client engaged in about 60 artificial pricing transactions in three shares between June and October of 2009. A second client did 27 artificial pricing transactions in two securities. Scotia did not detect the trades at the time, IIROC said.
IIROC said the breaches happened after Scotia bought discount brokerage firm ETrade Canada in 2008 and began integrating its operations into Scotia Capital.
The firm had a procedure in place to check if the same client account number was involved in both the purchase and sale of shares, IIROC said, but it did not have any procedure in place to monitor if two accounts owned by the same client were doing wash trades in shares.
IIROC said Scotia improved its monitoring practices by 2011, which was a mitigating factor in the settlement decision.
The firm also fully co-operated in the investigation, IIROC said.Report Typo/Error