Earlier this week, the Nova Scotia Securities Commission reprimanded a financial planning firm for allowing their adviser to carry out trades in Nova Scotia though he was not registered to do so. The firm had to pay $10,000 in fines and $1200 in costs. Is your adviser properly registered?
In Canada, anyone trading securities or in the business of advising clients on securities must be registered with the provincial or territorial securities regulator, unless an exemption applies. A securities regulator will only register firms and individuals if they meet certain standards.
Remember that an adviser must be registered in the jurisdiction where their clients live. So if you chose to do business with an adviser in Toronto, but you live in Antigonish, your adviser must be registered in Nova Scotia. If you are working with an adviser in Sydney, and you move to Alberta, you must either transfer to an adviser registered in Alberta, or your current adviser must register there to keep your business.
Use the National Registration Search to find out if an individual or firm is registered in your province or territory.
The category of registration tells you what products and services a firm or individual can offer. Being registered, however, doesn’t mean that firms and individuals have the same skills, provide the same services or charge the same fees. Make sure you understand their qualifications, and the product or service they are selling you.
Tagged as:
advisers,
registration,
rules
Dick* works for a small technology company on Canada’s East Coast. He is a programmer, and spends much of his time working from home.
One day while reporting for a team meeting, he was surprised to find the office a-buzz with rumours about a possible corporate takeover. It was all still a secret he was told, but a major international technology firm was apparently in negotiations with their board of directors. Everyone was wondering what it would mean locally: more investment and more jobs, or perhaps the opposite – cut backs and layoffs?
That evening over dinner, Dick discussed the situation with his sister Jane. While they decided things must be looking up if there was to be a takeover, and he needn’t worry about his job, Jane did bring up an interesting point.
“Don’t you earn stock options as a part of your compensation? I bet a takeover would drive the stock price up. You should buy now to take advantage of that.”
“Great idea, Jane,” said Dick. Why didn’t I think of that?”
The next day, Dick logged into his online account, and exercised his options, buying hundreds more shares in the company he worked for.
Six weeks later, the takeover was announced. Stock prices increased by about 40% in a few short weeks. Dick sold most of his shares to lock in a profit, and was quite excited. He even took Jane to dinner to celebrate their smart investing choices.
The next day, Dick was surprised to receive a call from the Securities Commission. They had questions about his recent account activity, and were investigating whether he acted on confidential insider information.
“I’m not an insider,” he thought. “I’m a programmer. Don’t those rules only apply to senior executives?”
What did Dick do wrong?
Securities laws prohibit a person in a special relationship with a reporting issuer from trading based on material information that is not available to the general public. By definition, an “insider” is someone in a position to know important, non-public information about a company, such as senior management.
However, anyone in an organization who becomes aware of such information, such as research and development teams or public relations staff, can be considered as a person in a special relationship with the organization, and is not allowed to trade on that information until it is available to the public. These rules keep markets fair for all investors, as everyone is making choices based on the same information.
Dick and Jane were not aware of the rules regarding insider information, but lack of knowledge does not protect them. It is important for anyone investing on their own behalf to know that they are governed by the same laws as professional traders. Ensure that you are aware of the rules in your jurisdiction.
A good resource to start with is the Rule Book of the Investment Industry Regulatory Organization of Canada (IIROC). Or, if you can handle the legal jargon, read the NS Securities Act.
You may also want to consider investing in more formal training – take a finance class at a university or community college, or sign up for the the Canadian Securities Course. It is a small investment for some valuable knowledge.
*Dick and Jane are fictional characters. The scenario however, is not that uncommon.
Tagged as:
insider trading,
online trading,
resources,
rules
