The requirement for a person or company to register as an adviser in Nova Scotia to advise Nova Scotia residents on the buying or selling of securities has been in the Securities Act since it came into effect in 1987. In September of 2009, the Canadian Securities Administrators adopted National Instrument 31-103, which was intended to harmonize registration requirements across the country (previously, requirements were slightly different in each province or territory). Firms were given a one-year transition period in which to comply with the changes.

In some jurisdictions, this means stricter rules, but in Nova Scotia, the rules are still the same. An adviser must be registered in the province if he or she wishes to advise Nova Scotia clients about buying or selling financial products.

Whether US brokerage firms choose to operate in Canada is a business decision, based on weighing the costs of registering with the profit to be gained. The announced amendments to the rules may have prompted them to reconsider their operations here, but there is no new law restricting them from doing business in Nova Scotia.

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.

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.

A few weeks ago, the markets dipped, and her portfolio decreased in value. So much so that she received a “margin
call.” She needed to deposit a minimum of $500 to keep her account in good standing. Before she made the transfer, she happened to be chatting with her brother, Dick.*

“Don’t worry about it,” Dick said. “Let me show you a trick my friend showed me.”

“You own some shares that trade in pretty low volumes. Log on at the end of the day, just a few minutes left, and enter a bid at a higher than market price. It is not likely to fill, but as the last bid of the day it will raise the closing price on the shares – which will raise the value of your portfolio, and you will no longer have a margin call.”

“Really?” asked Jane. “Is it that easy?”

“Absolutely, said Dick. “People do it all the time. Works like a charm.”

So Jane entered her late day order, the closing price went up, and she didn’t have to deposit any additional funds to her account. She did this for the next four days, at which point the market recovered and her margin was no longer a concern. A few weeks later, when prices fell again, she did the same.

Only this time, she was shocked to get a call from the Securities Commission, who said her account had been red-flagged by market surveillance. They wanted to talk to her about suspicious trading activities.

What had Jane done wrong?

While she may not have realized it was wrong, Jane had been using her account to intentionally manipulate market prices. According to securities laws, any orders must be entered with an intent to trade. Jane had no interest in buying the shares – only in driving the price up. Her actions were therefore in contradiction to the Securities Act, and could lead to an investigation and proceedings by the Securities Commission.

It is important for anyone trading on their own behalf to be aware that they must abide by the same rules as professional traders. Ensure that you are aware of the rules in your jurisdiction.

A great place to start 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 taking an investing course, such as the Canadian Securities Course – a small investment for some valuable knowledge.

Do you trade online? Are there rules or scenarios you are unsure of? Please feel free to ask. We will do our best, with Dick and Jane’s assistance, to answer your questions.

*Dick and Jane are fictional characters. The scenario however is not that uncommon.