The OSC has announced it:
will hold a hearing to consider the Application made by David Berry for a review of a Market Regulations Services Inc. decision dated November 8, 2007.
The hearing will be held on March 6, 2008 at 10:00 a.m. on the 17th floor of the Commission’s offices located at 20 Queen Street West, Toronto.
There are ten elements to the application; I find the most interesting one to be the first, which asks for, among other things, better disclosure of the “materials relating to settlement negotiations between RS Staff and each of Marc McQuillen (‘McQuillen’) and Scota Capital Inc.”
The David Berry Saga was last reported at PrefBlog on December 12. Readers will remember that I am not impressed by Scotia’s business practices or by Regulation Service’s eagerness to be used as a negotiating tool.
OK, I’m a little confused now. You mentioned a couple of days ago that the [pref] market was small and volatile by nature, and this created the opportunity for you to profit. I, on the other hand, have been ragging about the questionable trading practices of who I believe to be, an RBC mutual fund manager. We’re probably both pretty much right with our thinking, but now you’re talking about Regulation Services taking a role.
Mr. Hymas, you have to step back from this now and then, and look at the larger picture. We have banks that issue their own securities, actively trade in these securities, while at the same time, employ analysts to rank the same securities . . . and no one including Regulation Services sees any conflict of interest in that.
We have “market pros” that are permitted to trade aggressively in the stock of the companies they are being paid to “make market” for. These companies are so ashamed of this practice that most cloak their identities in Level II by referring to themselves as broker 1 aka “anonymous”. Amazingly, only these “institutions” are permitted to use this tactic. I’ve mentioned the other cloaking device they use as well, the so-called ‘ice-berg” order. Can I strategically advance my cause as a retail investor by using icebergs? NO. Can I mislead other investors by coming into the market anonymously? NO. Does Regulation Services see a conflict in this? NO.
Why not? Because the OSC, and Regulation Services has absolutely no interest in representing correct ethics. So Scotia’s business practices, and for that matter, the practices of just about every market participant other than the lowly retail investor, will continue to go on unchallenged . . . as if Regulation Services does not even exist.
We all have to just accept it . . . or find somewhere else to play.
I have no problem with banks issuing, trading and recommending their own issues (excepting such egregious examples of market manipulation such as insider trading and issuer-abetted short squeezes, for example) They are not breaking any fiduciary obligation by doing so; therefore the only ones who can possibly be hurt by this stuff are the stupid.
I am not entirely sure, but I believe that all retail orders from E*Trade are marked “anonymous”. If you believe that your order execution service should be allowing you to enter anonymous and iceberg orders, that is a matter between you and your execution service and has nothing to do with the regulators.
My criticism of Scotia’s business practices has to do with the method they chose to achieve their aims in contract negotiations with Mr. Berry, not with the market impact of any of their trading strategies.
“stupid”?!
It’s been said that there are no players in the market that fit this description . . . but there are many that are . . . “unlucky”!
OK, we’re both approaching this from two totally different viewpoints. As I continue to read your material, as well as your responses to me, I’m constantly reminded that your approach is from a position of pure investment, and all the detail that accompanies it. That is a good thing, especially considering what you are doing with this blog, and I presume, your other investment products. If you had more of a trading approach, you would know that E*Trade is listed as broker 88, and my description of broker 1 (aka anonymous) is accurate.
In any case, I, on the other hand approach the market from a pure trading perspective. Investment is obviously important as well, but my comments usually pertain to trading-related issues.
I’ve dealt with a number of different brokers, and all confirm that “iceberg” orders, and the option of listing orders under broker 1 are institution-only tools, and Regulation Services is the body that is responsible for this. Perhaps the people I have spoken too were misinformed, but they are consistent in their explanations, so I tend to buy into it.
As for the conflict of interest point with related-issuers, I guess we can agree to disagree on that one. I see it as a total perge of fiduciary obligation, and although opportunity is sometimes created as a result, I just think it’s wrong.
madequota
p.s. OK, there is one “stupid” player in the market . . . the RBC guy . . . look at the prefs today . . . on fire across the board once again, but RBC is overhanging RY.PR.A all morning long with 5000 share offers at $21.75 . . . RY.PR.F, last traded at $21.80 +.23 on the day, with nothing else offered until $22.38 . . . who’s overhanging at $21.80 with 5000 share lots? you know.
I guess this is one of those “conflicts of interest” that creates opportunity for the “lucky”!
You may well be correct that iceberg orders are restricted to institutional investors by Regulation Services – I cannot find anything explicit on their website, but that does not necessarily prove anything. Embarassment aside, I will reiterate my contention that the decision by execution services to allow or disallow their clients to place such orders is none of their business. I have sent them an eMail of inquiry – I would be interested in the truth or lack thereof of this belief.
As I mentioned on January 18, I consider RS’s position on algorithmic trading to be patronizing and counter-productive – but that’s a side issue.
I’m sure I heard at one point that there was an execution service which marked all their client orders anonymous; I’ll do some more asking around.
Related-issuer issue analysis is always going to be a flashpoint for conflicting views. I contend that there is no fiduciary obligation without an exchange of cash; that the fiduciary obligation between Joe Retail and his brokerage is strictly between Joe Retail and the guy he talks to, who signed his KYC and gets the commission; and that the stockbroker can pass along anything he likes to the client as long as he, personally, is willing to take responsibility for it. There are other views.
… PS … if you feel that RY.PR.A is being offered unreasonably cheaply, you should snap it up, and write the RBC guy a short note of thanks!
Anonymous Trading for Retail … sorry, not E*Trade, but Interactive Brokers.
Good evening!
Thank you for the response(es)! I’m anxious to hear the result of your email to RS as well. You are right about related-issuer items being an on-going hot button. Traders can only try to work with the concept, hopefully to their advantage, and accept it as a reality of equity investing in Canada.
With regard to RY.PR.A, it was the only RY pref today that did not close up nicely. That reality in itself serves to uphold my original comment. And yes, my final remark above confirms my agreement with your PS!
madequota
[…] And, sadly, once any plan is implemented it will meet its unstated purpose of creating a well-defined scapegoat for any blow-up. As Scotia is proving in the course of its battle with David Berry: if you want to get somebody, and are prepared to spend enough money on enough lawyers to check through things carefully enough, you can “get” anybody … and pretend to be shocked at what you’ve found. […]
[…] The next chronological step in this process is the OSC hearing on March 6, which has been brought by David Berry to obtain disclosure of materials relating to the RS investigation of the affair and the RS settlements with Scotia and Marc McQuillen. The OSC is being appealed to after a denial of such disclosure by a Regulation Services panel. […]
[…] have previously reported an OSC hearing held into the David Berry contractual […]