The Ontario Securities Commission has ruled that the Investment Industry Regulatory Association of Canada Inc. has the authority to continue proceedings against former Scotia Capital Inc. trader David Berry, even though he was no longer an employee when the proceedings were launched.

In a decision released by the OSC on Wednesday, the regulator dismissed an application by Berry, former head of preferred trading at Scotia Capital. Berry was seeking a review of a 2008 decision by Market Regulation Services Inc. (now the Investment Industry Regulatory Organization of Canada Inc.) refusing a stay of proceedings against him.

The proceedings were based on allegations that between April 2002 and April 2005 Berry contravened certain provisions of the Universal Market Integrity Rules while he was employed as a trader for Scotia. In particular, RS alleges that Berry solicited client orders during the distribution of new issues by Scotia, and conducted off-marketplace trades, contrary to UMIR rules.

But Berry had ceased to be an employee of Scotia by the time the RS Proceeding was commenced, and he argued that UMIR did not apply to him because he was no longer a participant or an employee of a participant.

The OSC dismissed Berry’s application for a review of the RS decision, concluding that Berry was subject to UMIR when he was an employee of Scotia, and that RS had jurisdiction to bring the proceeding against Berry as a former employee of a participant.

“RS had authority to commence and has jurisdiction to continue the RS proceeding against Berry and did not err in making the RS stay decision,” the OSC said in its decision. “The application is therefore dismissed.”

The case involved a challenge to the jurisdiction of Market Regulation Services to enforce UMIR against individuals within the jurisdiction of the Toronto Stock Exchange.

“This case has turned a magnifying glass on the manner in which the TSX migrated much of its regulatory functions to RS, and on the process of implementation of UMIR in 2001, which accompanied this transition,” the OSC said. “We conclude that UMIR are rules of RS and are applicable to and enforceable against participants and other persons within the jurisdiction of the TSX.”

In its decision, the regulator noted that the Toronto Stock Exchange had jurisdiction over former employees of TSX Participants at the time that it delegated compliance and enforcement jurisdiction to RS earlier this decade. It said that jurisdiction was retained when RS made UMIR and sought and obtained recognition and approval of UMIR from the OSC.

IE