The Investment Dealers Association of Canada is warning its members that it plans enforcement action to ensure compliance with its broker-to-broker trade matching rule, Regulation 800.49.

The IDA has published a notice to highlight three main factors that have been identified, “as contributing to the current challenges facing members” in complying with its broker-to-broker trade matching rule; to recommend ways to address them; and to emphasize that enforcement action is the next step it will be taking to ensure compliance with this regulation.

The regulation requires IDA members to enter each non-exchange trade, involving eligible securities, executed by the member with another member, into an Acceptable Trade Matching Utility or accept or reject any trade entered into an Acceptable Trade Matching Utility by the other member within one hour of executing the trade.

To assist firms in improving their compliance rates, the IDA agreed to temporarily provide each firm with monthly compliance summaries of their individual and the industry’s broker to broker trades, and has been providing these summaries since February 2005. In addition, through its FAS Operations Subcommittee, the IDA has been monitoring the industry’s compliance progress. “The industry’s compliance rates have not been improving significantly as indicated by the industry’s non-compliance rates of over 40% for the last 12 months,” it reports.

Among the factors contributing to these low compliance rates, the notice identifies: an unclear definition of a direct participant trade vs. a client trade; the use of overnight batch trades; and, not excluding new issues, repos and IPOs, which are not subject to the rule.

The IDA says that enforcement action is the next step it will be taking to ensure compliance with the regulation. “The association is prepared to look through non-compliant transactions and DK’d transactions of a member to identify the member that is the cause of the non-compliance or the high number of DK’d transactions, which is a potential indicator of avoidance of the regulation,” it says. “Accordingly, the association requires that members retain sufficient records as part of their obligation to maintain proper books and records for audit and review so that the cause of each non-compliant transaction or DK’d transaction can be identified. Members that are believed to be non-compliant with or avoiding Regulation 800.49 will be referred to enforcement, and subject to the disciplinary process.”