Almost 10 years after the infamous Cartaway Resources Corp. debacle, the Investment Dealers Association has passed a rule dealing with such conflicts of interest.

The long-awaited rule, passed Monday at the IDA’s board meeting in Mont Tremblant, Que., IDA is designed to require firms to disclose when their employees collectively own a significant share of an issuer they are also involved with as an underwriter, agent or promoter. The Cartaway case highlighted the numerous conflicts that can arise when several employees of an investment dealer (in that case, First Marathon Securities Ltd.) take control of a firm and then also act as its agent in subsequent public offerings.

The rule will now have to be approved by the Canadian Securities Administrators, says IDA senior vice president, Paul Bourque. A version of the rule was approved by the IDA in 2002, but Bourque says that regulators essentially agreed to put it on hold while they also grappled with analyst conflict-of-interest rules.

The new rule casts a rather broad definition of the so-called “pro group”, including all employees in a firm (even those who aren’t registered). It also catches dealers’ family members whose accounts are controlled by a dealer employee. The threshold for defining a significant interest will be 10% of the outstanding shares — when the so-called pro group collectively controls more than this amount then firms will be required to disclose this fact to clients and in account statements.

For firms, this will mean they must set up systems to track their employees’ holdings, and they will have to closely keep account of these companies’ outstanding shares so they’ll know when the disclosure obligation is triggered.

Bourque said the rule is somewhat contentious with some of its members, who shrink from the added cost of tracking these things. However, he notes that the rule only covers stocks that a firm is otherwise involved with, either in marketing a new issue, or a private placement.

Along with disclosure obligations, the new rule will also include clause mandating client priority; and, one requiring disclosure of any other general conflicts of interest.

Apart from some other housekeeping amendments, Bourque reports that the IDA also passed a by-law requiring firms to have business continuity plans. While it doesn’t mandate firms’ preparations, it does lay out a series of best practice guidelines for firms to follow.