RBC Dominion Securities Inc. (RBC DS) is being fined $1 million for violating trading rules by carrying out a large block trade in an interlisted stock off-market without first getting a regulatory exemption, the Canadian Investment Regulatory Organization (CIRO) said on Monday.
A CIRO hearing panel approved a settlement with the firm that saw it agree to a $1-million penalty and to pay $15,000 in costs to resolve allegations that it breached securities rules when it engaged in an unapproved off-exchange trade.
According to the settlement, in September 2023, the firm agreed to buy 51.2 million shares of Baytex Energy Corp. from three institutional clients — Rocky Creek Resources, LLC, JSTX Holdings, LLC, and Juniper Capital III GP, L.P. — and then to sell about 4.5 million of those shares to various other Canadian clients.
Originally, the trade was supposed to be executed by RBC DS and printed on the market — but, after consulting with the sellers, it was determined that the trade would be priced in U.S. dollars and executed as a block trade by RBC’s U.S. affiliate, RBC LLC.
The U.S. affiliate then transferred the shares to RBC DS, which sold the shares to its Canadian clients.
A couple of days after the trade was carried out, it was brought to the attention of CIRO’s market policy department by several other dealers, the settlement said. And, after RBC DS’ chief compliance officer was alerted, they filed a report confirming that it had not sought a regulatory exemption for the trade to take place off-market.
“The transfer of shares from RBC LLC to RBC DS and the sales to Canadian clients were done off-market, but RBC DS did not seek a regulatory exemption,” the settlement said. As a result, the transfer and sales breached Canadian trading rules and the firm’s own policies, the settlement noted.
The traders involved with the transaction were subject to internal discipline, the settlement said, and RBC DS agreed to provide training on trading rules to those traders “to ensure full understanding” of the requirements in these kinds of situations.
The firm has also updated its policies and procedures to guard against future breaches, particularly for block trades involving interlisted securities.