The Investment Dealers Association of Canada today issued a member regulation notice on improper sales practices.

The IDA says it issued the reminder in the wake of Canadian Trading and Quotation System Inc.’s application to repeal Rule 10.

Rule 10 was passed when CNQ was a quotation and trade reporting system and deals with abusive sales practices previously used in connection with the distribution of junior, over-the-counter equities.

These practices resulted in actions by the Ontario Securities Commission causing several dealers who operated primarily in that market to cease operation.

The IDA says that although it has not seen any pattern of recurrence of such sales practices, it is reminding IDA firms that such practices are contrary to are improper and constitute violations of IDA regulations whatever the instrument or market.

The practices in question include:

  • Use of high pressure sales tactics in order to induce a person to buy, sell or hold a security or other investment product. Such tactics frequently feature the imparting of a sense of urgency in order not to miss out on an opportunity for profit, veiled promises of significant and immediate returns or hints of insider information on upcoming deals or announcements by the issuer.
  • Taking advantage of a person’s inability or incapacity to reasonably protect his or her own interest because of physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of any matter relating to a decision to buy, sell or hold a security or other investment product.
  • Making of any statement which the dealer or registered representative knows or reasonably ought to know is false or misleading to induce a client to buy, sell or hold a security or other investment product.
  • Employing a tiered or other sales forces structure that purports to relieve a person making recommendations directly or indirectly to a client from the obligation to ensure that the trade is suitable for the client.
  • Reducing or retracting all or any portion of the sales commission paid or payable to a registered representative in connection with a sale of a security in the event the client to whom the security was sold resells it.