IDA proposes standards of conduct for retail bond market

The Investment Dealers Association of Canada is proposing amendments to its policies to establish proper standards of conduct in the retail bond market, and to clarify standards in the wholesale side of the market. However, it declines to regulate compensation in the retail market.

The IDA reports that its existing policy sets standards for participants in the wholesale debt market, including requirements for firm standards and procedures, dealings with customers and counterparties, market conduct and enforcement. However, its members find the policy too general; it’s duplicative; and, it doesn’t address the retail market at all. The proposed amendments aim to fix these problems.

Among other things, the amendments:

• reiterate the provisions of the revised policy that are applicable to retail debt trading;
• require members to have written guidelines on mark-ups and commissions for fixed income products and to have monitoring systems to ensure that any mark-ups or commissions exceeding those guidelines are justified; and
• add sections that contain a more specific list of offences, including types of specific activity that constitute fraudulent, deceptive or manipulative practices or takes unfair advantage of customers, counterparties or material non-public information.

The IDA notes that the Retail Fixed Income Subcommittee considered whether to implement specific mark-up limitations. And, both the policy review committee and the Retail Fixed Income Subcommittee considered whether to include a specific best execution obligation.

“The committee decided not to implement mark-up limitations as the association has not regulated compensation for services since the elimination of fixed commission rates,” it says. “While disclosure of mark-ups may be an issue, the committee considered that it would be dealt with in the CSA/SRO Registration Project which is implementing many of the recommendations of the Fair Dealing Model.”

“With regard to best execution, both committees believe that a best execution obligation is implicitly included in the ‘duty to deal fairly’,” it adds, “and that further specific provisions better defining the nature of the best execution obligation should await the completion of the current CSA project looking at the best execution issue on a broader basis.”