The Investment Dealers Association of Canada is seeking comment on its new conflict of interest rules.

The IDA does not currently have rules dealing with conflicts of interest. The rules have been in the works since 1996, when the Hagg Committee was convened, partly in response to the Cartaway Resources Corp. scandal. The Cartaway case involved an issuer that was controlled by a group of brokers which also promoted the company to the public.

The IDA had proposed conflict of interest rules back in 2002, but they have now been reconsidered. The major change to the rules proposed in 2002 is a narrowing of their scope. The IDA notes that it believes that the earlier draft would have imposed large costs on its members in exchange for little investor protection.

One of the major changes from the 2002 draft is the reduced scope of the rule from covering all securities the pro group may hold to only those securities for which the firm is providing services related to a private placement or public offering.

In the proposed rules, a pro group has been defined as including, both individually and as a group, the IDA member firm, employees, agents and partners, directors, officers and affiliates of the firm and their associates, if the pro group member has discretionary authority over the associate’s accounts.

Another change reduces the size of the pro group by excluding relatives and spouses of a pro group member if no pro group member has any discretionary authority over their accounts.

The proposed rule also includes a basket clause that would require disclosure of conflicts in situations not otherwise covered in the by-law in which investors would consider the conflict significant to their investment decisions.

The proposed rules will require disclosure of pro group holdings when pro group holdings exceed 10% and the dealer is acting as an underwriter or agent of an issuer’s private placement or public offering. The disclosure will need to be made to investors upon making recommendations or giving advice about the securities and on all trade confirmations.

The previously published rules required disclosures when a threshold was exceeded for any security held by the pro group, and also required disclosure of pro group holdings in research reports.

The proposed rules clarify the client priority rules and provide guidance as to how the rules work in relation to private placements.

The IDA says that it will work with its members and the Canadian Securities Administrators to determine the appropriate implementation of the proposed rules. The implementation period will be at least three months.