Quick Facts
Overview
The Canadian Investment Regulatory Organization (CIRO) fined Desjardins Securities Inc. $225,000, plus $623,924.73 in disgorgement and $25,000 in costs, for failing to establish and maintain an adequate supervision system over the activities of two registered representatives.
This allowed improper over-the-counter (OTC) trades enabling ineligible Québec clients to access new issues and a take-over bid, as well as unsuitable options trading strategies resulting in significant client losses.
Details of the Case
Desjardins Securities Inc., a CIRO dealer member, had shortcomings in its supervision policies and procedures that permitted misconduct by representatives JV and MB. For JV, the firm allowed orders that circumvented prohibitions on Québec residents participating in certain new issues and a take-over bid through OTC cross-trades via an eligible out-of-province client.
These occurred despite the firm's knowledge and involvement, with no initial intervention to prevent circumvention or verify trade prices. For MB, the firm enabled an active options trading strategy for two clients that lacked sound business practices, leading to unsuitable trades for one client and substantial losses, without adequate oversight or alignment with client profiles.
WORKED EXAMPLES
OTC Trade Circumvention (February 2021)
Representative JV placed orders for three Québec clients to access an ineligible new issue by purchasing units through an eligible client in another province, then reselling via OTC cross-trades before secondary market trading. The firm executed these while JV was under strict supervision, with commissions netting $6,188.03 after deductions; no measures were taken to enforce the prohibition, and JV set prices without verification.
Prior OTC Instances (2019 and 2020)
JV used the same modus operandi for a new issue in 2019 and a take-over bid in 2020, enabling Québec clients to participate indirectly. The firm permitted these without triggering responses or preventive actions, despite being aware through trade entry details.
Options Strategy Losses for Client GDB (June 2020 - February 2022)
MB implemented an active options strategy resulting in $468,809 capital losses from 379 trades, despite the portfolio's 27.54% overall return. The client's KYC was updated from medium risk (80% moderate/high risk securities) to 100% high risk and 70% speculative, not reflecting true objectives but aligning with the strategy.
Options Strategy Losses for Client FML (August 2020 - November 2021)
MB's strategy led to $52,931 capital losses, with the portfolio returning just 0.19%. No target return guided the approach, which relied on short-term share price fluctuations.
Fines and Penalties
The total penalty imposed on Desjardins Securities Inc. was broken down as follows:
- Fine: $225,000
- Disgorgement: $623,924.73
- Costs: $25,000
Key Quotes
"The Respondent’s policies and procedures respecting supervision contained shortcomings which permitted: (a) on three occasions, in 2019, 2020 and 2021, the acceptance of orders received from its representative JV, with the intention of enabling clients residing in Québec to participate in new issues as well as a take-over bid for which they were not eligible." (From the Settlement Agreement)
"From June 2020 to February 2022, for two clients of its representative MB, the implementation of an active options trading strategy that was not within the bounds of sound business practice, and which, for one of these clients, resulted in options trades that were unsuitable for that client." (From the Settlement Agreement)
"The trades were executed by JV while under strict supervision by the Respondent." (From the Decision on Acceptance of Settlement Agreement)
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