Quick Facts
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Fine Amount: $1,000,000 (plus $15,000 in costs and mandatory training)
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Primary Violation: Trading securities off-market without seeking a regulatory exemption, contrary to UMIR 6.4
- Regulator: Canadian Investment Regulatory Organization (CIRO)
- Fine Date: 28-Oct-24
Overview
RBC Dominion Securities Inc., a Dealer Member and affiliate of RBC Capital Markets, settled with the Canadian Investment Regulatory Organization (CIRO) for a $1,000,000 fine, $15,000 in costs, and a requirement to implement training on UMIR 6.4 requirements.
The settlement addressed a contravention where the firm executed off-market trades in shares of Baytex Energy Corp. on behalf of Canadian clients without entering orders on a marketplace or obtaining an exemption, violating Universal Market Integrity Rule (UMIR) 6.4.
Details of the Case
On September 18, 2023, RBC Dominion Securities Inc. (RBC DS) participated in a transaction involving the purchase and sale of Baytex Energy Corp. (BTE) shares, an inter-listed security traded on the Toronto Stock Exchange and New York Stock Exchange. The deal entailed acquiring 51,161,332 common shares from three selling shareholders (Rocky Creek Resources, LLC, JSTX Holdings, LLC, and Juniper Capital III GP, L.P.) at a take-on price of US$4.125 per share.
Initially planned for execution on a marketplace, the purchase was instead handled in USD as a block trade by RBC DS's U.S. affiliate, RBC Capital Markets LLC (RBC LLC), and transferred to RBC DS via journal entry. The subsequent sales to ten Canadian clients occurred off-market at US$4.17 per share, without RBC DS seeking an exemption from CIRO under UMIR 6.4(2)(b) or UMIR 11.1, or qualifying under any other exemption in UMIR 6.4(2).
This lack of marketplace entry reduced transparency, harming market integrity. RBC DS self-reported the issue via a Gatekeeper Report on September 22, 2023, after inquiries from other Dealer Members. The firm had existing controls, including 2019 training on UMIR 6.4 and policies requiring marketplace trades unless exempted, but these failed to prevent the contravention. Post-incident, RBC DS revised supervision systems and provided additional training. This was a repeat offense, following a similar $500,000 fine in 2019.
WORKED EXAMPLES
Off-Market Transfer from Affiliate
On September 18, 2023, 51,161,332 BTE shares were transferred from RBC LLC's account to RBC DS's account via journal entry, bypassing marketplace entry. This internal movement did not comply with UMIR 6.4(1), which mandates orders on a marketplace unless exempted, and no exemption was sought or applicable.
Sales to Canadian Clients
RBC DS sold 4,547,100 BTE shares (8.9% of the total deal) to ten Canadian clients off-market at US$4.17 per share, generating US$204,619.50 in revenue. These sales occurred without marketplace printing or exemption under UMIR 6.4(2).
Failure to Seek Exemption
Despite making five exemption requests to CIRO between February and September 2023 for other transactions, RBC DS did not apply for one here under UMIR 6.4(2)(b) or 11.1. The firm was aware of the process from prior experience.
Post-Trade Inquiries and Reporting
On September 20, 2023, several Dealer Members contacted CIRO's Market Policy department, questioning why the unwinding trade was not printed on a marketplace. RBC DS's Chief Compliance Officer became aware on September 21, 2023, and filed a Gatekeeper Report on September 22, 2023, acknowledging no exemption was sought.
Prior Similar Contravention
In 2019, RBC DS was fined $500,000 for executing off-market trades without exemption, involving a fine plus training requirements. The current case involved repeat conduct relatively close in time.
Fines and Penalties
The total penalty amounted to $1,015,000, broken down as follows:
- Fine: $1,000,000
- Costs: $15,000 Additionally, RBC DS must implement a training program on UMIR 6.4 requirements for employees involved in the transactions.
Key Quotes
"The failure to disclose the BTE Trades on a marketplace created a lack of transparency that is harmful to market integrity and the orderly operation of the marketplace." (From the Hearing Panel's Reasons for Decision)
"Investor protection and fair and efficient capital markets are the primary goals of securities regulation. Settlements play an important and necessary role in meeting these objectives." (From the Hearing Panel's Reasons for Decision, citing Pezim v. British Columbia)
"The circumstances of the present case and contravention are similar to those in Re RBC Dominion Securities et al 2019 IIROC 30. The current contravention involved essentially repeat conduct relatively close in time to the past case." (From the Hearing Panel's Reasons for Decision)
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