The Investment Dealers Association of Canada (IDA) is allotting $7.2-million it collected in fines to 17 mutual fund firms, which will pass the money to unitholders affected by market timing in funds.
Late last year, RBC Dominion Securities Inc., BMO Nesbitt Burns Inc. and TD Waterhouse Group Inc. agreed to pay $41.3-million to the IDA for their role in the market timing. The $7.2-million comes out of that fine pool.
"We're just trying to wrap this thing up [and] acknowledge that the conduct was inappropriate," Paul Bourque, senior vice-president of member regulation at the IDA, the self-regulatory body of Canada's brokerage industry, said in an interview.
"The firms have acknowledged that and paid a penalty and to the extent possible, we're trying to return the revenue earned to the unitholders."
An investigation published in The Globe and Mail last June found that market timing -- rapid trading in mutual funds by hedge funds and other market professionals -- totalled more than $220-billion between 2000 and 2003.
While the practice is not illegal, market timing goes against procedures many fund companies have in place to shield their unitholders from added costs and volatility.
Mr. Bourque explained that $7.2-million was the actual amount lost by investors through trailer fees -- those paid by funds to brokers for investment advice and administrative services. Another $13.8-million was paid in commissions by those involved in market timing to the three big brokerages. The collective $41.3-million penalty imposed by the IDA was derived by adding those two figures together and then doubling that tally, he said.
The IDA said it will use the $34-million remaining after the $7.2-million is paid out "to cover the costs of disciplinary hearings and to support capital markets projects in the public interest."
Some critics were furious that more isn't being paid to investors.
"I find this outrageous," said investor advocate Robert Kyle, a director at the Consumers Council of Canada.
Another source of Mr. Kyle's frustration: The IDA has no authority to ensure investors will get what they are owed once the money is transferred to the 17 mutual fund companies. "There is no guarantee of where that money is going," he said.
The IDA said the $7.2-million will be divvied up as follows:
$3.57-million to CI Mutual Funds
$1.2-million to Franklin Templeton Investments.
$1.17-million to AIC Ltd.
$1-million to AGF Funds Inc.
13 other funds companies will split roughly $225,000, with amounts ranging from $546.71 to $66,393.35.
The IDA's crackdown on market timing ran alongside a larger investigation of Canada's mutual fund industry by the Ontario Securities Commission, which settled with a number of Canada's largest fund companies, forcing them to pay back a total of more than $200-million to investors who were affected.
© 2007 The Globe and Mail. All rights reserved.
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