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HSBC settles with IDA over trading violations

HSBC Securities (Canada) Inc. has reached a proposed agreement with regulators to settle allegations that it allowed market timing practices in the trade of mutual funds.

The practices involve executing rapid trades for sophisticated clients in certain funds at the expense of long-term investors in those funds.The Investment Dealers Association of Canada said a settlement hearing on the proposed agreement will be held on Aug. 31 over the conduct of HSBC Securities relating to market timing activity in mutual funds during the first seven months of 2002.

The hearing will also concern "underreporting" by HSBC Securities to a survey sent out by the IDA in November, 2003, as part of an investigation into activities related to market timing, said Alex Popovic, vice-president enforcement for the association.

In late 2004, RBC Dominion Securities Inc., BMO Nesbitt Burns Inc. and TD Waterhouse (Canada) Inc. paid penalties totalling almost $50-million in connection with market timing activities in mutual funds by some of their clients.

The brokerage arms of the three big banks had a series of written agreements with clients that allowed them to rapidly trade in and out of mutual funds in 2002 and 2003.

The IDA hearing is closed to the public, although the proposed settlement and disciplinary penalties against HSBC Securities will be disclosed if the deal is accepted by an IDA panel.

"To the best of our knowledge it's the last," Mr. Popovic said of the lengthy investigation into the role of brokers in the mutual fund trading scandal.

A spokeswoman for HSBC declined to comment yesterday on the details of the proposed settlement with the IDA.

© 2007 The Globe and Mail. All rights reserved.

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