Firms Seek Regulatory Relief for Online Trades

The online trading craze has sent a group of Canadian broker/dealers in search of regulatory relief. Saddled by what they say are overly strict suitability rules, the Canadian brokers want provincial regulators to rewrite existing regs to cut them some slack."Given the way many orders now come into brokerages, we believe that these rules, written in a different era, need some adjusting," says John

The online trading craze has sent a group of Canadian broker/dealers in search of regulatory relief. Saddled by what they say are overly strict suitability rules, the Canadian brokers want provincial regulators to rewrite existing regs to cut them some slack.

"Given the way many orders now come into brokerages, we believe that these rules, written in a different era, need some adjusting," says John See, president of Green Line Investor Services in Toronto. Green Line, a subsidiary of the Toronto-Dominion Bank, is the largest of a group of discount and full-service firms petitioning the Canadian Securities Administrators to change the laws.

Currently, all Canadian broker/ dealers--discount and full service--are required to review every trade for suitability. In contrast, U.S.-based discounters don't have such a standard, although some movement is under way to create basic guidelines for active day traders.

"If the SEC is willing to consider different rules for electronic trades, I don't see why we can't do the same here. The idea of manually intervening on every order is extremely costly," See says.

The firms want a full wavier of suitability rules on any unsolicited trades and an open discussion on revamping the general framework of oversight. The issue doesn't just affect discounters, either, since some amount of electronic trades now flow into most brokerages.

"It may make more sense to think about review less in terms of trades and more in terms of what individual clients require," says Paul Bates, president of Charles Schwab Canada.

The Investment Dealers Association of Canada, which functions as both a regulator and broker trade group, expects to submit a policy paper on the suitability issue to regulators before the end of summer.

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