CIRO rules firm liable for failure to oversee and prevent several thousand wash trades
Canaccord Genuity Corp. has agreed to pay the Canadian Investment Regulatory Organization (CIRO) $500,000, including a $475,000 fine, for failures related to trading supervision.
According to a settlement agreement document published by CIRO, the firm failed to comply with its obligations related to risk management and controls, specifically those pertaining to market access by some direct electronic access (DEA) clients from January 2017 to March 2021.
The agreement outlined details of over 10,000 wash trades, with no change in beneficial ownership of shares, implemented by two clients of Jitney Trade, which Canaccord Genuity Corp.’s parent company acquired in June 2018.
From January 2017 to December 2019, CIRO said the two clients executed over 15,700 wash trades, which Jitney failed to prevent as it had neither received nor requested the list of authorized personnel from those clients.
One of those clients went on to become a DEA client with Canaccord Genuity from December 2019 to March 2021. During that period, that client executed 5,546 wash trades, which CG was unable to prevent and therefore were executed without being detected.
“[T]he Respondent used a tool to monitor possible instances of ‘Algo Manipulation (opposite side trade near cancel)’, by generating an alert ‘where a trader enters a relatively large buy or sell order to create short term apparent liquidity…whilst it executes a trade on the opposite side of the market’, which primarily generated false positives,” CIRO said.
“During this period, 1,667 alerts were reviewed with respect to [the DEA client],” CIRO said. “While the Respondent made some efforts to monitor and query the alerts, the Respondent’s post-trade monitoring reports and review records in respect of the alert … did not provide adequate written explanation of the reviews actually performed in connection with these alerts and the factors considered in dismissing the alerts.”
CIRO said Canaccord Genuity has taken steps to regularly monitor, prevent, or cancel wash trades.
The firm has also expressed plans to “retain an independent expert … to review the Respondent’s ongoing UMIR compliance policies and procedures,” and “implement the expert’s recommendations accordingly.”
