Ontario OSC Fines Caldwell $2 Million for Best Execution Lapses

Toronto-based firm executed most of its trades through an affiliated investment dealer, Caldwell Securities.

Ontario Securities Commission (OSC) today said it had fined Toronto-based Caldwell Investment Management Ltd. (CIM) CAD 1.8 million ($1.35 million) for not getting the best execution price for its customer transactions and failing to properly supervise the process.

The provincial regulator also ordered the asset manager to pay a further CAD 250,000 to cover the cost of the OSC’s investigation involving its equity and bond trades. CIM, in a settlement with the OSC, admitted the regulator’s findings.

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According to a regulatory settlement, the disciplinary case stems from executing most of Caldwell clients’ transactions through an affiliated company rather than making efforts to find the best alternative.

OSC staff further explained that the company used an in-house system for directing most of its client trades through its own related investment dealer Caldwell Securities Ltd. (CSL) when in many cases unaffiliated venues offered better commissions and spreads.

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A clear conflict of interest

This pattern contrasts with the industry rules that require portfolio and investment fund managers to ensure that the transactions prices for customers’ trades are as favorable as possible amid the current market conditions.

The company not only overcharged its clients but also provided misleading statements to the regulators while looking into the conflicts of interest allegations. Further, CIM provided conflicting information to the firm’s independent review committee (IRC) that was established to oversee its activities. The problems occurred between January 2013 and November 2016.

The enforcement order also states CIM didn’t live up to best execution requirements because it hadn’t a process in place to evaluate trades or collect information to determine if it was fulfilling its obligation.

“CIM’s failure to develop, document, and enforce clear policies and procedures for best execution led to self-interest dictating how client orders were handled. These are serious lapses in oversight that will not be tolerated,” said Jeff Kehoe, Director of the Enforcement Branch at the OSC.

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