An Ontario Securities Commission (OSC) panel has denied a bid from enforcement staff at the Investment Industry Regulatory Organization of Canada (IIROC) seeking to overturn an IIROC hearing panel decision that went against them.

The OSC issued its decision Monday on a hearing that was held back in December 2011 to consider an application from IIROC staff seeking a review of a decision by a hearing panel of IIROC’s Ontario District Council that was handed down in 2010. (See Investment Executive, OSC to review IIROC panel decision, Oct. 20, 2011.)

The IIROC panel ruled against the regulator in a case IIROC brought against TD Securities Inc. (TDSI) alleging that the firm failed in its supervisory obligations in connection with alleged improper trading by several TD traders. IIROC panel found that the traders entered artificial closing bids contrary to the trading rules, but its dismissed IIROC’s allegations against the firm charging it with supervisory failures.

IIROC staff then sought a review of the panel’s decision to the OSC, requesting an order setting aside the IIROC hearing panel’s decision on the allegations against the firm, and asking that it find instead that the firm did fail to comply with its trading supervision obligations.

According to the OSC’s decision, IIROC argued that the hearing panel made various errors in its decision, including misunderstanding or overlooking certain evidence; and, that it erred in law, or proceeded on an incorrect principle, by finding that the firm made an “honest but erroneous interpretation” of the trading rules. It also notes that TDSI defended the hearing panel decision; and that OSC staff made their own submissions regarding the regulatory framework, and the threshold for it to intervene with an IIROC hearing panel decision, but that it took no position on the merits of the application.

Ultimately, the OSC panel sided with the firm and against IIROC. It ruled that the IIROC hearing panel did not overlook or misunderstand evidence, and that it did not make a mistake in law or proceed on an incorrect principle when it dismissed the allegations against TDSI. It notes that the IIROC panel heard substantial evidence, and issued a lengthy decision explaining its conclusions. In its decision, the OSC panel says that its conclusion that TDSI had adequate supervisory practices and procedures “is defensible.”

“While it is possible that we may have come to a different conclusion on the evidence, it is not our role to second-guess the reasoned decision of the IIROC hearing panel,” it found. “We do not find anything so objectionable about the decision that would provide the grounds required to intervene in the decision.”

“The decision makes clear the obligation of participants to supervise both trades and orders, including orders that are in the context of the market, so as to comply with their obligations [under the trading rules],” it says, “We do not find an error of law or principle in the IIROC hearing panel’s decision.”