The Investment Dealers Association is planning to come up with some hard rules on carrying broker capacity.

The IDA says that for it to signoff on a particular introducing/carrying agreement, it must be comfortable that the carrying broker has both adequate financial resources and control systems in place to address the incremental risks associated with carrying the business of another firm. The significant incremental risks that have been identified are: comfort deposit reliance risk; pending transaction/receivable risk; and operational/business risk.

At recent meetings of the Financial Administrators Section Capital Formula Subcommittee there has been some debate over whether or not to address these risks through the adoption of formal rule amendments or through the adoption of an IDA staff policy. The subcommittee has determined that is preferable to develop formal rule amendments.

In order to assist in the development of these rule amendments, the subcommittee has asked that the Introducing/Carrying Broker Committee be reformulated. Once reformulated, this committee would be asked to provide recommendations to the subcommittee on rule changes that would address the incremental risks associated with carrying the accounts of others.

In the interim, where the calculated pro-forma risk adjusted capital and early warning reserve amounts are inadequate in relation to the existing or intended margin required levels for the introduced accounts, IDA staff will have discretion (as they do currently) to refuse to approve an introducing broker/carrying broker arrangement. It will also have this discretion if it decides that control systems are insufficient to the task.