Regulators settled an enforcement action against Vancouver’s Haywood Securities Inc., holding the firm responsible for trade supervision failures that arose based on its use of an external data provider, which hampered the firm’s ability to uncover potentially manipulative trading.
A hearing panel of the Canadian Investment Regulatory Organization (CIRO) approved a proposed settlement with the dealer, which admitted to not adequately supervising certain trading activity — high/low close trades at the end of the trading day and high bid/low offer orders for trading on the Canadian Securities Exchange.
According to the settlement, between 2014 and October 2022, the firm relied on an external provider for a report, the High/Low Closing Report, as part of its efforts to detect potentially manipulative trading activity, such as high closing.
Yet, without the firm’s knowledge, the external provider stopped including data on CSE trading in these reports.
That issue wasn’t discovered until CIRO requested data from Haywood in 2022 as part of a review involving a CSE issuer.
Ultimately, an examination of potentially manipulative trading activity also revealed numerous trades in CSE stocks at the end of the trading day. Investigations by both CIRO and the firm found that Haywood “failed to supervise end of day high/low close trades and high bid/low offer orders in CSE-listed issuers … and further, failed to identify potentially manipulative trading in at least one of the queried issuers.”
The firm didn’t discover the lack of CSE trading data in these reports during its annual systems check, and didn’t have a mechanism for uncovering partial disruptions in the data from third party service providers, the settlement also said.
After the issue was discovered, the firm beefed up its trade supervision, and it implemented an annual internal audit process that tests for any disruptions in its data services.
It also disciplined one of its reps, in December 2022, imposing a fine of $5,000, issuing an internal reprimand, and requiring that they re-take a trader’s training course.
Under the settlement, Haywood agreed to pay a fine of $100,000 and costs of $5,000.