The latest chapter of the third-party asset-backed commercial paper saga will be written Monday, when a group of Canadian banks and securities dealers are expected to settle with regulators over their roles in the sale and distribution of the toxic paper.
They are expected to cough up $130-million in penalties arising from their involvement in the collapse of the $35-billion ABCP market in the summer of 2007, making it one of the largest settlements ever between Bay Street and market regulators.
In 2004, four of Canada’s largest mutual fund companies and three bank-owned brokerages paid nearly $200-million to settle regulators’ market timing allegations.
The Ontario Securities Commission will hold hearings Monday to consider settlements with Canadian Imperial Bank of Commerce, CIBC World Markets and HSBC Bank Canada, while the Investment Industry Regulatory Organization of Canada (IIROC) will hold hearings to consider settlements with Scotia Capital Inc., Credential Securities Inc. and Canaccord Financial Ltd.
National Bank, which was at the centre of the ABCP storm, is still negotiating the terms of its settlement and its spokesperson declined to comment. It’s expected to pay as much as $70-million. Dow Jones reports that the investment-banking arms of CIBC and Scotia will each pay about $20-million, while HSBC Bank Canada will pay in the neighbourhood of $5-million to $10-million. Canaccord Capital will likely be fined $3-million, and Credential Securities will fork over less than $500,000.
The OSC alleges that CIBC World Markets and HSBC Canada “engaged in conduct contrary to the public interest” by not fully responding “to emerging issues” in the ABCP market as they continued to sell it “without engaging compliance and other appropriate processes for the assessment of such emerging issues.”
IIROC, the national self-regulatory organization that oversees all investment dealers and trading activity on debt and equity marketplaces in Canada, said its hearings will also take place on Monday in Vancouver and Toronto.
IIROC alleges that “between July 25 and August 10, 2007, Scotia Capital failed to adequately respond to emerging issues” when paper manufactured by Coventree Inc., one of the key third-party ABCP manufacturers, began to melt down.
The OSC has already issued a notice of hearing against Coventree and two of its executives over its corporate disclosures and statements.
Credential faces allegations that it “did not take adequate steps” to make sure its brokers understood the risk involved in buying the products well enough to pass the knowledge on to clients.
However, Calgary retail investor Brian Hunter isn’t impressed. He was left holding the bag on $750,000 worth of ABCP when the market froze, but managed to get his money back in a side deal negotiated by Canaccord with retail investors during the restructuring of the ABCP market.
“I got lucky,” he said, noting that investors who held more than $1-million in ABCP didn’t fare as well and many were left stuck holding the notes for the next decade.
“If the legal profession or engineering profession did this and created faulty products like that, you’d be out of business. If it’s a bank, they can do anything. [The fines are] not material to their balance sheets.”
Read more: http://www.financialpost.com/story.html?id=2361893#ixzz0aTzGk5Ti
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