IIROC sanctions Instinet over trade supervision

Instinet Canada Ltd. has settled allegations of trade supervision lapses with the Investment Industry Regulatory Organization of Canada (IIROC).

An IIROC hearing panel approved a proposed settlement between IIROC staff and Instinet, which will see the firm pay a $155,000 fine and $15,000 in costs, and agree to beef up its oversight.

In settling the case, the firm “admitted that it failed to comply with its trading supervision obligations to prevent and detect potentially manipulative and deceptive trading activities by one of its direct electronic access clients.”

According to the settlement, the unnamed client, which was engaged in prop trading, entered orders on visible markets that affected the prices of trades that executed in dark markets.

IIROC has previously issued guidance outlining its concerns about potentially manipulative trading activity that aims to affect the prices of dark orders that are tied to prices on visible markets.

The settlement also noted that IIROC’s trading compliance staff first identified possible deficiencies with Instinet’s supervision of potential quote manipulation in 2014 and again in 2016.

Subsequent reviews found that trading by the firm’s client generated hundreds of IIROC alerts about possible manipulative activity in 2016, but that these instances weren’t detected by the firm.

In December 2017, IIROC notified the firm about its concerns regarding potential quote manipulation alerts and the supervision of its client’s trading.

At that point, the firm “promptly took corrective measures… [that] significantly reduced the number of potential quote manipulation alerts,” IIROC said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.