Toronto regulators hunt inside traders

Bay Street watchdogs are searching for the home-grown version of Ivan Boesky, but so far they haven't landed a big one. In the past month subpoenas have been issued to as many as 40 brokers in Toronto as part of an intensive investigation. But there have been no charges yet. One of the big reasons is the vague laws covering shady securities deals in different provinces.

In Toronto, Canada's financial center, there have been 17 cases of brokers being disciplined by the Toronto Stock Exchange so far this year.

Last year there were 30. And in almost every case there was a fine and the broker returned to work.

There has been only one case of insider trading, according to the Ontario Securities Commission, and it too was small potatoes.

``The only case we've had in the last few months involved a mining company in Vancouver,'' said Joseph Groia, a securities commission counsel.

``Rea Gold made a significant mining find and prior to announcing it went out and purchased a number of shares of the company,'' he said.

That case involved only fines. There were no jail sentences as there have been in the United States.

While insider trading does go on in Canada, according to both regulators and brokers, it is hard to nail offenders under existing federal and provincial laws.

Only the most obvious crimes are punished. Subtle insider trading, especially a practice known as front-running, has gone unpunished so far.

Front running is another term for buying on inside information. When brokerage employees, usually institutional traders, know a big block of stock is to be bought, pushing the share price up or down, they buy or sell first. If there options on the stock the leverage could - and does - yield huge profits.

Doing those types of deals is not classified as insider trading.

In Ontario you have to be a director or senior officer of a company who controls more than 10 per cent of the stock and who takes advantage of inside information to make profit. It is the person who gives the tip, not the one who receives it who is the wrongdoer.

Under Canadian rules, Ivan Boesky might still be in business.

There is no Securities and Exchange Commission in Canada. And under the federal system, regulation of stock markets is the job of the provinces. There are five stock exchanges in Canada. The Vancouver and Alberta exchanges are highly speculative and regulations are lax.

The provincial opposition party in British Columbia has been calling for a cleanup of the Vancouver exchange. Winnipeg is an exchange in name only. There are few trades.

The Montreal Stock Exchange, the country's second largest, is ruled by the Quebec Securities Commission. It is a strict, responsible body and has introduced changes, such as options and gold trading, which have allowed the exchange on occasion to one up its rival in Toronto.

But Toronto has about 75 percent of the equity trading and is far and away the biggest exchange in Canada. Thus the Ontario Securities Commission is the No. 1 regulator.

The commission has a list of people who are involved in insider trading, but analysts on Bay Street say the regulator cannot do much because the law is not tough enough. Certainly there are no plans to break open the front-running investigation soon.

``These investigations take time,'' says counsel Groia. ``I don't see anything happening before the end of the year.''

Some business leaders, such as Robert McIntosh, president of the Canadian Bankers Association, have called for a federal securities agency. Provincial jealousies appear to preclude that happening.

Brokerage dealers are worried, however.

Tony Fell, president of Dominion Securities, one of the country's biggest brokers, sent out a confidential memo to staff on the subject, noting that ``the Boesky case and related developments in the United States have dramatically focused attention on the misuse of inside information by securities dealers. You are encouraged to know the law and use common sense.''

As Toronto is wired into London, New York, Chicago, and the rest of the global financial market, stiff rules are a must. The Ontario Securities commission says it knows that.

``With increased international trading it is important that our markets are perceived to be fair,'' says Groia. ``And we are not prepared to let Toronto's reputation slip.''