Market Regulation Services Inc.

Market Regulation Services Inc.

March 16, 2005 16:05 ET

Desjardins Securities Inc., its President and Former Chief Compliance Officer Fined C$1,960,000 for Violating Trading Rules


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: MARKET REGULATION SERVICES INC.

MARCH 16, 2005 - 16:05 ET

Desjardins Securities Inc., its President and Former
Chief Compliance Officer Fined C$1,960,000 for
Violating Trading Rules

MONTREAL, QUEBEC--(CCNMatthews - March 16, 2005) - Desjardins Securities
Inc. (VMD), its president and a former chief compliance officer today
were collectively fined a total of C$1,960,000 by Market Regulation
Services Inc. after an RS Hearing Panel in Montreal approved a
settlement agreement for violating certain of the trading rules from
2002 to 2004. VMD was fined C$1,500,000 for failing to comply with its
trading compliance and supervision obligations, as well as for multiple
counts of failing to record client consent to trade alongside on a
client order ticket and failing to properly complete the client trade
ticket. Jean-Pierre de Montigny, President & COO of VMD, was fined
C$300,000 for failing to comply with his trading supervision
obligations. Jean-Luc Brunet, a former Chief Compliance Officer at VMD,
was fined C$35,000 for failing to comply with his trading compliance
obligations. VMD also must pay RS C$125,000 for costs.

The violations occurred between November 2002 to August 2004 as the firm
was expanding, particularly its institutional trading business. RS
audits of VMD's trade desk operations in 2002, 2003 and 2004 found that
the firm had insufficient supervision of trading practices and
procedures and UMIR deficiencies, most notably related to audit trail
violations. VMD's internal quarterly reviews in 2003 and 2004 also
revealed serious trade desk supervisory issues concerning several
matters, most notably the lack of daily testing mandated by VMD's own
policies and procedures manual and serious audit trail violations.
Although some attempts were made to rectify these deficiencies, they
continued. In fact, the findings in RS's audit conducted in June 2004
were even more extensive than the audits done in 2002 and 2003. In
addition, 17 instances of VMD trading alongside a client without
recording the client's consent for each order were detected, which is a
violation of the trading rules (UMIR Rule 5.3(6)). In connection with
some of these trades, several audit trail violations (UMIR 10.11) were
also detected.

"A culture of compliance begins at the top," said Maureen Jensen, Vice
President, Market Regulation, Eastern Region at RS. "At VMD, the
continued lack of daily testing and the other compliance and supervisory
failings were the result of a culture within the firm that did not place
importance on having effective trading supervision and compliance
systems. These systems are essential for market integrity."

As President & COO, De Montigny's responsibilities included ensuring
that VMD had effective trading supervision and compliance systems. He
was aware of the issues raised by the RS audits and of the results of
VMD's own internal reviews. He failed to address these issues or to make
them a priority within the firm and continued to expand the business
despite the compliance concerns raised by the regulator.
"The ultimate responsibility for the firm's consistently worsening
compliance and supervision issues between November 2002 and April 2004
rests with the President and COO," said Jensen. "That these issues were
allowed to deteriorate as they did is evidence of the President's
failure to fulfill his trading supervision obligations as stipulated in
the trading rules."

Brunet was sanctioned for failing to effectively address the various
deficiencies found in the firm's own quarterly review reports and by RS
trade desk audits carried out in 2002, 2003 and 2004, most notably
related to the firm's policies and procedures.

"Although serious in nature, the contraventions did not result in any
harm or financial loss to VMD's customers, or to any other market
participants, nor did it give rise to financial gain to VMD or any of
its employees, VMD potentially exposed its clients to serious market
integrity risks," Jensen said. "All market participants must grasp the
fact that comprehensive and effective trading supervision and compliance
systems are the first line of defence for the protection of investors
and the integrity of the capital markets."

The Universal Market Integrity Rules can be accessed from the RS website
at:
www.rs.ca/en/mktpol/umir01.asp?printVersion=no&loc1=mktPol&loc2=umir&loc3
=01

About Market Regulation Services Inc. (RS)

RS is the independent regulation services provider for Canadian equity
marketplaces, including the TSX, TSX Venture Exchange, Canadian Trading
and Quotation System, Bloomberg Tradebook Canada Company and Liquidnet
Canada Inc. RS is recognized by the Autorite des marches financiers in
Quebec and the securities commissions of Ontario, Manitoba, Alberta and
British Columbia to regulate the trading of securities on these
marketplaces by participant firms and their trading and sales staff. RS
helps protect investors and ensure market integrity by ensuring all
equities transactions are executed properly, fairly and in compliance
with trading rules.

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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Market Regulation Services Inc. (RS)
    Doug Maybee
    Director of Communications & Public Affairs
    (416) 646-7253, (416) 627-3900 (cell)
    doug.maybee@rs.ca
    www.rs.ca