TORONTO, Feb. 12, 2013 /CNW/ - CFA Society Toronto and Hillsdale
Investment Management report that William J. McNally, Andriy Shkilko
and Brian F. Smith of Wilfrid Laurier University have won the 2012
Canadian Investment Research Award for their paper "Do Brokers of Insiders Tip Other Clients?"
The Toronto CFA Society and Hillsdale Canadian Investment Research Award
is open to global researchers conducting research related to Canadian
capital markets, including both academics (professors and students) and
practitioners. Submissions are judged on the potential contribution of
their research to Canadian capital markets. CFA Society Toronto and
Hillsdale Investment Management offer this prestigious award annually
to encourage high-quality research on investment management.
The winning research paper, "Do Brokers of Insiders Tip Other Clients?" was selected by a panel of judges from among nine submissions. CFA
Society Toronto and Hillsdale Investment Management will award a
$10,000 CAD prize to the winners tomorrow at the 3rd Annual Award
"One would like to believe there is no grey in the application of
regulations governing insider trading in Canada. This paper raises
important questions about the obligations of all fiduciaries as well as
about the ever changing role of technology in the distribution
of insider information. Hillsdale is pleased to support the annual
Toronto CFA Society and Hillsdale Research Award and to reward
professors McNally, Shkilko and Smith of Wilfrid Laurier University for
their meticulous work." said Chris Guthrie, CFA, President and CEO,
Hillsdale Investment Management.
Laurier researchers used a unique subset of TSX data obtained with the
permission of IIROC (the Investment Industry Regulatory Organization of
Canada). Insiders are required to disclose their status to their
brokers who, in turn, are required to flag insider orders on the TSX
trading system. The unique TSX dataset has orders and trades for the
period from October 2004 to December 2006 with the insider flag. Since
the data also includes a broker ID for each order, Laurier researchers
were able to track broker activity around insider trades.
"Brokers of insiders have a bigger market share after an insider trade,"
said Professor McNally. "They handle more agency trades in the same
direction as the insider compared to the average for the other (active)
brokers. In addition, their market share of principal account trading
also increases after the insider trade. This is the pattern that you
would expect to see if the brokers of insiders tip their other clients
about the insider trade," he said. "We are concerned about these
results, because it suggests that there might be an unfair playing
field. Some traders are receiving valuable information before the rest
of the market. This lack of fairness may lead to a reduction in
liquidity, which is bad for the entire market."
The market share of the insider's broker is about the same as the market
share of the average competitive broker prior to an insider trade and
then rises sharply on the day of the insider trade.
The abnormal market share (the difference between the broker's share of
client trades and the share of the average broker) jumps from 0.7% on
the day before to 3.8% on the day of the insider purchase. Similarly
for insider sales, the share rises from 0.9% before to 4.5% on the day
of the sale. Furthermore, the market shares spike in the half-hour
interval immediately surrounding the insider trades.
Independent brokers experience significantly larger market share
increases than brokers affiliated with banks. Evidence of tipping is
stronger in broker handling of shares of smaller companies. This is
consistent with greater information asymmetry between the insiders and
outsiders in smaller companies.
The insider's broker's market share of principal trading doubles on the
day of the insider trade for both insider purchases and sales. This
suggests brokers trade on their own account or that they tip other
employees in the firm.
Download a copy of "Do Brokers of Insiders Tip Other Clients?" at www.cfatoronto.ca
Note to editors: The authors will give a brief overview of their findings at tomorrow's
Awards Reception, at approximately 5:00pm. Tomorrow's event is open to
the media who can register on-site using a business card. Interviews
are available upon request by emailing email@example.com. The Awards Reception will be held from 4:30pm - 6:30pm at Royal Bank
of Canada, 200 Bay Street, 40th Floor, South Tower.
About the Winners
William J. McNally is an Associate Professor of Finance at the School of
Business and Economics at Wilfrid Laurier University. Professor
McNally is a co-author of Corporate Finance Online, an online
introductory finance textbook. Professor McNally is a founder and
on-going supervisor of the Laurier Student Investment Fund. Andriy
Shkilko is an Assistant Professor of Finance at the School of Business
and Economics at Wilfrid Laurier University. Professor Shkilko's
service engagements outside the university include consulting work on
high frequency trading for the governments of the United Kingdom and
the province of British Columbia. Brian F. Smith is a Finance Professor
who has taught at the School of Business and Economics at Wilfrid
Laurier University since 1987. He co-founded the Financial Services
Research Centre, a centre dedicated to promoting studies on Canadian
Capital Markets, and the Laurier Student Investment Fund, a $500,000
investment fund managed by students and supervised by faculty and
About Hillsdale Investment Management
Founded in 1996, Hillsdale is an independent Canadian investment
boutique, providing a full range of traditional equity and alternative
investment strategies to both institutional and individual investors.
Hillsdale manages a spectrum of long only, long/short and custom
designed strategies employing a core investment style carefully
implemented using an adaptive multi-strategy, risk controlled process.
About CFA Society Toronto
CFA Society Toronto supports the professional and business development
of more than 8,000 CFA charterholders in Toronto, making it the second
largest member society in the world. It provides members with a local
perspective on a global designation, including: educational programs,
sponsored events, job postings, quarterly newsletters, a comprehensive
affinity program and networking opportunities. A not-for-profit
organization, CFA Society Toronto is affiliated with CFA Institute, the
global body that administers the Chartered Financial Analyst curriculum
and sets voluntary, ethics-based performance-reporting standards for
the investment industry. CFA Society Toronto's members are leaders in
ethics in the financial community. For more information, please refer
SOURCE: CFA Society Toronto
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