IIROC issues regulatory study on manufacture and distribution by IIROC member firms of third-party asset-backed commercial paper

    TORONTO, Oct. 17 /CNW/ - The Investment Industry Regulatory Organization
of Canada (IIROC) today released its Regulatory Study, Review and
Recommendations concerning the manufacture and distribution by IIROC member
firms of Third-party Asset-Backed Commercial Paper in Canada (www.iiroc.ca).
    "Our objectives in producing this Study are to articulate consistent
standards expected of IIROC member firms", said IIROC CEO and President Susan
Wolburgh Jenah. "In seeking to understand and draw lessons from the ABCP
crisis, our goal is remedial and preventative. The Study contains
recommendations, findings and best practices which, effectively implemented,
will promote compliance with these standards and help to reduce the risk of a
repeat of the difficulties encountered by dealer firms and their clients
during the third-party ABCP liquidity crisis."
    IIROC has regulatory responsibility for Canadian investment dealers and
this Study's recommendations therefore apply only to IIROC-regulated firms.
This Study should, however, be considered in conjunction with reports recently
issued by other regulators including the Canadian Securities Administrators
(CSA) and the Office of the Superintendent of Financial Institutions (OSFI).
These Reports focus on the roles played by other market participants in the
third-party ABCP liquidity crisis and contain recommendations for broader
regulatory reform.

    The Study includes:
    -   A study of the development and regulation of the third-party ABCP
        market and the events which led to the liquidity crisis in that
        market in August 2007;
    -   a report on compliance reviews conducted at IIROC dealer members
        involved in the third-party ABCP market to determine what controls
        and processes were in place and applied to the manufacture and sale
        of third-party ABCP; and
    -   findings and recommendations.

    In order to understand the role of IIROC-regulated investment dealers in
the manufacture and distribution of third-party asset-backed commercial paper,
the Study examines the evolution of ABCP, the differences between traditional
bank-sponsored ABCP and third-party ABCP programmes and the role of other
market participants including federally regulated financial institutions,
credit rating agencies and special purpose issuers of third-party ABCP.
    The total amount of third-party ABCP sold to approximately 2,542
non-corporate retail clients by dealer members was $372 million, just over 1%
of the total third-party ABCP market. The compliance reviews which formed the
basis of this Study revealed inadequacies in dealer firms' product due
diligence processes. The Study, therefore, makes several recommendations
relating to product due diligence including product transparency, conflicts of
interest, and dealer use and disclosure of credit ratings.
    IIROC is also issuing a draft Guidance Notice to dealer firms on "Best
Practices for Product Due Diligence" (www.iiroc.ca). The Notice has been
developed to assist dealer firms in meeting IIROC expectations regarding the
assessment and introduction of products to be sold to institutional and retail
customers. IIROC is requesting comment on the draft Notice.
    IIROC is the national self-regulatory organization which oversees all
investment dealers and trading activity on debt and equity marketplaces in
Canada. Created in 2008 through the consolidation of the Investment Dealers
Association of Canada and Market Regulation Services Inc., IIROC sets high
quality regulatory and investment industry standards, protects investors and
strengthens market integrity while maintaining efficient and competitive
capital markets. IIROC carries out its regulatory responsibilities through
setting and enforcing rules regarding the proficiency, business and financial
conduct of dealer firms and their registered employees and through setting and
enforcing market integrity rules regarding trading activity on Canadian equity

For further information:

For further information: Connie Craddock, Vice-President, Public
Affairs, (416) 943-5870 or ccraddock@iiroc.ca

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