OSC revises rules governing COATS

The Ontario Securities Commission has changed the rules that govern trading of over-the-counter securities on the Canadian Over- the-Counter Automated Trading System known as COATS.

Citing concerns that some of the recent trading activity has not been in the public interest, the OSC has moved to tighten its regulation and supervision of the system.

Highlights of the policy changes include granting the director of COATS new powers to determine which stocks can be quoted and traded.

The director can now ask for more information when considering a request for a COATS quotation, and may halt or suspend a quotation if he decides such action is in the public interest.

Where a reverse takeover of a COATS-traded company is proposed, the director may now terminate the quotation and require that new material be filed before the stock is allowed back onto COATS.

A market-maker must now disclose any direct or indirect dealings with promoters, insiders or COATS issuers.

According to the OSC, all trades must now take place at a price which is reasonably related to the current market price for that stock, and no customer shall be charged a commission or service fee that is not fair and reasonable.

COATS customers will now have priority over COATS dealers for their trades, and new rules prohibiting manipulative or deceptive trading have been adopted along lines similar to those of The Toronto Stock Exchange.

The OSC said COATS quotations will be suspended if registrants are unable to comply with the policy within a period of 90 days.

According to Joseph Groia, director of COATS, the changes are designed to “e nsure that COATS maintains the highest standards of honesty, fairness and integrity.” Steps are also being taken to privatize COATS and to ensure that it will soon be administered by a self-regulatory organization, he said.

A copy of the revised policy is available on request from the secretary of the OSC in Toronto.

One broker contacted by The Northern Miner at the firm of W.D. Latimer in Toronto expressed indifference to the recent changes by the OSC. “We’ve always provided outstanding liquidity,” he said, “and we’ve never really received any credit for it either.”

He said there have been a few traders expressing some concerns about COATS, but as far as he knows the system has been functioning well. “The (OSC) already has lots of rules that aren’t really being implemented,” he said. “Why do we need more?”

COATS was established four years ago as a computerized quotation and trade reporting system designed to help junior issuers raise capital in Ontario through the over- the-counter market.

Since 1986, it has continued to grow, and on Dec. 31, a total of 1,174 stocks were eligible to trade on COATS of which 422 stocks were quoted. Last year, traded stocks had a value of $562 million on a volume of about 325 million shares.