New rules proposed on Canadian bond pricing

Fri Apr 17, 2009 1:27pm EDT
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By Pav Jordan

TORONTO (Reuters) - Canadian bond dealers will be required to tell small investors whether commissions and other charges on bond transactions are included in the price under new rules proposed by a securities industry watchdog.

The proposed regulations, published on Friday, are designed to make over-the-counter (OTC) markets more transparent, with key controls on pricing that could make bonds cheaper for investors.

The rules would require dealers disclose yield-to-maturity for fixed income securities, and to be able to justify bond pricing and show reasonable efforts to ensure a price reflects prevailing market conditions.

"The general purpose of these proposed amendments is to enhance the fairness of pricing and transparency," the Investment Industry Regulatory Organization of Canada (IIROC), a national self-regulatory group, said in a statement.

"A principles-based rule is proposed that will require dealer members to provide or procure fair and reasonable prices for OTC securities ... the proposed rule will cover transactions for both retail and institutional clients."

Canada's bond market is dominated by the investment dealing arms of the major banks, such as Royal Bank of Canada and Toronto-Dominion Bank.

Many Canadian investors do not know how much commission they are paying to buy and sell bonds because the amount is often embedded in the price.

Retail investors are particularly exposed because they do not have the same access to security pricing in over-the-counter trade as they do in listed securities markets.   Continued...