The proposed guidance recommends as part of a checklist for Registered Representatives that the representative evaluate whether the client’s leverage-to-liquid net worth ratio falls below a specified conservative percentage as a result of the recommended average. The CAC believes it is critical that Registered Representatives carefully review a client’s exposure to leverage in this manner, and that it would be beneficial to stipulate minimum margin standards or an alternative measure, such as a minimum allowable debt service ratio, in all situations involving leverage.
Overview of the Council’s Comments:
The CAC strongly supports IIROC’s initiative to strengthen the scrutiny to be required from dealers in connection with the use of leverage to purchase securities. We believe the guidance is a great improvement to the current situation, particularly with respect to the responsibilities relating to off-book leverage.