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Letter Summary:
The current MFDA rules prohibit members from engaging in any form of discretionary trading. In response to concerns raised by dealers, the amendments would allow for limited discretionary trading in mutual fund model portfolios offered by MFDA dealers to allow them to make fund substitutions and asset allocations within the pre-established parameters. Currently, any such changes require prior client authorization. The proposed amendments would permit discretionary trading only where (i) the member/individual was registered under securities legislation to provide discretionary portfolio management services, i.e. as a restricted portfolio manager (or has received an exemption therefrom); and (ii) the discretionary trading is limited to mutual funds that are part of a model portfolio offered by the dealer. The permissible trading would be more constrained from what is already permitted for IIROC dealer members.
Overview of the Council’s Comments:
The CAC was supportive of the Proposed Amendments. We believe that registration as a restricted portfolio manager and limitations on discretionary trading are key to ensuring the objectives of the Proposed Amendments are met. The CAC queried whether the Proposed Amendments would be interpreted more broadly than may be intended, and thus additional clarity would be required with respect to the degree of permitted discretion would be a required addition.