Challenge to IDA’s authority dismissed

Derivatives dealer will face hearing unless appeal filed


By Katherine Macklem

Financial Post


May 08, 1999

A rare constitutional challenge to the authority of the Investment Dealers Association to regulate its members has been dismissed in a ruling released late last week by the IDA's Ontario District Council.

Robert Kyle, a derivatives dealer, had argued that the IDA, a self-regulatory organization, overstepped its bounds and violated his rights under the Canadian Charter of Rights and Freedoms. The Toronto man's case could prove to be significant in defining the relationship between government and a self-regulating body like the IDA.

Mr. Kyle declined to comment yesterday, saying he had just received the ruling and wanted to study it first. He is under investigation by the IDA for improper trading,

The ruling, on a preliminary motion brought by Mr. Kyle, clears the way for a hearing on the IDA's actual charges, unless it is appealed. Mr. Kyle has 30 days to file a notice of intent to appeal.

The debate over the IDA's authority was sparked when its enforcement division asked Mr. Kyle for access to his business records as part of a continuing investigation. Based on records provided by another dealer, the IDA said in a notice that it suspected Mr. Kyle used his firm's own money to make trades in the market. That is called principal trading and it was a breach of the conditions of his membership in the association. Mr. Kyle is president and chief executive of Derivatives Services Inc.

Mr. Kyle, who had informed the association before the investigation got underway that he and his firm were resigning from the IDA, refused to hand over his records. His lawyer, Mary Biggar, had argued before the three-person panel that it is unconstitutional for the IDA investigators to make a blanket request for Mr. Kyle's business records.

Mr. Kyle has been charged with "failing to provide documents" and with having "engaged in business conduct or practice that is unbecoming or detrimental to the public interest."