K2 fund looks to settle with OSC
‘Spoofing’ alleged to get better quotes
An investment fund manager and two of its principals are seeking a settlement with the Ontario Securities Commission to resolve allegations of “manipulative trading activity.”
Representatives for K2 & Associates, Shawn Kimel and Daniel Gosselin, will appear Friday before a panel of OSC commissioners, which will determine whether it is in the public interest to accept a settlement following allegations they engaged in a type of quote manipulation known as spoofing.
Spoofers get “an unfair advantage over law-abiding market participants” by injecting false information into the market, which impedes competition and undermines market integrity, the regulator said.
“Spoofing, or quote manipulation, as practised by the Respondents, resulted in artificial changes to bid-ask spreads in equity-listed options that the Respondents were seeking to purchase or sell on the MX (Montreal Exchange),” staff of the OSC said in a statement of allegations made public Wednesday. “This then enabled the Respondents to buy or sell specific instruments at a better price than would otherwise have been available.”
OSC staff allege there were about 60 incidents of “impugned trading” involving derivatives between October and December of 2016, and those named “wrongly benefitted by approximately $250,000.”
The statement of allegations claims Kimel would in some cases place direct electronic access (DEA) orders to buy or sell small quantities of certain options, and Gosselin would then initiate a chat session with one or more Canadian financial institutions and negotiate a larger desk trade on the opposite side of the order entered by Kimel. Very soon after the desk trade was confirmed, “often within seconds,” the DEA order previously entered would be cancelled, OSC staff allege.
“Kimel and Gosselin coordinated their conduct regarding the Spoofing Events,” the statement of allegations says. “In certain circumstances, Gosselin would notify Kimel when the desk trade had been successfully negotiated so that Kimel could quickly cancel his DEA order.”
None of the allegations have been proven, and terms of the proposed settlement have not been made public. The OSC usually publishes the terms of settlements and any sanctions imposed once a settlement is accepted.
K2 is a Toronto-based manager of two private funds and is registered with the OSC as a portfolio manager, investment fund manager and exempt market dealer. Kimel is the founder, a director, and a shareholder. Gosselin is K2’s president. An official at K2 said the firm would not be commenting until after the settlement hearing on Friday.