RETAIL INVESTORS FLOCK TO DIY SITES: REGULATOR

Surge amid pandemic

TORONTO • Canada’s national investment industry regulator says it has seen a 270 per cent spike in complaints and other calls about do-it-yourself investing services, a surge that comes as retail investors have flocked to the platforms during COVID-19 lockdowns. “Since the start of the pandemic, we've seen a significant surge in inquiries and complaints,” the Investment Industry Regulatory Organization of Canada said Tuesday.

A spokesperson said a discrete increase in calls has been fielded over the “past few weeks,” a period in which there were extreme price swings in some stocks, such as GameStop Corp., BlackBerry Ltd., and AMC.

Citing the recent market volatility, which appears to have been driven in part by retail investors on do-ityourself platforms such as the U.S. app Robinhood, the Canadian industry regulator urged investors conducting their own trades to arm themselves with reliable information and enough knowledge about investment products to protect themselves from market volatility that can trigger losses.

“We urge investors to be careful about where they are getting their investing information, as many sources are unregulated and may contain inaccurate information,” said Lucy Becker, IIROC's vice president of public affairs and member education services. “This may lead to misinterpreting investment research and subsequently betting the farm.”

Last month, inundated with demand, a number of do-it-yourself trading platforms — including at some of the country's biggest banks — struggled with delays in processing trades and intermittent outages.

The IIROC spokesperson would not elaborate on the nature of the complaints the regulator has received, other than to say it is “a combination of… dealer and service issues.”

Online do-it-yourself platforms — also known as execution-only platforms — have captured a growing number of retail investors in recent years by giving traders a cheaper option than full-service dealers.

In Canada, DIY investing is possible on a range of platforms, some housed within major banks. A dozen or so online brokers offer DIY investing, including Questrade, Qtrade Investor, Scotia iTrade and TD Direct Investing.

The latest market volatility prompted IIROC to highlight the dramatic shift to do-it-yourself platforms and the spike in calls and complaints it has received for the second time in less than six months.

Last October, the industry regulator noted a surge in calls and complaints of 180 per cent compared to the March to October period in 2019.

Older Canadians represent a significant number of the calls about DIY investing, according to the IIROC spokesperson. Since 2017, more than half of the calls — 57 per cent — have come from those over age 55.

Direct access investing is giving more power to Main Street investors, with loosely associated groups having access to enough capital to move markets, Maureen Jensen, former chair of the Ontario Securities Commission, told the Post last week. She cautioned that this is also taking some trading activity outside the system where there is regulatory oversight.

Against this backdrop, market regulators are scrambling to adjust. The British Columbia Securities Commission, for example, is hoping to propose new rules by this summer that would compel people to disclose potential conflicts of interest, such as whether they have a short or long position in any stock they are promoting on social media.

In a joint statement last week, IIROC and the umbrella group for Canada's provincial securities watchdogs issued a joint statement in which they said they are monitoring the recent trading volatility and what's driving it, and pledged to take “appropriate regulatory action to protect investors” if they find “abusive or manipulative trading activity.”

Even when do-it-yourself investing falls within the purview of market regulators, its development has not been without controversy.

According to multiple media reports in the United States, Robinhood was sued this week by the family of a 20-year-old client, who committed suicide after thinking he had accrued more than $730,000 in losses on the platform through trading options.

The lawsuit alleges that his attempts to contact the company about his apparent balance were unsuccessful and that he received only automated replies. It turned out his losses were substantially smaller than he thought, as they were offset by other investments, according the reports. None of the allegations has been proven.