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Toronto CFA Society and Hillsdale $10,000 Research Award Goes to Wilfrid Laurier

Award for Canadian Investment Research Paper “Do Brokers of Insiders Tip Other Clients?”  Goes to Wilfrid Laurier University for their Research in Governing Insider Trading in Canada

TORONTO, Feb 12, 2013 – CFA Society Toronto and Hillsdale Investment Management report that William J. McNally, Andriy Shkilko and Brian F. Smith of Wilfrid Laurier University have won the 2013 Canadian Investment Research Award for their paper “Do Brokers of Insiders Tip Other Clients?”

The Toronto CFA Society and Hillsdale Canadian Investment Research Award is open to global researchers conducting research related to Canadian capital markets, including both academics (professors and students) and practitioners. Submissions are judged on the potential contribution of their research to Canadian capital markets. CFA Society Toronto and Hillsdale Investment Management offer this prestigious award annually to encourage high-quality research on investment management.

The winning research paper, “Do Brokers of Insiders Tip Other Clients?” was selected by a panel of judges from among nine submissions. CFA Society Toronto and Hillsdale Investment Management will award a $10,000 CAD prize to the winners tomorrow at the 3rd Annual Award Reception.

“One would like to believe there is no grey in the application of regulations governing insider trading in Canada. This paper raises important questions about the obligations of all fiduciaries as well as about the ever changing role of technology in the distribution of insider information. Hillsdale is pleased to support the annual Toronto CFA Society and Hillsdale Research Award and to reward professors McNally, Shkilko and Smith of Wilfrid Laurier University for their meticulous work.” said Chris Guthrie, CFA, President and CEO, Hillsdale Investment Management.

Laurier researchers used a unique subset of TSX data obtained with the permission of IIROC (the Investment Industry Regulatory Organization of Canada). Insiders are required to disclose their status to their brokers who, in turn, are required to flag insider orders on the TSX trading system. The unique TSX dataset has orders and trades for the period from October 2004 to December 2006 with the insider flag. Since the data also includes a broker ID for each order, Laurier researchers were able to track broker activity around insider trades.

“Brokers of insiders have a bigger market share after an insider trade,” said Professor McNally. “They handle more agency trades in the same direction as the insider compared to the average for the other (active) brokers.  In addition, their market share of principal account trading also increases after the insider trade. This is the pattern that you would expect to see if the brokers of insiders tip their other clients about the insider trade,” he said.  “We are concerned about these results, because it suggests that there might be an unfair playing field. Some traders are receiving valuable information before the rest of the market. This lack of fairness may lead to a reduction in liquidity, which is bad for the entire market.”

Key findings: 

•The market share of the insider’s broker is about the same as the market share of the average competitive broker prior to an insider trade and then rises sharply on the day of the insider trade.

•The abnormal market share (the difference between the broker’s share of client trades and the share of the average broker) jumps from 0.7% on the day before to 3.8% on the day of the insider purchase. Similarly for insider sales, the share rises from 0.9% before to 4.5% on the day of the sale. Furthermore, the market shares spike in the half-hour interval immediately surrounding the insider trades.

•Independent brokers experience significantly larger market share increases than brokers affiliated with banks. Evidence of tipping is stronger in broker handling of shares of smaller companies. This is consistent with greater information asymmetry between the insiders and outsiders in smaller companies.

•The insider’s broker’s market share of principal trading doubles on the day of the insider trade for both insider purchases and sales. This suggests brokers trade on their own account or that they tip other employees in the firm.

About the Winners 
William J. McNally is an Associate Professor of Finance at the School of Business and Economics at Wilfrid Laurier University.  Professor McNally is a co-author of Corporate Finance Online, an online introductory finance textbook. Professor McNally is a founder and on-going supervisor of the Laurier Student Investment Fund.  Andriy Shkilko is an Assistant Professor of Finance at the School of Business and Economics at Wilfrid Laurier University.  Professor Shkilko’s service engagements outside the university include consulting work on high frequency trading for the governments of the United Kingdom and the province of British Columbia. Brian F. Smith is a Finance Professor who has taught at the School of Business and Economics at Wilfrid Laurier University since 1987.  He co-founded the Financial Services Research Centre, a centre dedicated to promoting studies on Canadian Capital Markets, and the Laurier Student Investment Fund, a $500,000 investment fund managed by students and supervised by faculty and alumni.

About Hillsdale Investment Management 
Founded in 1996, Hillsdale is an independent Canadian investment boutique, providing a full range of traditional equity and alternative investment strategies to both institutional and individual investors. Hillsdale manages a spectrum of long only, long/short and custom designed strategies employing a core investment style carefully implemented using an adaptive multi-strategy, risk controlled process.

About CFA Society Toronto 
CFA Society Toronto supports the professional and business development of more than 8,000 CFA charterholders in Toronto, making it the second largest member society in the world. It provides members with a local perspective on a global designation, including: educational programs, sponsored events, job postings, quarterly newsletters, a comprehensive affinity program and networking opportunities. A not-for-profit organization, CFA Society Toronto is affiliated with CFA Institute, the global body that administers the Chartered Financial Analyst curriculum and sets voluntary, ethics-based performance-reporting standards for the investment industry. CFA Society Toronto’s members are leaders in ethics in the financial community. For more information, please refer to

Media Contact CFA Society Toronto 
Sara Pacella
416.366.5755 X235