LETTERS TO THE EDITOR — Broker-Dealers adhere to rules of

I was amazed by the lack of knowledge displayed by M.R. Brown in the article “Warding off penny dreadfuls” (T.N.M., Sept. 14/92). While I’ve never met Mr. Brown I would venture to guess he is an individual of considerable age with fond memories of the “roaring fifties.”

The 1990s, however, is entirely different. All brokers employed by so called “Broker-Dealers” are licensed, regulated and adhere to the same rules of conduct as registrants employed by The Toronto Stock Exchange or as members of the Investment Dealers Association (IDA).

While the 1950s may have been plagued with “telephone penny stock pushers,” the registered representatives of the 1990s employed by “Broker-Dealers” follow the “know-your-client rule,” advise the purchasers, often in writing, of the speculative nature of the securities offered and deal with clients who have, in the majority of cases, an annual income in excess of $50,000. All securities offered by “Broker-Dealers” are traded on a recognized stock exchange or the Canadian Dealing Network (CDN) and as such are subject to the same regulations as any other issue.

The notion that “only a tiny portion of the money milked out gets into the ground” is ludicrous. Securities regulations require that a minimum of 65% of the proceeds raised from the public go to the exploration company and the promoter itself must invest a minimum of $60,000 on explorations before the issue can be offered to the public.

Mr. Brown claims that it has been a “long time since the Broker-Dealer arm of the business has found any profitable mines.” thereby indicating that he does not follow his own newspaper.

Had Mr. Brown read his own newspaper (T.N.M., Sept. 7/92), he would have discovered that Monk Gold Resources, which was financed by “Broker-Dealers,” is becoming a small and profitable gold producer and will directly employ about 55 people in the Wawa, Ont., region.

Furthermore, exploration funds raised by “Broker-Dealers” that ultimately do not result in a viable mine still create a great number of jobs during the exploration process for diamond drillers, field workers, geologists and engineers. Monk Gold and many others such as Paragon Petroleum exist and prosper due to initial financial support of “Broker-Dealers.” Before Mr. Brown applauds the proposed regulations, he must realize that their implementation will lead to situations where a TSE or IDA member can execute trading orders for a security such as Monk Gold immediately, whereas a customer trading the same security through a “Broker-Dealer” will have to wait an average of 10 days before his order can be executed due to the additional forms that must be filled out. This scenario creates a competitive disadvantage for “Broker-Dealers.”

A perusal of the proposed rules would have shown Mr. Brown that trades on CDN are exempt only for TSE or IDA members but not for other registrants thereby eliminating the concept of a “level playing field” for registrants with equal qualifications.

While every industry, including TSE and IDA members, has a few rotten apples, general accusations against a specific identifiable group is unacceptable and blatantly discriminatory.

Ron Sternhill, C.A.

Executive Partner

Gordon-Daly Grenadier

Securities

Toronto