InvestorsFriend Shareholder Advocacy Activities

Shawn Allen and InvestorsFriend have worked to protect shareholder interests since the inception this Web Site in June 1999.

InvestorsFriend Scores Victory for Retail Investors!

Companies Are (mostly) No Longer Issuing Earnings During Trading Hours – Thanks to Our Efforts

In late 2009 I made a formal complain to the Investment Industry Regulatory Organization of Canada.

I pointed out that many companies were releasing earnings reports during trading hours and that this was unfair to retail investors. At first my complaint was rebuffed. But I persisted. A response from the Toronto Stock Exchange very helpfully pointed out clause 907 in the Toronto Stock Exchanges Company Manual that encouraged release of earnings after the close of trading:

Section 907

If possible, it is preferable to schedule meetings of boards of directors after the Exchange has closed for the day, so that disclosure can be made when the market is closed. This allows for more complete dissemination of the news, provides a greater opportunity for the investment community and the public to assess the significance of the news and minimizes the risk of misinterpretation of media coverage of the news before trading of the company’s securities resumes in the market.

But companies were ignoring that encouragement. Still, the regulatory organizations, and particularly the TSX did not admit that anything was wrong.

But… Success was achieved! The Regulators decided to start reminding companies of the “rule” that states that companies are encouraged to release earnings outside of trading hours. Most companies now seem to be releasing earnings outside of trading hours. Even the large banks in Canada have stopped their long-standing practice of issuing earnings during trading hours.

The Investment Industry Regulatory Organization of Canada has confirmed to me that it was my initiative that resulted in this improvement.

I can score this as a victory for small retail investors over analysts and institutional investors. While the regulators at first rebuffed me, they eventually did take action and I applaud them for that.

Submission Regarding the Need for Trading Halts when material news is released

Submitted to the Investment Industry Regulatory Organization of Canada in early 2011

Corporate Governance – Ontario Securities Commission

In April 2009, the Ontario Securities Commission invited submissions on the topics Corporate Governance including the selection of members for Board’s of directors and the duties of Audit committees.

The Ontario Securities Commission’s file on these matters is here: and here

I made a submission which pointed out to the Securities Commission that Warren Buffett had addressed these topics and I quoted the points that Buffett had made.

My submission is here:

The Commission closed this file with no further changes to corporate governance. They had basically been proposing to add even more politically correct mumbo jumbo feel good regulations but mercifully they backed off. Possibly the words of Warren Buffett that I provided them with helped them to come to their senses.

Revolutionizing the Capital Markets – Ontario Securities Commission

I have several ideas that could revolutionize the capital markets:
1) Allow Companies to Sell Shares Continuously (Reverse of share Buy Backs)
2) Automatically Register All Shares in the Name of the Owner
3) Facilitate Investment Portability – Cut the chains that bind investors to a single advisor or broker

Allow Companies to Sell Shares Continuously (Reverse of Buy Backs)

In 2005, the Ontario Securities Commission invited comments on changes to the Short-Form Prospectus.

I took the opportunity to write in with a radical suggestion that would revolutionize the capital markets.

I suggested that large established companies already trading on the stock exchange should be allowed to issue small amounts of shares at any time without the need of a prospectus. This would be the opposite of share buy backs, these would be share sales by the companies. Essentially a company could raise small amounts of new capital much more easily than at present.

My submission is here

The Ontario Securities Commission, in its summary of comments received, acknowledged and understood the suggestion but did not comment on its merits and the idea, to my knowledge, was never heard from again.

Automatically Register All Shares in the Name of the Owner

Another idea in terms of Revolutionizing the Capital markets would be to get rid of the archaic distinction between registered shares and shares held in the name of your broker (street name). Almost all shares are registered electronically these days and there is no excuse to give privileges (like an easier ability to vote their shares) to those who “register” their shares. All shares should be instantly and electronically registered. Among other advantages this would allow companies to know who their share holders are and to communicate more easily with their owners. Possibly there would have to be an opt-out feature for those concerned with privacy.

A proposal to facilitate investment portability – To cut the chains that bind investors to a single advisor or broker

Most investors today are effectively chained to a single broker or advisor. It’s inconvenient to switch advisors and it is somewhat inconvenient to deal with more than one broker or advisor. I don’t know the exact history of how this evolved but I believe the following is basically how it happened.

Some decades ago, when you bought bonds or shares through a broker you paid a one-time commission and you soon received the bonds or share certificates in the mail. You kept these in a safe place such as a bank safe deposit box. When you wanted to sell you brought the share certificates to any broker of your choice. You were not tied to any particular broker. You could buy from several brokers and sell through several if you wished.

There are advantages and disadvantages to such a system. In this system your broker did not hold your assets and so you did not receive consolidated statements. Dividend cheques were mailed directly to you. Your broker(s) did not send you summaries at year end for income tax preparation.

With this system brokers could work to sell shares to anyone. They could do a one-time sale to a new customer. In contrast, today a broker tends to get all of your business or none of it. This older system was open to some abuse because it was possible to market shares door-to-door or by telephone and no-doubt some of these turned out to very dubious or outright frauds.
Some people found it convenient to have their broker look after their share certificates for safe-keeping and faster access for trading. Some of these had the shares held in the name of the broker in-trust for the client. In this case the customer was to some degree tied to his or her broker.

Eventually it became normal to leave shares in the name of the broker. Customers became tied to their (usually) single broker. The advent of registered tax advantaged retirement accounts also tended to tie customers to a single broker since the account had to be registered through a broker.

With this new model, brokerages began to think of themselves as in some way “owning” their customers. They began to count their customer’s investments certificates, which they held in trust as brokerage assets under management. This model eventually allowed a move away from paying brokers and advisors only for buy / sell transactions to paying an on-going annual fee for assets under management.

In more recent years, paper stock and bond certificates have become virtually obsolete. Brokers no longer hold your shares as paper certificates. There is a central stock transfer agency that holds the name of who owns each stock and bond. Usually the shares are held in the name of the broker but it is possible to register shares in your own name. Shares held in tax advantaged registered plan may have to be held in the brokers name.

With the demise of paper ownership certificates and the advent of all electronic ownership lists it may be time to rethink some things.

If I own 200 shares of Bank of America, in what sense does my (discount) broker (TD Waterhouse) have those shares as assets under management?

When I bought the shares my broker arranged the sale trough the stock exchange. My broker arranged for the money to flow from my account to the account of the seller at the seller’s brokerage. The share transfer agency recorded that my broker now held those 200 shares. But they are held in trust for me. They are not assets of my broker. My broker retains certain responsibilities for those shares including receiving dividends and crediting those to my account. My broker must also, in the case of U.S. shares not held in an RRSP account, withhold a portion of the dividends as taxes and submit those to the U.S. taxation authorities. My broker must pass along and mail out to me (unless I opt for electronic delivery) certain materials from Bank of America including the annual report and voting instructions. My broker must include the 200 shares of Bank of America on my monthly investment statement. And they provide an online account summary as well. They facilitate my ability to sell those shares online in seconds.

When it comes to something like shares of Bank of America my online broker must do a large amount of administrative work. The only payment they receive from me for that is a one-time payment of $9.99 when I buy or sell shares. This is actually very small compensation especially if I end up keeping those shares for years. They also get the use of any cash in my account which is effectively a short-term deposit that they can use to fund loans since not all their clients will withdraw or spend the cash in the investment account on short notice.

While this model of my discount broker “holding” or administering all of my investments in one account is cost-effective and works well, it does have its disadvantages. It definitely ties me to my broker. If my broker is not participating in a certain initial public offering then I simply cannot buy those shares via the initial public offering. (I could buy at the IPO if I opened an account with the second broker and I can buy when they start trading.) If my discount broker does not deal in certain bonds then I simply can’t buy them in that account. If another broker was recommending a certain stock I could not simply buy the stock through him and have it go into my TD Waterhouse account. I would have to open an account with that other broker, which is inconvenient.

Given that the ownership of all bonds and stocks is tracked centrally through the stock transfer agent, I believe a new or alternative model is possible.

I propose that the stock transfer agent allow retail investors to deal with it directly. In the model I propose, the stock transfer agent would not offer cash accounts to customers. It would continue to simply keep track of who owned what. A retail investor would open a money market or a bank deposit account that trades like a mutual fund. (Banks already offer deposit accounts that can be purchased inside of any investment account, these can be bought and sold like mutual funds).

The retail investor would then open an on-line account with the stock transfer agent. This account would look like existing discount broker accounts. Cash would flow from and to the investor’s designated cash account (typically a cash mutual fund account). Stocks, bonds and mutual funds could be bought and sold on-line just like in existing discount broker accounts. A key difference would be that these accounts would be open access. Investors would be able to buy shares through various third parties like any broker or advisor or mutual fund company or perhaps directly from a corporation. That seller would receive the money and would direct that whatever was purchased would go into your account at the stock transfer agent. Brokers and advisors would charge a one-time fee for the trade. Investors would be tied to the stock transfer agent but not to any broker or advisor. The stock transfer agent would have to take on the administrative duties currently carried out by brokers. The existing system of having your account tied to a particular broker or advisor could also continue in parallel with this new system.

If the above cannot be done then, at the very least I propose that the stock transfer agent record the name of the ultimate owner of each share. That is, all shares and investment would be automatically “registered” in a manner that includes the investors name by default. (Probably with an ability to opt out for privacy.) The issuing companies would be allowed to access the list of their owners and communicate directly with them.

Possibly my proposal solves a problem that does not exist. I’d be interested in your thoughts. Click to email

Other Shareholder Advocacy

Every stock report we do comments on executive compensation. See also our articles on Management Behavior and Disclosure issues.
I have written to several companies over the years to ask for improvements in disclosure and in some cases the suggestion has been accepted.


Shawn C. Allen, CFA, CMA. MBA, P.Eng.
InvestorsFriend Inc.

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