Application of UMIR to the Trading Activity of an Access Person

1. Background

This Guidance Note provides guidance on the application of specific provisions of UMIR to the trading activity of an Access Person.

UMIR governs the trading activity of an Access Person on marketplaces regulated by CIRO.2 An Access Person is defined in UMIR as an entity that is not a Participant but is:

• a user of a recognized quotation and trade reporting system (QTRS) or
• a subscriber of an alternative trading system (ATS).

If the user or subscriber is an investment dealer registered in accordance with securities legislation of any jurisdiction or a person who performs the function of a derivatives market maker, that user or subscriber will be considered a “Participant” for the purposes of UMIR and will be subject to a different subset of UMIR provisions.

2. Current Application of UMIR

2.1 Specific Unacceptable Activities (Rule 2.1)

Rule 2.1 sets out specific activities that are prohibited under UMIR. Where applicable, these specific unacceptable activities are prohibited both for an Access Person as well as a Participant.

2.2 Manipulative or Deceptive Activities (Rule 2.2)

An Access Person has the same obligation as a Participant to not, directly or indirectly:

• engage or participate in the use of a manipulative or deceptive method, act or practice in connection with any order or trade if the Access Person knows or ought reasonably to know the nature of the method, act or practice or
• enter an order or execute a trade if the Access Person knows or ought reasonably to know that the order or trade will create or could reasonably be expected to create a false or misleading appearance of trading activity or investor interest or an artificial price

2.3 Improper Orders or Trades (Rule 2.3)

Like a Participant, an Access Person shall not enter an order or execute a trade if the Access Person knows or ought reasonably to know that the order or the trade would result in the violation of securities legislation, the requirements of a self-regulatory entity of which the Access Person is a member, marketplace rules or UMIR.

2.4 Prohibition on the Entry of Orders (Rule 3.2)

Like a Participant, an Access Person shall not enter an order that would result in a short sale:

• unless the order is marked as a short sale in accordance with UMIR 6.2(1)(b)(viii)
• if the security has been designated by CIRO as a Short Sale Ineligible Security or
• if the security has been designated by CIRO as a Pre-Borrow Security, unless the Access Person has arranged to borrow the securities necessary to settle any resulting trade.

2.5 Reasonable expectation to settle prior to the entry of an order for a short sale (Rule 3.3)

Like a Participant, an Access Person must have a reasonable expectation to settle any short sale on the date contemplated on the execution of the trade.

2.6 Short Selling after a Reportable Extended Failed Trade (Rule 3.4)

An Access Person cannot enter an order for a particular security that would result in a short sale if that Access Person has previously executed a sale in that security that became a reportable failed trade pursuant to Rule 7.10 unless:

• the Access Person has arranged to borrow the security or
• CIRO has consented to the entry of the order or orders.

2.7 Entry of Orders to a Marketplace (Rule 6.1)

An Access Person is subject to the same requirements as a Participant pertaining to the entry of orders, including the requirement to enter the orders in acceptable trading increments and to follow the rules applicable to settlement and entitlement to distributions (such as dividends and interest) that have been established by an Exchange for a listed security or by a QTRS for a quoted security.

Further, an Access Person is only permitted to enter an order on a marketplace with the identifier of that Access Person if:

• the order is for their own account or
• the order is for a client of the Access Person and the Access Person is registered or exempted from registration as an adviser according to securities legislation

2.8 Designations and Identifiers (Rule 6.2)

An Access Person is required to enter orders containing applicable designations and identifiers in the same manner as Participants.

2.9 Minimum Size Requirements of Certain Orders Entered on a Marketplace (Rule 6.5)

Where CIRO has designated a minimum size requirement for the entry of a Dark Order or for the displayed portion of an iceberg order, an Access Person is subject to the same requirements as Participants.

2.10 Provision of Price Improvement by a Dark Order (Rule 6.6)

The price improvement requirements where an order trades with a Dark Order are applicable to orders entered by both a Participant and an Access Person.

2.11 Trading Supervision Obligations (Rule 7.1)

As part of trading supervision obligations, both Participants and Access Persons are prohibited from entering an order marked as a directed action order unless they have established policies and procedures reasonably designed to prevent trade-throughs.

Additionally, both Participants and Access Persons are subject to requirements to adopt risk management and supervisory controls, policies and procedures to manage various risks associated with electronic access to marketplaces and if applicable, the use of automated order systems.

2.12 Proficiency Obligations (Rule 7.2(2))

An Access Person does not have the same proficiency obligations that a Participant has under UMIR. Instead, UMIR imposes an obligation on the marketplace which has given trading access to the Access Person to ensure that the Access Person is trained in the provisions of UMIR that are applicable to an Access Person.

2.13 Liability for Bids, Offers and Trades (Rule 7.3)

Generally any person entering an order will be responsible for the order and any trade occurring as a result of the order’s entry, whether the order is entered by a Participant or an Access Person. It should be noted that an ATS is responsible for all orders entered onto its trading system by an Access Person who has been allowed access to trading by the ATS.

2.14 Extended Failed Trades (Rule 7.10)

An Access Person is subject to the same reporting requirements as Participants in relation to extended failed trades.

2.15 Variation and Cancellation and Correction of Trades (Rule 7.11)

Rule 7.11 sets out that a trade cannot be cancelled or varied (with respect to price, volume or settlement date) except if the cancellation or variation was made by:

• CIRO in accordance with UMIR or
• with notice to CIRO immediately following the variation or cancellation of the trade in such form and manner as may be required by CIRO

The specifics set out in Rule 7.11, including the requirements to notify CIRO, apply whether the party to a trade is a Participant or an Access Person.

2.16 Inability to Rely on Marketplace Functionality (Rule 7.12)

Participants and Access Persons cannot rely on the functionality of a marketplace to ensure compliance with UMIR requirements. An Access Person shall not enter an order on a marketplace if they know or ought reasonably to know that the manner in which the marketplace systems or functionality will handle the order may result in the Access Person not being in compliance with any applicable requirements of UMIR.

2.17 Regulatory Halts, Delays and Suspensions (Rule 9.1)

Neither a Participant nor an Access Person may execute a trade in a security on a marketplace or over-the-counter at any time during a regulatory halt, suspension or delay which affects that security.

2.18 Compliance Requirements (Rule 10.1)

Both a Participant and an Access Person must comply with “applicable Requirements” as defined in UMIR.3

2.19 Extension of Restrictions (Rule 10.4(2))

A director, officer, partner or employee of an Access Person and a related entity of the Access Person (and any officer, director, partner or employee of the related entity) must comply with Rules 2.1, 2.2, 2.3, 3.2 and 3.3 and are subject to penalties for violating such provisions. A similar obligation is imposed on a director, officer, partner, employee or related entity of a Participant by Rule 10.4(1).

2.20 Power of Market Integrity Officials (Rule 10.9)

Both a Participant and an Access Person must co-operate with a Market Integrity Official in their exercise of a power to govern trading activity and both are subject to any direction or order given by a Market Integrity Official.

2.21 Short Position Reporting (Rule 10.10)

An Access Person has an obligation to provide reports of its short positions twice per month, unless a Participant files such reports on behalf of the Access Person.

2.22 Audit Trail Requirements (Rule 10.11(4))

An Access Person is obliged to provide CIRO, upon CIRO’s request, information with respect to any order or trade. This requirement is much less stringent than the requirements placed on a Participant.

2.23 Retention and Inspection of Records (Rule 10.12(2))

An Access Person must keep information respecting orders on a marketplace of which the Access Person is a subscriber or on which the order of the Access Person was executed. This information must be kept for seven years from the date of the order. This provision does not mirror the requirements placed on a Participant as it does not require the Access Person to retain any specific information related to an order.

2.24 Gatekeeper Obligations (Rule 10.16)

An officer, director, partner or employee of an Access Person must report potential violations of Rule 2.1, 2.2 or 2.3 of UMIR to their supervisor or compliance department upon becoming aware of the violations. The supervisor or compliance department must diligently investigate such potential violations, record the findings and, if the findings indicate a violation, report the findings to the Market Regulator not later than the 15th day of the month following the month when the findings were made.

3. Applicable Rules

Rules this Guidance Note relates to:

• UMIR 1.1
• UMIR 2.1
• UMIR 2.2
• UMIR 2.3
• UMIR 3.2
• UMIR 3.3
• UMIR 3.4
• UMIR 6.1
• UMIR 6.2
• UMIR 6.5
• UMIR 6.6
• UMIR 7.1
• UMIR 7.2
• UMIR 7.3
• UMIR 7.10
• UMIR 7.11
• UMIR 7.12
• UMIR 9.1
• UMIR 10.1
• UMIR 10.4
• UMIR 10.9
• UMIR 10.10
• UMIR 10.11
• UMIR 10.12
• UMIR 10.16

4. Previous Guidance Note(s)

This Guidance Note replaces the following:

• Market Integrity Notice 2005-014 – Application of the Universal Market Integrity Rules to the Trading Activity of an Access Person (May 12, 2005).

• 2

  Marketplaces regulated by CIRO can be found at: Equity Markets We Regulate

• 3

  UMIR defines “Requirements” to mean, collectively:

  1. UMIR;
  2. the Policies;
  3. the Trading Rules;
  4. the Marketplace Rules;
  5. any direction, order or decision of the Market Regulator or a Market Integrity Official; and
  6. securities legislation, as amended, supplemented and in effect from time to time.