IIROC to implement revised electronic trading rules

Focus on risk mitigation

December 7, 2012 (Toronto, Ont.) – The Investment Industry  Regulatory  Organization of Canada has adopted rule amendments, approved by the Canadian  Securities Administrators (CSA), designed to ensure the effective management of risks associated with electronic trading.

The amendments expand on existing obligations under the Universal Market Integrity Rules (UMIR) by assigning IIROC-regulated dealers clear supervisory and gatekeeper responsibilities to protect against errors related to electronic trading. The changes will ensure that market participants have appropriate automated filters, testing of algorithms, and other risk management tools in place for handling orders before those orders enter the marketplace.

“The revised rules will help to bolster market integrity by ensuring that electronic trading risks are mitigated through appropriate controls for all trading activity, regardless of source,” said Susan Wolburgh Jenah, IIROC’s President and Chief Executive Officer.

The changes establish another tier in a comprehensive system of controls which include single-stock and market-wide circuit breakers. They also align UMIR rules with the CSA’s implementation of NI 23-103 Electronic Trading.

The amendments are effective March 1, 2013. However, in recognition of the technology enhancements required to effectively operationalize automated controls, IIROC dealers will have until May 31, 2013 to fully test and implement their automated controls.

Related documents:

• IIROC Notice – Provisions Respecting Electronic Trading, December 7, 2012.
• IIROC Notice – Guidance Respecting Electronic Trading, December 7, 2012.

• IIROC Notice – Summary of Comments on Proposed Guidance Respecting Electronic Trading, December 7, 2012.
• Multilateral CSA Staff Notice 23-313, December 7, 2012.

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Background Information

• All Canadian equity marketplaces are accessed electronically.
• The UMIR amendments confirm that Participants and Access Persons are responsible for managing the risks associated with their order flow and their clients’ order flow – this responsibility cannot be delegated.
• The amendments require automated controls to prevent entry of an order that:
  • exceeds a pre-determined credit / capital threshold;
  • exceeds a pre-determined value or volume limit on orders from a Participant, Access Person or client; or
  • violates UMIR or any applicable securities regulation.
• These amendments, in conjunction with other IIROC initiatives that are underway or completed, will establish a comprehensive system of controls at multiple levels:
  • Electronic Trading Rules
  • Marketplace thresholds
  • Single-Stock Circuit Breakers
  • Market-Wide Circuit Breakers
  • IIROC discretion to vary or cancel trades

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IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc., IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.

IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.

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