Guidance on Double Printing

1. Prohibition on double printing

The term “double printing” refers to a practice where two trades are executed when only one was necessary to execute an order. For example, double printing may occur when a Participant with a client order to buy facilitates that client order by purchasing the security as principal (into inventory) and then immediately selling the security to the client out of inventory, effecting two trades on a marketplace to satisfy the client order. Double printing may create artificial volume and a false or misleading appearance of trading activity contrary to Rule 2.2.

Rule 2.2 prohibits Participants and Access Persons from using any method of trading they know or ought reasonably to know is manipulative or deceptive in nature, and from entering orders or trades they know or ought reasonably to know could create a false or misleading appearance of market activity or artificial prices.

Double printing may also result in a violation of the client priority requirement contrary to Rule 5.3 of UMIR.

2. Avoiding double printing - Orders greater than 50 standard trading units

To facilitate the execution of orders for more than 50 standard trading units2, a Participant may wish to trade with a client order as principal and immediately seek to offset that principal position with orders displayed in a consolidated market display.

If a client order for more than 50 standard trading units can be executed in full by orders displayed in a consolidated market display on any single marketplace, the Participant is not permitted to facilitate the trade as principal on a marketplace and then immediately offset the principal position at the same price by trading against the orders displayed in a consolidated market display. Since the client order can be executed through the entry of one order as agent, the involvement of the Participant in the transaction in a principal capacity would constitute double printing.

If the client order cannot be executed in full on any single marketplace, the Participant is permitted to trade against the client order as principal and immediately offset the principal position through additional principal trades. Given the timing uncertainties of being able to execute trades on multiple marketplaces, this will not be considered to have engaged in double printing.

Only orders and volume disclosed in a consolidated market display will be considered when determining whether the execution of a trade would constitute double printing (i.e., dark orders or undisclosed portions of iceberg orders will not be considered).

3. Avoiding double printing - Orders less than 50 Standard Trading Units

Under Rule 6.3 Exposure of Client Orders, if a Participant receives a client order for 50 standard trading units or less with a value of $100,000 or less the Participant must immediately enter the order for display3 on a marketplace that displays orders, unless an available exception under Rule 6.3 is applicable. In accordance with Rule 6.3, the Participant may also execute the client order on receipt at a “better price”.4 If the Participant executes the client order against a principal order or non-client order at a better price, Rule 8.1 of UMIR requires that the Participant must have taken reasonable steps to ensure that the price is the best available price for the client taking into account the condition of the market at the time.5

Since the Participant is executing as principal at a better price than the one indicated in a consolidated market display, it would not be considered double printing if the Participant, subsequent to the trade with the client, unwound all or part of the position acquired in the trade with the client by executing trades with the inferior-priced orders.

For the purposes of UMIR, 50 standard trading units is defined as:

• 5,000 units of a security trading at $1.00 or more per unit;
• 25,000 units of a security trading at $0.10 or more per unit and less than $1.00 per unit; and
• 50,000 units of a security trading at less than $0.10 per unit.

4. Applicable Rules

UMIR Rules this Guidance Note relates to:

• UMIR 1.1
• UMIR 2.2
• UMIR 5.3
• UMIR 6.3
• UMIR 8.1

5. Previous Guidance Notes

This Guidance Note combines and replaces:

• Market Integrity Notice 2003-002 – Prohibition on Double Printing (January 13, 2003)
• Market Integrity Notice 2005-004 – Double Printing and the Entry of Orders (March 4, 2005).

• 2

  UMIR defines a “standard trading unit” to mean “…in respect of:

  1. a listed derivative, 1 contract;
  2. a debt security that is a listed security or a quoted security, $1,000 in principal amount; or
  3. any equity or similar security:
     1. 1,000 units of a security trading at less than $0.10 per unit,
     2. 500 units of a security trading at $0.10 or more per unit and less than $1.00 per unit, and
     3. 100 units of a security trading at $1.00 or more per unit.
• 3

  Where a marketplace may provide for the integration of both displayed and non-displayed orders in an order book, the order must be entered to be displayed.

• 4

  A “better price” is defined in UMIR 1.1 to mean “…in respect of each trade resulting from an order for a particular security:

  1. in the case of a purchase, a price that is at least one trading increment lower than the best ask price at the time of the entry of the order to a marketplace provided that, if the best bid price is one trading increment lower than the best ask price, the price shall be at least one-half of one trading increment lower; and
  2. in the case of a sale, a price that is at least one trading increment higher than the best bid price at the time of the entry of the order to a marketplace provided that, if the best ask price is one trading increment higher than the best bid price, the price shall be at least one-half of one trading increment higher.
• 5

  See Part 3 of Policy 8.1.