1. No order to purchase or sell a security or a derivative shall be entered by a Participant on a marketplace unless the Participant or the director, officer, partner or employee of the Participant entering the order or responsible for the order has:
   1. completed the Trader Training Course of the Canadian Securities Institute or such course, examination or other means of demonstrating proficiency in UMIR and Policies as may be acceptable to the Market Regulator of the marketplace on which the order is entered or the applicable securities regulatory authority; or
   2. received approval of an Exchange or QTRS for the entry of orders to the trading system of that Exchange or QTRS.
2. A marketplace shall ensure that each Access Person with access to that marketplace is trained in such provisions of UMIR and such Policies as may be applicable to an Access Person.

1. Each Participant shall develop, implement and maintain written policies and procedures to be followed by directors, officers, partners and employees of the Participant that are reasonably designed, taking into account the business and affairs of the Participant, to ensure compliance with UMIR and each Policy as applicable.
2. Prior to the entry of an order on a marketplace by a Participant, the Participant shall comply with:
   1. applicable regulatory standards with respect to the review, acceptance and approval of orders;
   2. the policies and procedures adopted in accordance with subsection (1); and
   3. all applicable requirements of UMIR and each Policy.
3. Each Participant shall appoint a head of trading who shall be responsible to supervise the trading activities of the Participant in a marketplace.
4. The head of trading together with each person who has authority or supervision over or responsibility to the Participant for an employee of the Participant shall fully and properly supervise such employee as necessary to ensure the compliance of the employee with UMIR and each Policy.
5. Notwithstanding any other provision of this Rule, a Participant or Access Person shall not mark an order on entry to a marketplace as a directed action order unless the Participant or Access Person has established, maintained and ensured compliance with written policies and procedures that are reasonably designed to prevent trade‑throughs other than those trade‑throughs permitted in Part 6 of the Trading Rules.
6. Notwithstanding any other provision of this Rule, a Participant or an Access Person shall adopt, document and maintain a system of risk management and supervisory controls, policies and procedures reasonably designed, in accordance with prudent business practices, to ensure the management of the financial, regulatory and other risks associated with:
   1. access to one or more marketplaces; and
   2. if applicable, the use by the Participant, any client of the Participant or the Access Person of an automated order system.
7. A Participant may, on a reasonable basis:
   1. authorize an investment dealer to perform on its behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure; or
   2. use the services of a third party that provides risk management and supervisory controls, policies and procedures.
8. An authorization over the setting or adjusting of a specific risk management or supervisory control, policy or procedure or retaining the services of a third party under subsection (7) must be in a written agreement with the investment dealer or third party that;
   1. precludes the investment dealer or third party from providing any other person control over any aspect of the specific risk management or supervisory control, policy or procedure;
   2. unless the authorization is to an investment dealer that is a Participant, precludes the authorization to the investment dealer over the setting or adjusting of a specific risk management or supervisory control, policy or procedure respecting an account in which the investment dealer or a related entity of the investment dealer holds a direct or indirect interest other than an interest in the commission charged on a transaction or reasonable fee for the administration of the account; and
   3. precludes the use of a third party unless the third party is independent of each client of the Participant other than affiliates of the Participant.
9. A Participant shall forthwith notify the Market Regulator:
   1. upon entering into a written agreement with an investment dealer or third party described in subsection (8), of:
      1. the name of the investment dealer or third party, and
      2. the contact information for the investment dealer or the third party which will permit the Market Regulator to deal with the investment dealer or third party immediately following the entry of an order or execution of a trade for which the Market Regulator wants additional information; and
   2. of any change in the information described in clause (a).
10. The Participant shall review and confirm:
    1. at least annually that:
       1. the risk management and supervisory controls, policies and procedures under subsection (6) are adequate,
       2. the Participant has maintained and consistently applied the risk management and supervisory controls, policies and procedures since the establishment of the controls, policies and procedures or the date of the last annual review, and
       3. any deficiency in the adequacy of a control, policy or procedure has been documented and promptly remedied;
    2. if the Participant has authorized an investment dealer to perform on its behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure or retained the services of a third party, at least annually by the anniversary date of the written agreement with the investment dealer or third party that:
       1. the risk management and supervisory controls, policies and procedures adopted by the investment dealer or third party under subsection (6) are adequate,
       2. the investment dealer or third party has maintained and consistently applied the risk management and supervisory controls, policies and procedures since the establishment of the controls, policies and procedures or the date of the last annual review,
       3. any deficiency in the adequacy of a control, policy or procedure has been documented by the Participant and promptly remedied by the investment dealer or third party, and
       4. the investment dealer or third party is in compliance with the written agreement with the Participant.

POLICY 7.1 – TRADING SUPERVISION OBLIGATIONS

Part 1 – Responsibility for Supervision and Compliance

For the purposes of Rule 7.1, a Participant shall supervise its employees, directors and officers and, if applicable, partners to ensure that trading in securities or derivatives on a marketplace (an Exchange, QTRS or ATS) is carried out in compliance with the applicable Requirements (which includes provisions of securities legislation, UMIR, the Trading Rules and the Marketplace Rules of any applicable Exchange or QTRS). An effective supervision system requires a strong overall commitment on the part of the Participant, through its board of directors, to develop and implement a clearly defined set of policies and procedures that are reasonably designed to prevent and detect violations of Requirements. The board of directors of a Participant is responsible for the overall stewardship of the firm with a specific responsibility to supervise the management of the firm. On an ongoing basis, the board of directors must ensure that the principal risks for non‑compliance with Requirements have been identified and that appropriate supervision and compliance procedures to manage those risks have been implemented.

Management of the Participant is responsible for ensuring that the supervision system adopted by the Participant is effectively carried out. The head of trading and any other person to whom supervisory responsibility has been delegated must fully and properly supervise all employees under their supervision to ensure their compliance with Requirements. If a supervisor has not followed the supervision procedures adopted by the Participant, the supervisor will have failed to comply with their supervisory obligations under Rule 7.1(4).

When the Market Regulator reviews the supervision system of a Participant (for example, when a violation occurs of Requirements), the Market Regulator will consider whether the supervisory system is reasonably well designed to prevent and detect violations of Requirements and whether the system was followed.

The compliance department is responsible for monitoring and reporting adherence to rules, regulations, requirements, policies and procedures. In doing so, the compliance department must have a compliance monitoring system in place that is reasonably designed to prevent and detect violations. The compliance department must report the results from its monitoring to the Participant’s management and, where appropriate, the board of directors, or its equivalent. Management and the board of directors must ensure that the compliance department is adequately funded, staffed and empowered to fulfill these responsibilities.

The obligation to supervise applies whether the order is entered on a marketplace:

• by a trader employed by the Participant, 
• by an employee of the Participant through an order routing system,
• directly by a client and routed to a marketplace through the trading system of the Participant, or
• by any other means.

In performing the trading supervision obligations, the Participant will act as a “gatekeeper” to help prevent and detect violations of applicable Requirements.

When an order is entered on a marketplace by direct electronic access, under a routing arrangement or through an order execution service, the Participant retains responsibility for that order and the supervision policies and procedures should adequately address the additional risk exposure which the Participant may have for orders that are not directly handled by staff of the Participant. For example, it may be appropriate for the Participant to sample for compliance testing a higher percentage of orders that have been entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service than the percentage of orders sampled in other circumstances.

In addition, the “post order entry” compliance testing should recognize that the limited involvement of staff of the Participant in the entry of orders by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service may restrict the ability of the Participant to detect orders that are not in compliance with specific rules. For example, “post order entry” compliance testing may be focused on whether an order entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service:

• has created an artificial price contrary to Rule 2.2;
• is part of a “wash trade” (in circumstances where the client has more than one account with the Participant);
• is an unmarked short sale (if the trading system of the Participant does not automatically code as “short” any sale of a security not then held in the account of the client other than a client required to use the “short-marking exempt” designation); and
• has complied with other order marking requirements and in particular the requirement to mark an order as from an insider or significant shareholder (unless the trading system of the Participant restricts trading activities in affected securities or derivatives).

Part 2 – Minimum Elements of a Supervision System

For the purposes of Rule 7.1, a supervision system consists of both policies and procedures aimed at preventing violations from occurring and compliance procedures aimed at detecting whether violations have occurred.

The Market Regulator recognizes that there is no one supervision system that will be appropriate for all Participants. Given the differences among firms in terms of their size, the nature of their business, whether they are engaged in business in more than one location or jurisdiction, the experience and training of their employees and the fact that effective compliance can be achieved in a variety of ways, this Policy does not mandate any particular type or method of supervision of trading activity. Furthermore, compliance with this Policy does not relieve Participants from complying with specific Requirements that may apply in certain circumstances. In particular, in accordance with subsection (2) of Rule 10.1, orders entered (including orders entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or by a client through an order execution service) must comply with the Marketplace Rules on which the order is entered and the Marketplace Rules on which the order is executed.

Participants must develop, implement and maintain supervision and compliance procedures that exceed the elements identified in this Policy where the circumstances warrant. For example, previous disciplinary proceedings, warning and caution letters from the Market Regulator or the identification of problems with the supervision system or procedures by the Participant or the Market Regulator may warrant the implementation of more frequent supervision or compliance testing and more detailed supervision or compliance procedures.

Regardless of the circumstances of the Participant, however, every Participant must:

1. Identify the relevant Requirements, securities laws and other regulatory requirements that apply to the lines of business in which the Participant is engaged (the “Trading Requirements”).
2. Document the supervision system by preparing a written policies and procedures manual. The manual must be accessible to all relevant employees. The manual must be kept current and Participants are advised to maintain an historical copy.
3. Ensure that employees responsible for trading in securities or derivatives are appropriately registered and trained and that they are knowledgeable about the Trading Requirements that apply to their responsibilities. Persons with supervisory responsibility must ensure that employees under their supervision are appropriately registered and trained. Each Participant should provide a continuing training and education program to ensure that its employees remain informed of and knowledgeable about changes to the rules and regulations that apply to their responsibilities.
4. Designate individuals responsible for supervision and compliance. The compliance function must be conducted by persons other than those who supervise the trading activity.
5. Develop and implement supervision and compliance procedures that are appropriate for the Participant’s size, lines of business in which it is engaged and whether the Participant carries on business in more than one location or jurisdiction.
6. Identify the steps the Participant will take when a violation or possible violation of a Requirement or any regulatory requirement has been identified. These steps shall include the procedure for the reporting of the violation or possible violation to the Market Regulator if required by Rule 10.16. If there has been a violation or possible violation of a Requirement, identify the steps that would be taken by the Participant to determine if:
    
   • additional supervision should be instituted for the employee, the account or the business line that may have been involved with the violation or possible violation of a Requirement; and
   • the written policies and procedures that have been adopted by the Participant should be amended to reduce the possibility of a future violation of the Requirement.
7. Review the supervision system at least annually to ensure it continues to be reasonably designed to prevent and detect violations of Requirements. More frequent reviews may be required if past reviews have detected problems with supervision and compliance.
8. Document each step of the compliance review process to include details of the following:
    
   • individual(s) who conducted the review
   • date(s) of the review
   • sources of information used to conduct the review, including the initial alert that may have been triggered
   • sample(s) used to conduct the review and the criteria for sample selection (if samples are used)
   • queries made to the trader, client, and anyone else who handled the order, if any
   • results of the review
   • measures taken to escalate concerns, if any
   • corrective actions taken, if any.
9. Maintain results of all reviews for at least five years.
10. Report to the board of directors of the Participant or, if applicable, the partners, a summary of the compliance reviews conducted and the results of the supervision system review. These reports must be made at least annually. If the Market Regulator or the Participant identifies significant issues concerning the supervision system or compliance procedures, the board of directors or, if applicable, the partners, must be advised immediately.

Part 3 – Supervision and Compliance Procedures for Trading on a Marketplace

Each Participant must develop, implement and maintain supervision and compliance procedures for trading in securities or derivatives on a marketplace that are appropriate for its size, the nature of its business and whether it carries on business in more than one location or jurisdiction. Such procedures should be developed having regard to the training and experience of its employees and whether the firm or its employees have been previously disciplined or warned by the Market Regulator concerning the violations of the Requirements. Participants must identify any high-risk areas and ensure that their policies and procedures are adequately designed to address these heightened risks.

In developing supervision systems, Participants must identify any exception reports, trading data and any other relevant documents to be reviewed. In appropriate cases, relevant information that cannot be obtained or generated by the Participant should be sought from sources outside the firm including from the Market Regulator.

Each Participant must develop written policies and procedures in relation to all Requirements that apply to their business activities. A Participant’s supervision system must at a minimum include the regular review of compliance with respect to the following provisions for trading on a marketplace where applicable to their lines of business:

• Audit Trail requirements (Rule 10.11)
• Electronic Access to Marketplaces (Rule 7.1)
• Specific Unacceptable Activities (Rule 2.1)
• Manipulative and Deceptive Activities (Rule 2.2)
• Trading in restricted securities (Rule 7.7)
• Trading of grey list securities (Rule 2.2)
• Reasonable expectation to settle prior to the entry of an order for a short sale requirements (Rule 3.3)
• Disclosure requirements (Rule 10.1)
• Frontrunning (Rule 4.1)
• Client/Principal Trading (Rule 8.1)
• Client Priority (Rule 5.3)
• Best Execution (Part C of Corporation Rule 3100 – Best Execution of Client Orders)
• Order Exposure requirements (Rule 6.3)
• Time synchronization requirements (Rule 10.14).

Each Participant must develop, implement and maintain a risk-based supervision system that identifies and prioritizes those areas that pose the greatest risk of violations of Requirements. This enables the Participant to focus its review on the areas that pose a higher risk of non-compliance with Requirements. The frequency of review and sample size used in reviews must be commensurate with, among other things:

• the Participant’s size (considering factors such as revenue, market share, market exposure and volume of trades)
• the Participant’s organizational structure
• number and location of the Participant’s offices
• the nature and complexity of the products and services offered by the Participant
• the number of registrants assigned to a location
• the disciplinary history of registered representatives or associated persons
• the risk profile of the Participant’s business and any indicators of irregularities or misconduct i.e. “red flags”.

Part 4 – Specific Procedures Respecting Client Priority

Each Participant must develop, implement and maintain a supervision system to ensure its trading does not violate Rule 5.3 -

The purpose of the Participant’s compliance review is to ensure that inventory or non-client orders are not knowingly traded ahead of client orders. This would occur if a client order is withheld from entry into the market and a person with knowledge of that client order enters another order that will trade ahead of it. Doing so could take a trading opportunity away from the client. Withholding an order for normal review and order handling is allowed under Rule5.3 and Part C of Corporation Rule 3100 – Best Execution of Client Orders, as this is done to ensure that the client gets a good execution. To ensure that a supervision system is effective it must address potential problem situations where trading opportunities may be taken away from clients.

Part 5 – Specific Procedures Respecting Manipulative and Deceptive Activities and Reporting and Gatekeeper Obligations

Each Participant must develop, implement and maintain a supervision system to ensure that orders entered on a marketplace by or through a Participant are not part of a manipulative or deceptive method, act or practice nor an attempt to create an artificial price or a false or misleading appearance of trading activity or interest in the purchase or sale of a security or a derivative.

In particular, the policies and procedures must address:

• the steps to be taken to monitor the trading activities of:
  • an insider or an associate of an insider
  • part of or an associate of a promotional group or other group with an interest in effecting an artificial price, either for banking and margin purposes, for purposes of effecting a distribution of the securities of the issuer or for any other improper purpose
• the steps to be taken to monitor the trading activity of any person who has multiple accounts with the Participant including other accounts in which the person has an interest or over which the person has direction or control
• those circumstances when the Participant is unable to verify certain information (such as the beneficial ownership of the account on behalf of which the order is entered, unless that information is required by applicable regulatory requirements)
• the fact that orders which are intended to or which affect an artificial price are more likely to appear at the end of a month, quarter or year or on the date of the expiry of options where the underlying interest is a listed security, and
• the fact that orders which are intended to or which affect an artificial price or a false or misleading appearance of trading activity or investor interest are more likely to involve securities or derivatives with limited liquidity.

A Participant will be able to rely on information contained on a “New Client Application Form” or similar know-your-client record maintained in accordance with requirements of securities legislation or a self-regulatory entity provided such information has been reviewed periodically in accordance with such requirements and any additional practices of the Participant.

While a Participant cannot be expected to know the details of trading activity conducted by a client through another dealer, nonetheless, a Participant that provides advice to a client on the suitability of investments should have an understanding of the financial position and assets of the client and this understanding would include general knowledge of the holdings by the client at other dealers or directly in the name of the client. The supervision system of the Participant should allow the Participant to take into consideration, information which the Participant has collected respecting accounts at other dealers as part of the completion and periodic updating of the “New Client Application Form”.

Each Participant must review a sample of its trading for manipulative and deceptive activities at least on a quarterly basis.

Part 6 – Specific Provisions Respecting Trade-throughs

Each Participant must develop, implement and maintain a supervision system to ensure that an order:

• marked as “directed action order” in accordance with Rule 6.2 does not result in a trade‑through other than a trade-through permitted under Part 6 of the Trading Rules; or
• entered on a foreign organized regulated market complies with the conditions in subsection (3) of Rule 6.4.

Each Access Person must adopt written policies and procedures reasonably designed to detect and prevent an order marked as a “directed action order” in accordance with Rule 6.2 from resulting in a trade‑through other than a trade‑through permitted under Part 6 of the Trading Rules.

The policies and procedures must set out the steps or process to be followed by the Participant or Access Person to ensure that the execution of an order does not result in a trade-through. The policies and procedures must specifically address the circumstances when the bypass order marker will be used in conjunction with a “directed action order”. These policies and procedures must address the steps which the Participant or Access Person will undertake on a regular basis, which shall not be less than monthly, to test that the policies and procedures are adequate.

Part 7 – Specific Provisions Applicable to Electronic Access

Trading supervision related to electronic access to marketplaces must be performed by a Participant or Access Person in accordance with a documented system of risk management and supervisory controls, policies and procedures reasonably designed to ensure the management of the financial, regulatory and other risks associated with electronic access to marketplaces.

The risk management and supervisory controls, policies and procedures employed by a Participant or Access Persons must include:

• automated controls to examine each order before entry on a marketplace to prevent the entry of an order which would result in:
  • the Participant or Access Person exceeding pre-determined credit or capital thresholds
  • a client of the Participant exceeding pre-determined credit or other limits assigned by the Participant or to that client, or
  • the Participant, Access Person or client of the Participant exceeding pre-determined limits on the value or volume of unexecuted orders for a particular security or derivative or class of securities or derivatives
• provisions to prevent the entry of an order that is not in compliance with applicable Requirements
• provision of immediate order and trade information to compliance staff of the Participant or Access Person
• regular post-trade monitoring for compliance with Requirements.

A Participant or Access Person is responsible and accountable for all functions that they outsource to a service provider as set out in Part 11 of Companion Policy 31-103CP Registration Requirements and Exemptions.

Supervisory and compliance monitoring procedures must be designed to detect and prevent account activity that is or may be a violation of Requirements which includes applicable securities legislation, requirements of any self-regulatory organization applicable to the account activity and the rules and policies of any marketplace on which the account activity takes place. These procedures must include “post-order entry” compliance testing enumerated under Part 1 of Policy 7.1 to detect orders that are not in compliance with specific rules, and by addressing steps to monitor trading activity, as provided under Part 5 of Policy 7.1, of any person who has multiple accounts, with the Participant and other accounts in which the person has an interest or over which the person has direction or control.

Part 8 – Specific Provisions Applicable to Automated Order Systems

Trading supervision by a Participant or Access Person must be in accordance with a documented system of risk management and supervisory controls, policies and procedures reasonably designed to ensure the management of the financial, regulatory and other risks associated with the use of an automated order system by the Participant, the Access Person or any client of the Participant.

Each Participant or Access Person must have a level of knowledge and understanding of any automated order system used by the Participant, the Access Person or any client of the Participant that is sufficient to allow the Participant or Access Person to identify and manage the risks associated with the use of the automated order system.

The Participant or Access Person must ensure that every automated order system used by the Participant, the Access Person or any client of the Participant is tested in accordance with prudent business practices initially before use and at least annually thereafter. A written record must be maintained with sufficient details to demonstrate the testing of the automated order system undertaken by the Participant, Access Person and any third party employed to provide the automated order system or risk management or supervisory controls, policies and procedures.

The scope of appropriate order and trade parameters, policies and procedures should be tailored to the strategy or strategies being pursued by an automatic order system with due consideration to the potential market impact of defining such parameters too broadly and in any event must be set so as not to exceed the limits publicly disclosed by the Market Regulator for the exercise of the power of a Market Integrity Official under Rule 10.9 of UMIR.

The Market Regulator expects the risk management and supervisory controls, policies and procedures to comply with the Electronic Trading Rules and be reasonably designed to prevent the entry of any order that would interfere with fair and orderly markets. This includes adoption of compliance procedures for trading by clients, if applicable, containing detailed guidance on how testing of client orders and trades is to be conducted to ensure that prior to engagement and at least annually thereafter, each automated order system is satisfactorily tested assuming various market conditions. In addition to regular testing of the automated order systems, preventing interference with fair and orderly markets requires development of pre-programmed internal parameters to prevent or “flag” with alerts on a real-time basis, the entry of orders and execution of trades by an automated order system that exceed certain volume, order, price or other limits.

Each Participant or Access Person must have the ability to immediately override or disable automatically any automated order system and thereby prevent orders generated by the automated order system from being entered on any marketplace.

Notwithstanding any outsourcing or authorization over of risk management and supervision controls, a Participant or Access Person is responsible for any order entered or any trade executed on a marketplace, including any order or trade resulting from the improper operation or malfunction of the automated order system. This responsibility includes instances in which the malfunction which gave rise to a “runaway” algorithm is attributed to an aspect of the algorithm or automated order system that was not “accessible” to the Participant or Access Person for testing.

Part 9 – Specific Provisions Applicable to Direct Electronic Access and Routing Arrangements

Standards for Clients, Investment Dealers and Foreign Dealer Equivalents

In addition to other trading supervision requirements, a Participant that provides direct electronic access or implements a routing arrangement must establish, maintain and apply reasonable standards for granting direct electronic access or a routing arrangement and assess and document whether each client, investment dealer or foreign dealer equivalent meets the standards established by the Participant for direct electronic access or a routing arrangement. The Market Regulator expects that as part of its initial “screening” process, non‑institutional investors will be precluded from qualifying for direct electronic access except in exceptional circumstances generally limited to sophisticated former traders and floor brokers or a person or company having assets under administration with a value approaching that of an institutional investor that has access to and knowledge regarding the necessary technology to use direct electronic access. The Participant offering direct electronic access or a routing arrangement must establish sufficiently stringent standards for each client granted direct electronic access or each investment dealer or foreign dealer equivalent under a routing arrangement to ensure that the Participant is not exposed to undue risk and in particular, in the case of a non-institutional client the standards must be set higher than for institutional investors.

The Participant is further required to confirm with the client granted direct electronic access or an investment dealer or foreign dealer equivalent in a routing arrangement, at least annually, that the client, investment dealer or foreign dealer equivalent continues to meet the standards established by the Participant including to ensure that any modification to a previously “approved” automated order system in use by a client, investment dealer or foreign dealer equivalent continues to maintain appropriate safeguards.

Breaches by Clients with Direct Electronic Access or by Investment Dealers or Foreign Dealer Equivalents in a Routing Arrangement

A Participant that has granted direct electronic access to a client or entered into a routing arrangement with an investment dealer or foreign dealer equivalent must further monitor orders entered by the client, investment dealer or foreign dealer equivalent to identify whether the client, investment dealer or foreign dealer equivalent may have:

• breached any standard established by the Participant for the granting of direct electronic access or a routing arrangement;
• breached the terms of the written agreement regarding the direct electronic access or the routing arrangement;
• improperly granted or provided its access under direct electronic access or a routing arrangement to another person;
• engaged in unauthorized trading on behalf of the account of another person; or
• failed to ensure that its client’s orders are transmitted through the systems of the client, or Participant, investment dealer or foreign dealer equivalent (which include proprietary systems or systems that are provided by a third party) before being entered on a marketplace.

Identifying Originating Investment Dealer or Foreign Dealer Equivalent

In relation to the assignment of a unique identifier to an investment dealer or foreign dealer equivalent in a routing arrangement, if orders are routed through multiple investment dealers or foreign dealer equivalents, the executing Participant is responsible for properly identifying the originating investment dealer or foreign dealer equivalent and must establish and maintain adequate policies and procedures to assure that orders routed by an investment dealer or foreign dealer equivalent to the executing Participant containing the Participant’s identifier are also marked with all identifiers and designations relevant to the order as required under Rule 6.2 of UMIR on the entry of the order to a marketplace.

Identifying Clients with Direct Electronic Access

In relation to the assignment of a unique identifier to a client that is granted direct electronic access, the Participant must establish and maintain adequate policies and procedures to assure that orders routed by the client to the executing Participant containing the Participant’s identifier are marked with all identifiers and designations relevant to the order as required under Rule 6.2 of UMIR on the entry of the order to a marketplace.

Part 10 – Specific Procedures Respecting Audit Trail and Record Retention Requirements

Each Participant must develop, implement and maintain a supervision system to ensure that an accurate and complete audit trail of orders and trades under Rule 10.11 and Rule 10.12 is recorded and maintained.

At a minimum, policies and procedures regarding audit trail requirements must ensure the accurate recording of the following information for each order and trade as applicable:

• date and time of entry, amendment, cancellation, execution and expiration
• quantity
• buy, sell or short‑sale marker
• market or limit order marker
• price (if limit order)
• name or symbol of security or derivative
• identity of order recipient or trader
• client name or account number and special client instructions
• client consent
• applicable designations and identifiers under Rule 6.2 (identifier would allow compliance and regulators to track the history of the order, from time of order entry to execution or expiration)
• for CFOd orders, subsequent time of entry and quantity or price changes.

Sample sets must be randomly selected to proportionately cover orders and trades related to all lines of business of a Participant. Reviews for compliance with Audit Trail Requirements must be carried out at least on a quarterly basis and reviews for compliance with Record Retention Requirements must be carried out at least annually.

Part 11 – Specific Procedures Respecting Order Handling

Each Participant must develop, implement and maintain a supervision system to ensure that its trading does not violate order exposure requirements under Rule 6.3 or client priority requirements under Rule 8.1. Reviews for compliance with these provisions must at a minimum include:

• verifying that client orders of 50 standard trading units or less are not withheld from the market without a valid exemption from order exposure rule
• reviewing client-principal trades of 50 standard trading units or less with a trade value of $ 100,000 or less for compliance with client‑principal rules.

Each Participant must review the order entry and trading described above at least quarterly.

Part 12 – Specific Provisions Respecting Grey List and Restricted Securities

Each Participant must develop, implement and maintain a supervision system to review securities:

• about which a Participant may have non‑public information (e.g. Grey or Watch list)
• subject to trading restrictions with respect to Rule 7.7 or any other Requirement (e.g. Restricted List)
• trading outside Canada during Regulatory halts, delays and suspensions (e.g.CTO halts).

Policies and procedures designed to monitor trading around Grey and Restricted list securities must consider:

• insider trading requirements under subsection 76.(1) of Securities Act (Ontario) and similar provisions that prohibit a person or company in a special relationship with a reporting issuer from purchasing or selling such securities with knowledge of a material change that has not been generally disclosed
• OSC Policy 33-601- Guidelines for Policies and Procedures Concerning Insider Information.

Each Participant must review the trading described above on a daily basis.

Part 13 – Specific Provisions Respecting Client Disclosures

Each Participant must develop, implement and maintain a supervision system to verify that appropriate trade disclosures are made on client confirmations. To comply with Corporation rules, such disclosures must include:

• the quantity and description of the security purchased or sold
• whether or not the person or company that executed the trade acted as principal or agent
• the consideration of the trade (may include average price of the security traded)
• the related issuers of the security traded
• the date of the trade and name of the marketplace on which the transaction took place (if applicable, Participants may use a general statement that the transaction took place on more than one marketplace or over more than one day)
• the name of the salesperson responsible for the transaction
• the settlement date of the trade.

Each Participant must review a sample of trade confirmations at least on a quarterly basis.

Part 14 – Specific Provisions Applicable to Normal Course Issuer Bids (“NCIBs”) and Sales from Control Blocks

Each Participant must develop, implement and maintain a supervision system to review NCIB-related trading to ensure:

• maximum daily and annual stock purchase limits are observed
• purchases for NCIBs do not occur while a sale from control for the same security is in effect
• NCIB purchases are not made on upticks
• NCIB trade reporting to Exchange (if the firm reports on behalf of issuer).

Each Participant must review trading related to NCIBs described above at least quarterly.

Supervisory policies and procedures must also be designed to review trading related to sales from control blocks. Such reviews must be carried out as when determined necessary by the Participant and must include:

• reviewing of all known sales from control blocks to ensure regulatory requirements have been met
• sampling of large trades to determine if they are undisclosed sales from a control block.

1. If a Participant or Access Person enters an order on a marketplace for the purchase or sale of a security that order may execute with a Dark Order provided the order entered by the Participant or Access Person is executed:
   1. at a better price;
   2. in the case of a purchase, at the best ask price if:
      1. the order on entry to the marketplace is for more than 50 standard trading units and has a value of more than $30,000 or has a value of more than $100,000, and
      2. on the execution of the trade with the Dark Order, no orders for the sale of the security included in the calculation of the best ask price are displayed on that marketplace at that best ask price; or
   3. in the case of a sale, at the best bid price if:
      1. the order on entry to the marketplace is for more than 50 standard trading units and has a value of more than $30,000 or has a value of more than $100,000, and
      2. on the execution of the trade with the Dark Order, no orders for the purchase of the security included in the calculation of the best bid price are displayed on that marketplace at that best bid price.
2. Subsection (1) does not apply if the order entered by the Participant or Access Person is:
   1. a Basis Order;
   2. a Call Market Order;
   3. a Closing Price Order;
   4. a Market-on-Close Order;
   5. an Opening Order;
   6. a Volume-Weighted Average Price Order;
   7. for less than one standard trading unit;
   8. a Contingent Derivative Order;
   9. a Net Asset Value Order.

A Participant or Access Person shall not enter an order for the purchase or sale of a security on a marketplace if:

1. the order is a Dark Order and the order does not exceed the number of units as designated from time to time by the Market Regulator for the purposes of this clause; or
2. less than one standard trading unit of the order or such greater number of units as designated from time to time by the Market Regulator for the purposes of this clause will be displayed in a consolidated market display on the entry of the order on the marketplace and at any time prior to the full execution of the order.

1. A Participant acting as principal or agent may not trade nor participate in a trade in a security by means other than the entry of an order on a marketplace.
2. Subsection (1) does not apply to a trade:
   1. Unlisted or Non-Quoted Security – in a security which is not a listed security or a quoted security;
   2. Regulatory Exemption – required or permitted by a Market Regulator to be executed other than on a marketplace in order to maintain a fair or orderly market and provided, in the case of a listed security or quoted security, the Market Regulator requiring or permitting the order to be executed other than on a marketplace shall be the Market Regulator of the Exchange on which the security is listed or of the QTRS on which the security is quoted;
   3. Error Adjustment – to adjust by a journal entry an error in connection with a client order;
   4. On a Foreign Organized Regulated Market – executed on a foreign organized regulated market;
   5. Outside of Canada – executed as principal with a non-Canadian account or as agent if both the purchasers and seller are non-Canadian accounts provided the trade is reported to a marketplace or a foreign organized regulated market in accordance with the reporting requirements of the marketplace or foreign organized regulated market;
   6. Term of Securities – as a result of a redemption, retraction, exchange or conversion of a security in accordance with the terms attaching to the security;
   7. Options – as a result of the exercise of an option, right, warrant or similar pre-existing contractual arrangement;
   8. Prospectus and Exempt Distributions – pursuant to a prospectus, take-over bid, issuer bid, amalgamation, arrangement or similar transaction including any distribution of previously unissued securities by an issuer;
   9. Non-Regulatory Halt, Delay or Suspension – in a listed security or quoted security in respect of which trading has been halted, delayed or suspended in circumstances described in clause (3)(a) or subclause (3)(b)(i) of Rule 9.1 that is not listed, quoted or traded on a marketplace other than the Exchange or QTRS on which the security is halted, delayed or suspended provided such trade is reported to a marketplace; or
   10. Acceptable Foreign Trade Reporting Facility – in a listed security or quoted security that is reported to an acceptable foreign trade reporting facility and :
       1. is more than 50 standard trading units and has a value of more that $100,000; or
       2. originated from a contingent order related to a derivative transaction where the derivative transaction occurs outside of Canada and the trade in the listed or quoted security is handled by the same intermediary as the derivative transaction; or
   11. Resale Restriction - in a listed security that is:
       1. subject to a restricted period as determined in accordance with National Instrument 45-102 Resale of Securities, and
       2. pursuant to a prospectus exemption available under applicable securities legislation; or
3. The exemption provided for in clause (d) of subsection (2) is unavailable to an order of a Canadian account denominated in Canadian funds that:
   1. is part of an intentional cross;
   2. is part of a pre-arranged trade;
   3. is for more than 50 standard trading units; or
   4. has a value of $250,000 or more
      if the entry of the order on a foreign organized regulated market would avoid execution against a better-priced order entered on a marketplace pursuant to Part 6 of the Trading Rules.

POLICY 6.4 – TRADES TO BE ON A MARKETPLACE

Part 1 – Trades Outside of Marketplace Hours

In accordance with section 6.1 of the Trading Rules, each marketplace shall set requirements in respect of the hours of trading to be observed by marketplace participants. Occasions may arise when a Participant may wish to make an agreement to trade as principal with a Canadian account, or to arrange a trade between a Canadian account and a non-Canadian account, outside of the trading hours of any marketplace that trades the particular security.

Rule 6.4 states that all trades must be executed on a marketplace unless otherwise exempted from this requirement. Participants are reminded of the exemption in clause (2)(d) of Rule 6.4 that permits a trade on a foreign organized regulated market. Participants are also reminded of the exemption in clause (2)(e) of Rule 6.4 that permits them to trade as principal with non-Canadian accounts off of a marketplace provided that any unwinding trade with a Canadian account is made in accordance with Rule 6.4.

A Participant may make an agreement to trade in a listed security or a quoted security with a Canadian account as principal or as agent outside of the trading hours of marketplaces, however, such agreements must be made conditional on execution of the trade on a marketplace or on a foreign organized regulated market. There is no trade until such time as there is an execution on a marketplace or a foreign organized regulated market or the trade is otherwise completed in accordance with one of the exemptions set out in Rule 6.4. The trade on a marketplace is to be done at or immediately following the opening of the marketplace on which the order is entered. A Participant may cross the trade at the agreed-upon price provided that the normal Requirements on order displacement are followed. If the Participant determines that the condition of recording the agreement to trade on a marketplace or foreign organized regulated market cannot be met, the agreement to trade shall be cancelled. Use of an error account to preserve the transaction is prohibited.

Part 2 – Application to Foreign Affiliates and Others

The Market Regulator considers that any use by a Participant of another person that is not subject to Rule 6.4 in order to make a trade off of a marketplace (other than as permitted by one of the exemptions) to be a violation of clause (a) of subsection (2) of Rule 2.1 respecting specific unacceptable activities.

Although certain affiliated entities of a Participant, including their foreign affiliates, are not directly subject to Requirements, Rule 6.4 means that a Participant may not transfer an order to a foreign affiliate, or book a trade through a foreign affiliate, and execute the order in a manner that does not comply with Rule 6.4. In other words, an order directed to a foreign affiliate by the Participant or any other person subject to Rule 6.4 shall be executed on a marketplace unless one of the exemptions set out in Rule 6.4 applies. Foreign branch offices of a Participant are not separate from the Participant and as such are subject to Requirements.

Part 3 – Non-Canadian Accounts

Clause (2)(e) of Rule 6.4 permits a Participant to trade off of a marketplace either as principal with a non-Canadian account or as agent for the purchaser and seller both of whom are non-Canadian accounts. A "non-Canadian account" is defined as an account of a client of the Participant or a client of an affiliated entity of the Participant held by a Participant or an affiliated entity of a Participant and the client is considered to be a non-resident for the purposes of the Income Tax Act (Canada). There may be certain situations arising where a Participant is uncertain whether a particular account is a "non-Canadian account" for the purpose of this exemption. In these situations the account should be treated as a “Canadian account”. The fact that an individual may be located temporarily outside of Canada, that a foreign location is used to place the order or as the address for settlement or confirmation of the trade does not alter the account's status as a Canadian account. Trades made by or on behalf of bona fide foreign subsidiaries of Canadian institutions are considered to be non-Canadian accounts, if the order is placed by the foreign subsidiary.

For the purpose of this Policy, the relevant client of the Participant is the person to whom the order is confirmed.

Part 4 – Reporting Foreign Trades

Clause (2)(e) of Rule 6.4 requires a Participant to report to a marketplace any trade in a listed security or a quoted security that is made as principal with a non-Canadian account or as agent if both the purchaser and seller are non-Canadian accounts, unless the trade is reported to a foreign organized regulated market. If such an “outside Canada” trade has not been reported to a foreign organized regulated market, a Participant shall report such trade to a marketplace no later than the close of business on the next trading day. The report shall identify the security, volume, price (in the currency of the trade and in Canadian dollars) and time of the trade.

Part 5 – Application of UMIR to Orders Not Entered on a Marketplace

Under Rule 6.4, a Participant, when acting as principal or agent, may not trade nor participate in a trade in a security by means other than the entry of an order on a marketplace except in accordance with an exemption specifically enumerated within Rule 6.4. For the purposes of UMIR, a “marketplace” is defined as an Exchange, QTRS or an ATS and a “Participant” is defined essentially as a dealer registered in accordance with securities legislation of any jurisdiction and who is a member of an Exchange, a user of a QTRS or a subscriber to an ATS. If a person is a Participant, certain provisions of UMIR will apply to every order handled by that Participant even if the order is entered or executed on a marketplace that has not adopted UMIR as its market integrity rules or if the order is executed over-the-counter. In particular, the following provisions of UMIR and the Corporation Rules will apply to an order handled by a Participant notwithstanding that the order is not entered on a marketplace that has adopted UMIR:

• Rule 4.1 prohibits a Participant from frontrunning certain client orders;
• Part C of Corporation Rule 3100 - Best Execution Of Client Orders with respect to the “best execution obligation” of a client order;
• Rule 8.1 governing client-principal trading; and
• Rule 9.1 governing regulatory halts, delays and suspensions of trading.

In accordance with Rule 11.9, UMIR will not apply to an order that is entered or executed on a marketplace in accordance with the Marketplace Rules of that marketplace as adopted in accordance with Part 7 of the Trading Rules or if the order is entered and executed on a marketplace or otherwise in accordance with the rules of an applicable regulation services provider or in accordance with the terms of an exemption from the application of the Trading Rules.

Part 6 – Foreign Currency Translation

If a trade is to be executed on a foreign organized regulated market in a foreign currency, the foreign trade price shall be converted to Canadian dollars using the exchange rate the Participant would have applied in respect of a trade of similar size on a foreign organized regulated market in that foreign jurisdiction in order to determine whether the condition in subsection (3) of Rule 6.4 restricting avoidance of Part 6 of the Trading Rules has been met. The Market Regulator regards a difference of one trading increment or less as "marginal" because the difference would be attributable to currency conversion. A Participant shall maintain with the record of the order the exchange rate used for the purpose of determining whether a better priced order existed on a marketplace and such information shall be provided to the Market Regulator upon request in such form and manner as may be reasonably required by the Market Regulator in accordance with subsection (3) of Rule 10.11.

1. A Participant shall immediately enter for display on a marketplace that displays orders in accordance with Part 7 of the Marketplace Operation Instrument a client order to purchase or sell 50 standard trading units or less of a security unless:
   1. the client has specifically instructed the Participant to deal otherwise with the particular order;
   2. the Participant executes the order upon receipt at a better price;
   3. the Participant returns the order for confirmation of the terms of the order;
   4. the Participant withholds the order pending confirmation that the order complies with applicable securities requirements or, if applicable, the Marketplace Rules of any Exchange on which the security is listed or of any QTRS on which the security is quoted;
   5. the Participant determines based on market conditions that entering the order on a marketplace would not be in the best interests of the client;
   6. the order has a value of more than $100,000;
   7. the order is part of a trade to be made in accordance with Rule 6.4 by means other than entry on a marketplace; or
   8. the client has directed or consented to the order being entered on a marketplace as:
      1. a Call Market Order,
      2. an Opening Order,
      3. a Special Terms Order,
      4. a Volume-Weighted Average Price Order,
      5. a Market-on-Close Order,
      6. a Basis Order,
      7. a Closing Price Order,
      8. a Contingent Derivative Order, or
      9. a Net Asset Value Order.
2. If a Participant withholds a client order from entry on a marketplace based on market conditions in accordance with clause (1)(e), the Participant may enter the order in parts over a period of time or adjust the terms of the order prior to entry but the Participant must guarantee that the client receives:
   1. a price at least as good as the price the client would have received if the client order had been executed on receipt by the Participant; and
   2. if the Participant executes the client order against a principal order or non-client order, a better price than the price the client would have received if the client order had been executed on receipt by the Participant.

POLICY 6.3 – EXPOSURE OF CLIENT ORDERS

Part 1 – Reviewing Small Orders for Market Impact

Rule 6.3 requires a Participant to immediately enter client orders for the purchase or sale of 50 standard trading units or less on a marketplace. This requirement is subject to certain exceptions. The Participant may withhold the order based on a determination that market conditions were such that immediate entry of the order would not be in the best interests of the client. If the order is withhold the Participant must guarantee that the client receives a price at least as good as the price the client would have received had the client order been executed on receipt by the Participant. If the order is executed against a principal order or non-client order the client must receive a better price.

Part 2 – Confirmation of Order Terms

Pursuant to Rule 6.3, a Participant may withhold entry of the order and return the order to its source for confirmation of its terms. For example, a Participant who receives an order to sell a security at $3 in a stock trading at $20 may return the order to the branch, as it is likely that either the price or the stock symbol is wrong.

Part 3 – Client Request to Withhold Order

A Participant does not have to immediately enter a client order on a marketplace if the client has requested that the order be withheld (for example, the client does not want the order executed in the open market but wishes to do a tax-related trade with their spouse).  Any request must be specific to that order. A client cannot give a blanket request to withhold any future orders the client may give the Participant.  Furthermore, the Participant may not solicit a request to withhold the order. A Participant must keep a record of the client’s request to withhold orders for seven years from the date of the instruction and, for the first two years, the request must be kept in a readily accessible location.

1. Each order in a listed security entered on a marketplace shall contain:
   1. the identifier of:
      1. the Participant or Access Person entering the order as assigned to the Participant or Access Person in accordance with Rule 10.15,
      2. the marketplace on which the order is entered as assigned to the marketplace in accordance with Rule 10.15,
      3. the Participant for or on behalf of whom the order is entered, if the order is a jitney order,
      4. the client for or on behalf of whom the order is entered:
         1. in the form of a Legal Entity Identifier for:
            1. orders entered using direct electronic access
            2. orders entered using a routing arrangement
            3. an identified order execution only client that is eligible to receive a Legal Entity Identifier under the standards set by the Global Legal Entity Identifier System
            4. orders for accounts that are supervised under Part D of Corporation Rule 3900 – Supervision of institutional client accounts
         2. in the form of an account number for all other client orders not included under UMIR 6.2(1)(a)(iv)(1)
      5. the client of a foreign dealer equivalent for or on behalf of whom the order is entered under a routing arrangement, where such client order is automatically generated on a predetermined basis by that client, and in the form and manner acceptable to the Market Regulator; and
   2. a designation acceptable to the Market Regulator for the marketplace on which the order is entered, if the order is:
      1. a Call Market Order,
      2. an Opening Order,
      3. a Market-on-Close Order,
      4. a Special Terms Order,
      5. a Volume-Weighted Average Price Order,
         (v.1) a Basis Order,
         (v.2) a Closing Price Order,
         (v.3) a bypass order,
         (v.4) a directed action order as defined in the Trading Rules, 
         (v.5) a Contingent Derivative Order, 
         (v.6) a Net Asset Value Order,
      6. part of a Program Trade,
      7. part of an intentional cross or internal cross,
         (vii.1) a derivative-related cross,
      8. a short sale but not including an order which is designated as a “short-marking exempt order” in accordance with subclause 6.2(1)(b)(ix),
      9. a short-marking exempt order,
      10. a non-client order,
      11. a principal order,
      12. a jitney order,
      13. for the account of a derivatives market maker,
      14. for the account of a person who is an insider of the issuer of the security which is the subject of the order,
      15. for the account of a person who is a significant shareholder of the issuer of the security which is the subject of the order,
      16. for the account of a client where the order is sent using direct electronic access,
      17. for the account of a client where the order is sent under a routing arrangement,
      18. for the account of an order execution only client,
      19. of a type for which the Market Regulator may from time to time require a specific or particular designation,
      20. a bundled order, or
      21. a multiple client order.
   3. Where a designation is required under 6.2(1)(b)(xx) or (xxi), the Participant does not need to include a client identifier on the order under 6.2(1)(a)(iv).
2. Each order in a listed derivative entered on an Exchange shall contain:
   1. the identifier of:
      1. the Participant or Access Person entering the order as assigned to the Participant or Access Person in accordance with Rule 10.15,
      2. the Exchange on which the order is entered as assigned to the Exchange in accordance with Rule 10.15,
      3. the Participant for or on behalf of whom the order is entered, if the order is a jitney order,
      4. the client for or on behalf of whom the order is entered under direct electronic access, and
      5. the investment dealer or foreign dealer equivalent for or on behalf of whom the order is entered under a routing arrangement; and
   2. a designation acceptable to the Market Regulator for the Exchange on which the order is entered, if the order is:
      1. a non-client order,
      2. a principal order,
      3. for the account of a derivatives market maker,
      4. for the account of a person who is an insider of the issuer of the underlying security which is the subject of the order,
      5. for the account of a person who is a significant shareholder of the issuer of the underlying security which is the subject of the order,
      6. one that includes an opening or closing transaction indicator
      7. of a type for which the Market Regulator may from time to time require a specific or particular designation.
3. If the order entered on a marketplace is a Special Terms Order, the order shall contain, in addition to all designations and identifiers required by subsection (1), information in such form as is acceptable to the Market Regulator of the marketplace on which the order is entered respecting:
   1. any condition on the execution of the order; and
   2. the settlement date.
4. If following the entry of an order on a marketplace for the sale of security that has not been designated as a short sale such order would become a short sale on execution, the order shall be modified to include the short sale designation required by subsection (1).
5. Each order entered on a marketplace including all designations and identifiers required by subsection (1) and (2) shall be disclosed to each Market Regulator.
6. The marketplace on which the order is entered shall determine if the identifier of the Participant or the marketplace shall be displayed:
   1. in a consolidated market display for a security, or
   2. in a marketplace for a derivative.
7. Unless otherwise permitted or directed by the Market Regulator, a marketplace shall:
   1. disclose for display in a consolidated market display any designation attached to an order that is required by sub-clause (i) to (vii.1) inclusive of clause (1)(b), but for a bypass order that is not part of a designated trade, and
   2. not disclose for display in a consolidated market display any designation attached to an order that is required by:
      1. sub-clause (viii) to (xxi) inclusive of clause (1)(b)
      2. sub-clause (i) to (vii) inclusive of clause (2)(b).

1. Regulatory Halts and Suspensions - No order for the purchase or sale of a security or a derivative shall be executed on a marketplace or over-the-counter, at any time while:
   1. an order of a securities regulatory authority to cease trading in the security, derivative, related security or related derivative remains in effect;
   2. in the case of a listed security or a listed derivative, the Market Regulator of the Exchange on which the security or derivative is listed has halted or suspended trading in the security or derivative while such halt or suspension remains in effect;
   3. in the case of a quoted security, the Market Regulator of the QTRS has halted or suspended trading in the security while such halt or suspension remains in effect; and
   4. in the case of any security other than a listed security or a quoted security, a Market Regulator of an ATS on which such security may trade has halted trading for the purposes of the public dissemination of material information respecting such security or the issuer of such security.
2. Regulatory Delay - No order for the purchase or sale of a security or derivative shall be executed on a marketplace or over-the-counter, at any time while:
   1. in the case of a listed security or a listed derivative, the Market Regulator of the Exchange on which the security or derivative is listed has delayed trading in the security or derivative while such delay remains in effect; and
   2. in the case of a quoted security, the Market Regulator of the QTRS has delayed trading in the security while such delay remains in effect.
3. Exceptions for Non-Regulatory Purposes - Despite subsections (1) and (2), an order may be entered on a marketplace or an order may trade on a marketplace, if the Exchange or QTRS has:
   1. suspended trading in the security or derivative by reason only that the issuer of the security or underlying security has:
      1. ceased to meeting listing or quotation requirements established by the Exchange or QTRS, or
      2. failed to pay to the Exchange or QTRS any fees in respect of the listing or quotation of securities of the issuer or underlying securities of a derivative; or
   2. delayed or halted trading in the security or the derivative as a result of:
      1. technical problems affecting only the trading system of the Exchange or QTRS, or
      2. the application of a Marketplace Rule.
4. Trading Outside Canada During Regulatory Halts, Delays and Suspensions -
   1. If trading in a security has been prohibited on a marketplace in accordance with clauses (1)(b), (c) or (d) or subsection (2), a Participant may execute a trade in the security, if permitted by applicable securities legislation, outside of Canada on a foreign organized regulated market;
   2. If trading in a security has been prohibited on a marketplace under clause 1(a), a Participant may execute a sale in the security on a foreign organized regulated market if:
      1. all conditions set forth in the order of a securities regulatory authority are met, and
      2. the sale is in accordance with applicable securities legislation.

(4)-(6) Repealed and moved to Rules 3.2 and 3.4  

POLICY 6.1 – ENTRY OF ORDERS TO A MARKETPLACE

Part 1 – Execution Price of Orders

An order may execute at such price increment as established by the marketplace for the execution of such orders and the marketplace shall report the execution price to the information processor and information vendor provided, if required by the information processor or information vendor, the marketplace shall report the price at which the trade was executed as the nearest trading increment and if the price results in one-half of a trading increment the price shall be rounded up to the next trading increment.

1. A Participant shall not enter on a marketplace or an organized regulated market a principal order or a non-client order of the Participant that, based on the information known or reasonably available to the person or persons originating or entering the principal order or non-client order, the Participant knows or should have known will execute or have a reasonable likelihood of executing in priority to a client order received by the Participant prior to the entry of the principal order or non-client order for the same security that is:
   1. at the same price or a lower price than the client order in the case of a purchase or the same or a higher price than the client order in the case of a sale; and
   2. on the same side of the market.
2. Despite subsection (1) but subject to Rule 4.1, a Participant is not required to give priority to a client order if:
   1. the client specifically has consented to the Participant entering principal orders and non-client orders for the same security at the same price on the same side of the market on the same settlement terms;
   2. the principal order or non-client order is:
      1. automatically generated by the trading system of a marketplace in respect of the Marketplace Trading Obligations of that marketplace,
      2. automatically generated by a system operated by the Participant or on behalf of the Participant based on pre-determined order and trading parameters established, programmed and enabled for trading prior to the receipt of the client order,
      3. for a managed account and the client order is for a managed account under the direction of the same person and in respect of which executions are allocated between the various managed accounts on an equitable basis in accordance with the established practices of the Participant,
      4. a Basis Order,
      5. a Contingent Derivative Order, or
      6. a Net Asset Value Order;
   3. the client order has been entered directly by the client of the Participant on a marketplace;
   4. the principal order or non-client order is executed pursuant to an allocation by the trading system of a marketplace and:
      1. either:
         1. the security which is the subject of the order trades on no marketplace other than that marketplace,
         2. the principal order or non-client order is a Call Market Order, a Contingent Derivative Order, an Opening Order, a Market-on-Close Order, a Net Asset Value Order or a Volume-Weighted Average Price Order,
         3. each of the client order and the principal order or non-client order was entered on the same marketplace,
         4. the client has instructed the Participant to enter the client order on a particular marketplace, or
         5. the client has instructed the Participant to enter the client order in a manner that does not disclose the identifier of the Participant in a consolidated market display,
      2. the client order was entered by the Participant on that marketplace immediately upon receipt by the Participant, and
      3. if the client order was varied or changed by the Participant at any time after entry, the variation or change was on the specific instructions of the client;
   5. either the client order or the principal order or non-client order is a Special Terms Order and the client order would not have executed in the transaction or transactions involving the principal order or non-client order due to the terms and conditions of at least one Special Terms Order; or
   6. a Market Integrity Official requires or permits the principal order or non-client order to be executed in priority to a client order.
3. For the purposes of clause (2)(a), a client shall be deemed to have consented to the Participant entering principal orders and non-client orders for the same security at the same price on the same side of the market on the same conditions and settlement terms if the client order, in accordance with the specific instructions of the client, is to be executed in part at various times during the trading day or at various prices during the trading day.

POLICY 5.3 – CLIENT PRIORITY

Part 1 – Background

Rule 5.3 restricts a Participant and its employees from trading in the same securities as a client of the Participant. The restriction is designed to minimize the conflict of interest that occurs when a Participant or its employee compete with the firm’s clients for execution of orders. The Rule governs:

• trading ahead of a client order, which is taking out a bid or offering that the client could have obtained had the client order been entered first. By trading ahead, the pro order obtains a better price at the expense of the client order.
• trading along with a client, or competing for fills at the same price.

The application of the rule can be quite complex given the diversity of professional trading operations in many firms, which can include such activities as block facilitation, market making, derivative and arbitrage trading. In addition, firms may withhold particular client orders in order to obtain for the client a better execution than the client would have received if the order had been entered directly on a marketplace. Each firm must analyze its own operations, identify risk areas and adopt compliance procedures tailored to its particular situation.

A Participant has overriding agency responsibilities to its clients and cannot use technical compliance with the rule to establish fulfillment of its obligations if the Participant has not otherwise acted reasonably and diligently to obtain best execution of its client orders. 

Part 2 – Prohibition on Intentional Trading Ahead

A Participant can never intentionally trade ahead of a client order that is either a market order or tradeable limit order received prior to the entry of the principal order or non-client order except in accordance with an exemption from the requirements of Rule 5.3(1), which exemptions include obtaining the specific consent of the client. Examples of "intentional trades” include, but are not limited to:

• withholding a client order from entry on a marketplace (or removing an order already entered on a marketplace) to permit the entry of a competing principal order or non-client order ahead of the client order;
• entering a client order on a relatively illiquid market (other than on the instructions of the client) and entering a principal order or non-client order on a more liquid marketplace where the principal order or non-client order is likely to obtain faster execution;
• adding terms or conditions to a client order (other than on the instructions of the client) so that the client order ranks behind principal orders or non-client orders at that price;
• putting terms or conditions on a principal order or non-client order for the purpose of differentiating the principal order or non-client order from a client order that would otherwise have priority at that price; and
• entering a principal order or non-client order as an “anonymous order” (without the identifier of the Participant) which results in an execution in priority to a previously entered client order that discloses the identifier of the Participant.

Part 3 – No Knowledge of Client Order

The Participant must have reasonable procedures in place to ensure that information concerning client orders is not used improperly within the firm. These procedures will vary from firm to firm and no one procedure will work for all firms. If a firm does not have reasonable procedures in place, it cannot rely on the exceptions. Reference should be made to Policy 7.1 – Policy on Trading Supervision Obligations, and in particular Part 4 – Specific Procedures Respecting Client Priority.

If a client has instructed a Participant to withhold an order or has granted a Participant discretion with respect to the entry of an order, details of the instruction or grant of discretion must be retained for a period of seven years from the date of the instruction or grant of discretion and, for the first two years, the consent must be kept in a readily accessible location.

Part 4 – Client Consent

A Participant does not have to provide priority to a client order if the client specifically consents to the Participant trading alongside or ahead of the client. The consent of the client must be specific to a particular order and details of the agreement with the client must be noted on the order ticket. A client cannot give a blanket form of consent to permit the Participant to trade alongside or ahead of any future orders the client may give the Participant.

If the client order is part of a pre-arranged trade that is to be completed at a price below the best bid price or above the best ask price as indicated on a consolidated market display, the Participant will be under an obligation to ensure that “better-priced” orders on a protected marketplace are filled prior to the execution of the client order. Prior to executing the client order, the Participant must ensure that the client is aware of the better-priced orders and has consented to the Participant executing as against them in priority to the client order. The consent of the client must be noted on the order ticket.

If the client has given the Participant an order that is to be executed at various times during a trading day (e.g. an “over-the-day” order) or at various prices (e.g. at various prices in order to approximate a volume-weighted average price), the client is deemed to have consented to the entry of principal orders and non-client orders that may trade ahead of the balance of the client order. Unless the client has provided standing written instructions that all orders are to be executed at various times during the trading day or at various prices during the trading day, the client instructions should be treated as specific to a particular order and the details of the instructions by the client must be noted on the order ticket. However, if the un-entered portion of the client order would reasonably be expected to affect the market price of the security, the Participant may be precluded from entering principal orders or non-client orders as a result of the application of the frontrunning rule.

In certain circumstances, a client may provide a conditional consent for the Participant to trade alongside or ahead of the client order. For example, a client may consent to a principal order of Participant sharing fills with the client order provided the client order is fully executed by the end of the trading day. If the client's order is not fully executed, the client may expect that the Participant "give up" its fills to the extent necessary to complete the client order. In this situation, the Participant should mark its orders as "principal" throughout the day. Any part of the execution which is given up to the client should not be re-crossed on a marketplace but should simply be journalled to the client (since the condition of the consent has not been met, the fills in question could be viewed as properly belonging to the client rather than the principal order). To the extent that a Participant "gives up" part of a fill of a principal order to a client based on the conditional consent, the Participant shall report the particulars of the "give up" to the Market Regulator not later than the opening of trading on marketplaces on the next trading day. The conditional consent of the client must be specific to a particular order. The details of the agreement with the client must be noted on the order ticket.