IIROC proposes third-party electronic access rules and guidance

TORONTO, Oct. 25, 2012 /CNW/ - The Investment Industry Regulatory Organization of Canada (IIROC) has issued for comment proposed amendments to the trading rules relating to third-party electronic access to marketplaces and complementary draft guidance.

Today's proposed rule changes build on electronic trading provisions proposed by IIROC in June 2012 by providing a framework to govern three distinct types of third-party electronic access:

• order execution services to retail clients (often referred to as "discount brokerage");
• direct electronic access (or "DEA") granted to institutional and other appropriate clients (including what is often called "direct market access"); and
• routing arrangements between dealers.

These proposals introduce specific requirements regarding standards, agreements, training, assignment of identifiers, supervision and gatekeeping for the three distinct types of third-party electronic access.

"These reforms will bolster market integrity at a time when new high-speed trading technologies are introducing added risks.  They accomplish this objective by ensuring there are proper controls in place for all trading activity regardless of source," said Susan Wolburgh Jenah, IIROC's President and Chief Executive Officer.

Also today, the Canadian Securities Administrators (CSA) issued notice of proposed amendments to National Instrument 23-103 Electronic Trading to include provisions on DEA to marketplaces.

The deadline for comments on the IIROC draft guidance and proposed rule amendments is January 23, 2013.

Background:

• On June 28, 2012:
• The CSA announced the approval of National Instrument 23-103 Electronic Trading which will become effective March 1, 2013.
• IIROC issued a package of proposed rule changes and guidance to align its Universal Market Integrity Rules (UMIR) with the electronic trading provisions of NI 23-103. The Notices related to those proposed changes are:
• Provisions Respecting Electronic Trading; and
• Guidance Respecting Electronic Trading.
• These changes, when implemented, will ensure that market participants have automated pre-order-entry filters in place for all trading activity, regardless of source, to effectively manage the risks associated with electronic trading.
• All automated order systems (also known as algorithms) used by dealers or their clients must be regularly tested and monitored.
• On October 25, 2012:
• The CSA issued a news release titled: Canadian Securities Regulators Seek Comment on Amendments Relating to Direct Electronic Access.
• IIROC proposed Provisions Respecting Third-Party Electronic Access to Marketplaces.
• IIROC proposed Guidance Respecting Third-Party Electronic Access to Marketplaces.
• With the new IIROC proposals, the UMIR provisions regarding DEA will complement the proposed amendments to NI 23-103.  In addition, they will establish clear requirements for IIROC Dealer Members regarding order execution services and routing arrangements.
• These proposals introduce specific requirements - for the three distinct types of third-party electronic access - regarding standards, agreements, training, assignment of identifiers, supervision and gatekeeping.
• While the IIROC proposals will introduce a new and more comprehensive framework for third-party electronic access to marketplaces, many of the proposed requirements formalize or clarify existing requirements, guidance and industry practices.

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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.

SOURCE: Investment Industry Regulatory Organization of Canada (IIROC) - General News

Lucy Becker
Vice President, Public Affairs
416.943-5870
[email protected]

David Thomas
Director, Public Affairs
416.943-6921
[email protected]