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Electronic Trading Rules

Electronic Trading Rules. Presentation to CLS Education C ommittee. May 15, 2013. Electronic Trading Rules. Published December 7, 2012 - Notices 12-0363 and12-0364 Became effective March 1, 2013 Automated controls must be tested and implemented by May 31, 2013

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Electronic Trading Rules

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  1. Electronic Trading Rules Presentation to CLSEducation Committee May 15, 2013

  2. Electronic Trading Rules • Published December 7, 2012 - Notices 12-0363 and12-0364 • Became effective March 1, 2013 • Automated controls must be tested and implemented by May 31, 2013 • Align with the CSA’s National Instrument 23-103 • NI 23-103 recognizes the role of both participants and marketplaces in managing trading risks • UMIR expands on pre-existing supervisory requirements to specifically include risk management and supervisory controls including both pre and post trade

  3. Requirements Participants and Access Persons must: • Create, adopt, document and maintain a system of risk management and supervisory controls, policies and procedures • Effectively supervise trading activities and be accountable for the risks associated with electronic access to marketplaces • Have an appropriate level of understanding of any automated order system used including those used by clients • Ensure that every automated order system used by them or any client is tested at least annually

  4. Controls, Policies and Procedures • Automated controls to prevent entry of an order that exceeds: • Pre-determined credit or capital thresholds • Pre-determined credit or other limits assigned by the Participant to its client • Predetermined limits on the value or volume of unexecuted orders • Prevention of the entry of an order that is not in compliance with UMIR and securities law • Provision of immediate order and trade information to compliance staff • Regular post-trade monitoring for compliance with UMIR and securities law

  5. Authorization of Controls • Authorization for an investment dealer to perform on its own behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure • Where appropriate and on a reasonable basis • Unless the investment dealer is also a Participant, authorization is prohibited where the investment dealer is trading on a proprietary basis (directly or indirectly) • Must be formally authorized through a written agreement

  6. Automated Order Systems • Applies to Participant’s and client’s AOS • Understand the AOS to manage associated risks • AOS must be tested before initial use and annually • Document that testing has occurred • Consider AOS when applying automated controls • Ability to immediately override or disable any AOS to prevent orders generated by the AOS from being entered

  7. Reporting Requirements • Notify IIROC if you: • use a third party for risk management and supervisory controls, policies and procedures • authorize an investment dealer to set or adjust its supervisory controls • Use the EMX secure email system • Provide name of entity and contact information

  8. Related Guidance • Manipulative and Deceptive Trading Practices – Notice 13-0053 • Proposed Guidance on the Management of Stop Loss Orders – Notice 13-0106

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