CSA adopt size threshold for dark orders and other amendments to marketplace and trading rules

March 23, 2012

The Canadian Securities Administrators today announced the adoption of amendments to NI 21-101 Marketplace Operations, NI 23-101 Trading Rules, their companion policies and related forms to update and streamline the instruments' regulatory and reporting requirements. As we discussed last year, the CSA initially proposed amendments to the instruments in March 2011.

While minor changes have been made to the original proposals in response to comments received, the changes are not considered material by the CSA. Most of the amendments are expected to come into force on July 1, 2012.

Among other things, the amendments relate to increased transparency of marketplace operations and will update and streamline regulatory and reporting requirements, including requirements relating to conflicts of interest and outsourcing arrangements, and provide guidance on issues such as when a dealer that uses an automated system to match order flow would be considered a marketplace, the types of “services” encompassed under the fair access requirement  and when indications of interest would be considered to be firm orders. 

The amendments also implement further restrictions on the pre-trade transparency exemption contained in NI 21-101 to include a requirement that orders meet a specified size threshold in order to be exempt.  NI 21-101 generally requires that any marketplace that displays orders of exchange-traded securities must provide information regarding the order to an information processor.  However, there is an exemption that permits “dark pools” or “dark orders”  to operate and for orders to be entered with no pre-trade transparency. The actual threshold is not included in the amendments but is the subject of a joint CSA/IIROC initiative under Staff Notice 23-311 as we discussed last August. The Companion Policy to NI 21-101 has also been amended to clarify when pre-trade transparency requirements, or exemptions, may apply to “indications of interest” or “IOIs”.

In jurisdictions that are a party to MI 11-102 Passport System (all but Ontario), amendments were also published to permit certain exemptive relief applications. Ontario, meanwhile, has announced the repeal of OSC Rule 21-501 Information Transparency Requirements for Government Debt Securities in National Instrument 21-101 - Marketplace Operation to correspond with the amendments taking effect.

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