IIROC proposes changes to execution and reporting of off-marketplace trades

April 27, 2012

The Investment Industry Regulatory Organization of Canada (IIROC) recently published proposed amendments to the Universal Market Integrity Rules (UMIR) regarding the execution and reporting of certain off-marketplace trades. While the UMIR generally require orders to be entered and executed on a marketplace, they also contain a number of exceptions from this requirement and give IIROC the authority to grant exemptions form this requirement on application. The proposed amendments would provide an automatic exception for four of the most commonly sought exemptions, namely, to complete an “off-marketplace” trade in connection with:

  • an exempt distribution from control pursuant to section 2.8 of National Instrument 45-102 – Resale of Securities;
  • an exempt take-over bid;
  • a purchase from a shareholder in a control position under a normal course issuer bid; and
  • the sale of securities which are subject to resale restrictions.

A blanket exemption would also be provided for an off-marketplace trade if the Participant was involved as principal or agent and applicable legislation required the trade to be completed in a private or "non-public" transaction. Such trades would have to be reported to IIROC.

Meanwhile, the proposals would see an anti-avoidance provision added to the Order Exposure Rule to prevent a small client order from being executed on a foreign organized regulated market unless the order had been entered on a market that displays order information or is executed at a better price. The change is intended to ensure that client orders receive a comparable level of price improvement whether executed as a dark order in Canada or on a non-transparent foreign market.

The proposals follow changes to UMIR recently announced by the CSA and IIROC to address dark liquidity on Canadian equity marketplaces scheduled to come into effect on October 10, 2012. As we previously described, those changes provide that (i) visible orders will have execution priority over dark orders on the same marketplace at the same price; (ii) in order to trade with a dark order, smaller orders must receive a minimum level of price improvement; and (iii) IIROC will have the ability to designate a minimum size for dark orders.

IIROC is accepting comments on its proposals until July 13, 2012. The proposals also seek comment on certain specific questions included in the notice. For more information, see IIROC Notice 12-0131.

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