IIROC publishes revised draft guidance on trade variation and cancellation

April 2, 2012

Last week, IIROC released proposed guidance regarding the circumstances in which it may engage in regulatory intervention in order to vary or cancel trades. As we discussed in December 2010, IIROC released an earlier version of the guidance just over a year ago with the intention of providing transparency and certainty with respect to intervention criteria. Ultimately, the proposal, which takes into account comments received in response to the earlier version, would, among other things: 

  1. restrict intervention when the price difference between an erroneous trade and the current fair value of the security does not exceed the greater of 10% of the price of the security or 10 trading increments;
  2. allow for a higher price threshold depending on market conditions when a trade has been executed during a period of significant market volatility, outside normal trading hours or in a security of a very limited liquidity;
  3. limit intervention to circumstances of extreme price dislocation where there is no reasonable expectation of execution, or a trading error that does not impact market price but which places the issuer at risk;
  4. clarify the erroneous trade review process.

Ultimately, according to IIROC, regulatory intervention is intended to be engaged only when market integrity is at risk and necessary to maintain fair and orderly markets, and trades will not necessarily be varied or cancelled to remedy client error. Until such time that final guidance is issued, regulatory intervention will be undertaken in accordance to the revised proposal. Comments on the proposal is being accepted until May 29, 2012. For more information, see IIROC Notice 12-0112.

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