IIROC publishes study on impact of dark rule amendments

May 8, 2015

The Investment Industry Regulatory Organization of Canada recently published a study on the "Impact of the Dark Rule Amendments" which analyses the dark liquidity framework implemented in 2012.

The objective of these amendments was to establish a framework which balances recognition of the contribution of dark orders to the post-trade price discovery process with the need to protect lit market price discovery, ensure meaningful price improvement and establish relative equality between transparent marketplaces and dark pools. The study concludes, among other things, that the amendments reduced dark volume in the absence of meaningful price improvement with little deterioration in market quality and that the objectives of the amendments were thus met.

In addition to publishing the study, IIROC announced that it will host a roundtable on June 23, 2015 to discuss alternatives to the proposal set out in IIROC Notice 15-0023 Re-Publication of Proposed Dark Rules Anti-Avoidance Provision. The proposal aims to address the impact of retail orders being routed to US broker-dealers. IIROC Notice 15-0023 was published on January 29, 2015 and proposed amendments to Rule 6.3 of the Universal Market Integrity Rules to limit a participant's ability to execute a small client order (i.e. 50 standard trading units or less) on a foreign organized regulated market unless the order is entered on a market that displays order information or executed at a "better price", as defined in the Universal Market Integrity Rules. The purpose of these proposed amendments were to: (i) further the policy goal of pre-trade transparency; and (ii) enable consistency in the requirement to obtain a better price under the Canadian dark liquidity framework. The proposed amendments were to help ensure that small client orders are not bypassed by orders routed to a foreign jurisdiction that can step ahead of Canadian orders by an amount that would be insufficient in Canada.

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