Regulators adopt national policy on electronic trading

June 28, 2012

The Canadian Securities Administrators today announced the adoption of National Instrument 23-103 Electronic Trading. The Instrument and its Companion Policy are intended to address the risks of electronic trading, specifically with respect to credit risk, market integrity risk, technology or systems risk and regulatory arbitrage risk. 

As we discussed in a post last year, the CSA initially proposed the Instrument in April 2011, and the final version addresses the public comments received. Ultimately, the Instrument sets out requirements with respect to controls, policies and procedures that are applicable to marketplace participants, marketplaces and the use of automated order systems. Notably, however, while the 2011 proposal included requirements regarding the provision of direct electronic access, the final version of the Instrument excludes such requirements. According to the CSA notice, in considering those particular provisions, it was determined that similar forms of marketplace access, such as dealer-to-dealer routing, raise risks similar to those of direct electronic access. As such, the CSA and IIROC intend to release proposed rules in the upcoming months intended to ensure that similar forms of marketplace access are treated similarly.

Further, those jurisdictions that are a party to MI 11-102 Passport System (all jurisdictions other than Ontario) have also announced amendments to permit the use of the passport system with the Instrument. In conjunction with the CSA's amendments, the Investment Industry Regulatory Organization of Canada has also published proposed changes to its Universal Market Integrity Rules to introduce supervision and gatekeeper obligations for IIROC Dealer Members and align UMIR requirements to NI 23-103. Draft guidance relating to the new supervisory requirements under UMIR were also released.

Assuming the requisite ministerial approvals, the Instrument will come into force on March 1, 2013. For more information on IIROC's releases, see IIROC Notices 12-0200 and 12-0201.

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