The Canadian Securities Administrators (CSA) is introducing a series of changes to the trading rules that aim to address some of the investment industry's complaints about the current structure of equities market.
The CSA published final amendments to the trading rules on Thursday that will revise the order protection rule (OPR), and give investment dealers some freedom to determine which marketplaces to connect to, introduce a cap on active trading fees and a methodology for setting data fees, among other changes.
The CSA acknowledges in a notice setting out the amendments that the current OPR has introduced inefficiencies and costs to the trading landscape and may be propping up markets that wouldn't otherwise have many customers. To address these concerns, the regulators will adopt a 2.5% market share threshold and order protection will only apply to markets above that level, allowing firms to ignore markets below that mark without violating the OPR. The initial calculation of protected marketplaces will be effective for six months and will come into effect on Oct. 1, based on trading data from June 1, 2015 to May 31, 2016.
In addition, the rule will introduce a cap on active trading fees charged by marketplaces, which will apply to continuous auction trading in equities and exchange-traded funds (ETFs). The notice acknowledges that the cap is higher than the fees currently charged by most marketplaces, but indicates that regulators are concerned "about potential negative consequences for the Canadian market" if they set a cap for inter-listed securities that is significantly different from the U.S. In a separate notice, the CSA is also requesting comment on a trading fee cap that would only apply to securities that are not also listed on a U.S. exchange.
Concerns about the impact on inter-listed securities has also led the CSA to abandon plans to carry out a pilot program to consider eliminating maker-taker fee models.
The rule changes also include new guidance on the use of "speed bumps" and best execution. The CSA's notice also indicates that the regulators are finalizing a methodology for setting market data fee, which will apply to all marketplaces regardless of whether they are protected or unprotected under the new OPR.
"We have seen tremendous evolution in the markets and we are making sure that regulation evolves along with it. The final amendments will provide flexibility to market participants in determining if and when to access trading on certain marketplaces, address the level of trading fees in Canada and provide a transparent process for regulatory oversight of real-time professional market data fees," says Louis Morisset, the CSA chairman and president and CEO of the Autorité des marchés financiers (AMF).
The amendments will come into force on July 6, except for the market share threshold, which takes effect on Oct. 1. The comment period on the proposed trading fee cap for non-inter-listed securities also closes on July 6.