From the Regulators

Regulator requests initial comments and proposes working group

By James Langton |

 

The Investment Industry Regulatory Organization of Canada (IIROC) on Wednesday launched a consultation on proposed rules that aim to enhance market surveillance by requiring dealers to identify the clients involved with each trade.

The proposal, which is out for a six-month comment period, would introduce rules that require client identifiers on each order sent to a marketplace, and for each reportable trade in a debt security.

For institutional clients, dealers would have to provide a legal entity identifier (LEI); for retail clients that wouldn't have an LEI, dealers would need to supply an account number to identify these sorts of clients.

The proposals would also require unique client identifiers for clients of a foreign dealers that route orders to Canadian markets. As well, they would require dealers to flag orders that are submitted under direct access, through routing arrangements, or through a discount broker.

the new measures would boost transparency, thereby enhancing the ability of regulators to monitor for market abuse (such as market manipulation and insider trading), and bolster investor protection, IIROC says its notice.

This would bring Canadian markets in line with similar initiatives in Europe and the U.S. that require client identifiers to improve risk management, and regulatory oversight, IIROC says.

In its notice, IIROC says that it recognizes that the rules may have significant impacts on dealers, markets, investors, and industry infrastructure firms, which will have to develop systems and processes to comply with the new rules. With that in mind, not only are the proposals out for a prolonged comment period, but IIROC indicates that there will be at least two rounds of comments on the rules.

The self-regulatory organization is also striking an industry committee to help inform its consultations. The proposed committee is intended to help identify impacts, costs, and alternatives, to expanding the use of client identifiers.

"We have committed to an extensive consultation so we can achieve the regulatory objectives of the proposed changes in a cost effective manner and with the least amount of impact," says Victoria Pinnington, senior vice president, market regulation, IIROC, in a statement.

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