From the Regulators

Proposed changes step up supervisory requirements and aim to ensure consistent regulatory oversight

By James Langton |

The Investment Industry Regulatory Organization of Canada (IIROC) published rule changes and new guidance designed to toughen supervisory and oversight requirements on discount brokers, so that they face the same obligations to prevent abusive trading as other providers of electronic access to markets.

IIROC issued rule amendments and guidance on Thursday that steps up certain supervisory requirements on discount brokers and aims to ensure consistent regulatory oversight of these accounts with other sorts of electronic access.

Under the new rules, discount brokers will be required to: identify active clients with trading activity that exceeds certain thresholds; identify clients on each order message; and, to adopt controls to address the increased risks of electronic orders that are not handled directly by the dealer. They also introduce a definition of "manipulative and deceptive" trading activity to the dealer rules.

In a notice announcing the policy, IIROC says that the rule changes build on the existing framework for regulating various forms of third-party electronic access, and aim to ensure "consistency across all forms of third-party electronic access to marketplaces by ensuring that similar activity that occurs through different forms of third-party electronic access is subject to the same degree of supervision and regulatory oversight."

"This initiative is part of IIROC's overall framework to manage the risks, regardless of channel, associated with third-party electronic access to marketplaces," said Wendy Rudd, senior vice president of market regulation at IIROC. "The guidance and amendments published today complement existing supervisory requirements and provide greater clarity to [dealers]."

The new requirements take effect June 1, 2015.