Market Regulation Services Inc., the independent regulation services provider for Canadian equity markets, has issued notices to its members to provide guidance on the practice of entering orders on both sides of the market for the benefit of the same person, and on the proper use of error accounts.

RS warned firms that the entry of orders on both sides of the market for the benefit of the same person will be considered manipulative and deceptive under the Universal Market Integrity Rules for trading. The notice said: “A Participant or Access Person is prohibited from entering an order on a marketplace if the Participant or Access Person knows or ought reasonably to know that any resulting trade will be either fictitious or involve no change in beneficial or economic ownership.”

It also noted that firms, traders and institutional investors (referred to as a Participant or Access Person) will have contravened the rules if the entry of the order or the execution of the trade will create or could reasonably be expected to create: a false or misleading appearance of trading activity in or interest in the purchase or sale of the security; or, an artificial ask price, bid price or sale price for the security or related security.

They will be considered to have engaged in “wash trading” if: orders for the purchase and for the sale of the same security are being entered on a marketplace; the orders are for the benefit of an account or accounts that have the same economic and beneficial owner or are under the direction or control of the same person; and, the orders have the potential of trading with each other.

RS also said it is unacceptable to undertake a “wash trade”, directly or indirectly, even when trying to “correct” an erroneous market-on-close order.

There are circumstances where a “wash trade” will not be considered manipulative or deceptive:


  • When they enter an order in error on a marketplace that executes against an existing order for the same owner.
  • Trades using an automated program trading system.
  • If a firm is a market-maker and the trading system of the exchange automatically generates orders, the matching of principal orders with an automatically generated order will not be treated as a manipulative or deceptive activity.
  • If the RS specifically permits a “wash trade” for some reason to preserve a fair and orderly market.


    A second notice provided guidance relating to the proper use of an error account to avoid the appearance of “double printing”, including the circumstances where securities should be transferred into an error account and the method for transferring the securities out of the account.