The Ontario Securities Commission has approved a rule designating matching service utilities to be market participants, bringing them under its authority.

On June 12, the commission made the new rule, which was published for a 90-day comment period on January 12. No comments were received. It was delivered to the Minister of Government Services on July 12, and, unless the minister rejects the rule or returns it to the commission for further consideration, it will come into force on October 1.

The rule will designate matching service utilities as market participants under the Securities Act. “As a result, certain provisions of the Act that apply to market participants generally will also apply to matching service utilities, including the books and records requirements, the ability of commission staff to perform compliance reviews, and the commission’s power to make a public interest order,” it explains.

The rule is ancillary to the national rule on institutional trade matching and settlement, which came into force on April 1, in Ontario. That rule imposes a number of requirements on so-called matching service utilities. A “matching service utility” is defined in the rule as a person or company that provides centralized facilities for trade matching, but does not include a recognized clearing agency.

“As an important infrastructure system involved in the clearing and settlement of securities transactions, a matching service utility operating in the Canadian markets may raise certain regulatory concerns,” the OSC says. “Trade matching is a complex process that is inextricably linked to the clearance and settlement process. While a matching service utility should bring efficiencies to the markets, it concentrates processing risk in the entity that performs matching instead of dispersing that risk among the dealers and their institutional customers. The breakdown of a matching service utility’s ability to accurately compare trade information from multiple market participants involving large numbers of securities transactions and sums of money could have adverse consequences for the efficiency of the Canadian securities clearing and settlement system. Accordingly, we believe that some regulatory oversight of the operational risks inherent in the use of a matching service utility is necessary.”

The OSC allows that the rule may impose costs on matching service utilities, however, it says it will benefit the capital markets and protect investors, “by making matching service utilities subject to certain provisions that apply to all market participants generally under the Act.”