Provincial securities regulators have approved amendments to trading rules concerning the obligations of markets and dealers to prevent trade-throughs.

The securities commissions have approved proposed amendments to trading rules that were published for comment in November 2009. The amendments are designed to facilitate implementation of the Canadian Securities Administrators’ order protection rule, which aims to guard against trade-throughs (ensuring that better-priced orders execute first).

As approved, the amendments:
> repeal the rule imposing “best price” obligations on market participants;
> provide that the order protection rule can not be avoided when a participant is considering a trade on a foreign market;
> require them to have adequate policies and procedures for handling orders that do not rely on a marketplace to ensure compliance with the order protection rule; and
> make a number of other consequential changes to the trading rules.

According to a notice from the Investment Industry Regulatory Organization of Canada, the most significant impact of the amendments is that that market participants “are relieved of the obligation of ensuring that when an order entered on a marketplace is executed, better-priced order[s] in the disclosed volume of orders on a protected marketplace are not ignored or traded-through.” Instead, effective February 1, this obligation is placed upon the marketplace receiving the order.

However, firms and traders still have an obligation to ensure that better-priced orders are honoured when they’ve marked an order as a ‘directed action order’. They aren’t entitled to use the ‘directed action order’ marker unless they have established, maintained and ensured compliance with written policies and procedures that are reasonably designed to prevent trade-throughs, IIROC says. And, similar policies and procedures would also apply when they intend to execute certain orders at an inferior price on a foreign organized regulated market.

IE