The regulators’ database of cease trade orders needs some improvement, and perhaps it should even be outsourced, says the Investment Industry Association of Canada in a letter to the Canadian Securities Administrators.
The IIAC has written to the regulators to express some concerns with the accuracy and consistency of the CTO database, and made some suggestions to improve the integrity of its data. The letter indicates that the CSA has not followed up on promises to address industry concerns with the database, so it has been asked by firms to lobby the regulators on the issue.
“Many members are looking to automate their existing procedures with the respect to CTOs and the accuracy and consistency of the data contained in the CTO list is critical to automating their processes. To that end, members are requesting that the CSA make the necessary changes towards improving the data integrity of the CTO database,” it says.
It notes that firms are specifically concerned with: formatting of security identifiers and CTO issue dates; the inability to match individuals by name; and, updates not being made to the CTO database to reflect corporate changes (such as reorganizations, or name changes). Furthermore, firms “believe that the CSA should consider implementing an automated system to update symbols, names, and security identifiers on a daily basis,” it says, adding that the CSA should also clarify the use of temporary CTOs, which often generate confusion.
The industry would also like to see regulators avoid issuing intra-day CTOs. “Firms found the intra-day CTO issued in relation to the Sino-Forest situation to be troubling and challenging,” it says, noting that most CTOs are issued after 5:00 p.m., which allows firms to deal with them before markets open the next morning. “However, in the Sino-Forest case, the [Ontario Securities Commission] issued the CTO before the market opened, but the CSA did not release the CTO until 12:15 p.m. This becomes difficult for firms to manage and also results in a frustrating client experience. As a result, intra-day CTOs should be avoided if at all possible,” it says.
Indeed, some of the problems cited in the letter stem from inconsistencies across jurisdictions. It notes that, “When a provincial securities commission receives information for a particular issuer that a ban is lifted, it is not reflected at another securities commission.”
Moreover, it says that, “It appears that the administration of the database shifts to different provinces to manage on a rotating schedule,” which results in the emergence of numerous inconsistencies. “For example, it becomes unclear who the regular CSA staff contact is and often the response to inquiries can differ. A somewhat related issue is that firms have discovered that often, different guidance is given to clients and to firms when they are seeking a resolve a CTO situation.”
And, it says that firms would also like to see all CSA jurisdictions allow an exception to sell cease traded securities under certain circumstances, similar to the exception provided by the B.C. Securities Commission.
Therefore, the letter notes that firms would like the CSA to look at establishing a central office where there would be a dedicated group responsible for managing both technical and policy matters pertaining to CTOs; or that they consider delegating the administration of the CTO database to the Investment Industry Regulatory Organization of Canada.
“Given that IIROC is responsible for regulating trading and market-related activities, members believe that IIROC may be better positioned to manage the communication and implementation of the CTOs since it is a national organization and could provide timely notifications to participants by issuing a trading halt when a CTO is issued,” it says.