(August 8 – 15:30 ET) – The TSE is requesting comment on a proposed new rule dealing with in-house client priority.
The TSE’s in-house client priority rule prohibits trading ahead of a client and trading along with a client. The rule is currently enforced in the CATS allocation algorithm, which allocates fills to client orders at a price ahead of pro orders. Last year, the TSE proposed reintroducing price/time priority in CATS, too. However the TSE now says, “In programming the new rule, it has become evident that it will not be possible to also program the in-house rule without causing potentially unfair treatment of pro orders, as the two rules are incompatible.”
Faced with the possibility that the new rule would hurt pro orders in its system, the TSE is easing its proposed rule. The TSE says, “In short, [brokers] can no longer rely on TSE systems to ensure their compliance with rules governing how they handle client orders. A new solution must be found.”
The new rule prohibits firms from knowingly trading ahead of a client order. Brokers will have satisfied their in-house client priority obligations if they send an order immediately to a trading system. If client orders are withheld, the broker must have so-called “Chinese Walls” in place so that other pro traders cannot misuse information concerning client orders.
The TSE’s board has approved the rule, which now awaits approval by the Ontario Securities Commission following public notice and comment. Comments on the rule are due within 30 days.
-IE Staff