By James Langton

(November 9 – 14:40 ET) – The Toronto Stock Exchange is requesting comment on a proposal requiring brokers to report Market-on-Close orders or end-of-day hedging activity in an effort to reduce volatility ahead of the close. Market-on-Close orders are orders to trade at the closing price.

The TSE says it wants to ensure a fair and orderly market by reducing volatility near the close of trading. The exchange says it has issued special notices to brokers regarding index rebalancings to attract more off-market orders, and help ensure deeper markets that can withstand the short-term pressure that comes in a volatile session.

The TSE says this measure has been effective in cases such as the merger of index participation funds. It would like to able to issue similar notices regarding regular closing activity.

“The current procedure of reminding market participants of potential volatility near the close in connection with index rebalancings has generally worked well in reducing volatility. The new rule will permit the exchange to alert the market to potential volatility near the close in other situations where Market-on-Close orders are to be executed,” it says.

The new rule would require brokers to report to the TSE’s Market Surveillance Department each Market-on-Close order to be executed in the regular market, or hedging activity in connection with execution of the order that will occur in the last five minutes of trading.

The new rule would not allow Market-on-Close Orders to be executed without first being reported. Orders intended for the after-hours session would not have to be reported, nor would regular market orders.

Brokers would have to report their orders by 15:30 ET so the exchange has a chance to put out a notice. The notice would only indicate the stocks, not the size or direction of the orders. The TSE says a notice will only be issued if the imbalance is greater than certain parameters, which are yet to be determined.

The exchange says the new rule is intended as an interim solution pending development of an automated Market-on-Close facility which would permit orders to be entered to trade at a “Calculated Closing Price”.

The proposed change must be approved by the Ontario Securities Commission.