NEW PROCEDURES FOR ORDER MARKER CORRECTIONS

Transcription

1 Rules Ntice Guidance Nte UMIR Please distribute internally t: Legal and Cmpliance Trading Cntact: Felix Mazer Plicy Cunsel Telephne: Fax: July 15, 2008 NEW PROCEDURES FOR ORDER MARKER CORRECTIONS Summary This Rules Ntice prvides guidance n the new prcedures fr the reprting f an rder marker crrectin t the Investment Industry Regulatry Organizatin f Canada ( IIROC ) by a Participant r Access Persn. Effective June 1, 2008, Market Regulatin Services Inc. ( RS ) merged with the Investment Dealers Assciatin f Canada ( IDA ) t frm IIROC. IIROC adpted the Universal Market Integrity Rules ( UMIR ) as the rules f IIROC gverning trading n marketplaces fr which IIROC acts as the regulatin services prvider and IIROC adpted the guidance n the interpretatin f UMIR previusly published by RS. As a result f the merger, references t RS in the Market Integrity Ntices mentined in this Rules Ntice shuld als include IIROC. General Order Marking Requirement Rule 6.2 f UMIR requires that each rder entered n a marketplace cntain certain designatins acceptable t IIROC. In additin t prviding an accurate audit trail, the rder designatins prvided fr under Rule 6.2 enable IIROC t mnitr trading activity n Canadian marketplaces t detect pssible vilatins f UMIR and als allws IIROC t assist securities regulatry authrities by prviding initial detectin f pssible vilatins f securities legislatin (principally related t insider trading).

2 IIROC has issued guidance dealing with the bligatins f a Participant r Access Persn with respect t the entry and rder marking requirements f rders entered n a marketplace as bundled rders including: Market Integrity Ntice Guidance Bundling Orders frm a Lng and Shrt Psitin (July 27, 2005) which set ut circumstances in which a sale rder frm a lng psitin may be bundled with a sale frm a shrt psitin; and Market Integrity Ntice Guidance Insider and Significant Sharehlder Markers (June 16, 2006) which set ut the marking requirements dealing with the bundling f insider r significant sharehlder rders tgether with nn- insider r nn- significant sharehlder rders. Reference shuld be made t these ntices fr detailed guidance n the circumstances in which rders may be bundled and the rder marking requirements fr bundled rders. Frm the perspective f facilitating an accurate audit trail as required by Rule f UMIR, IIROC generally discurages the bundling f rders. Nnetheless, a Participant r Access Persn may chse t enter an rder n a marketplace as a bundled rder, subject t the limitatins set ut in the abve referenced Market Integrity Ntices. In the view f IIROC, if a Participant r Access Persn enters a bundled rder n a marketplace, the entire bundled rder must be marked with the mst restrictive applicable designatin. Fr example, if an rder frm a lng psitin is bundled with a sale rder frm a shrt psitin, the entire bundled rder is t be marked shrt r, if applicable, shrt exempt. Similarly, in the case f an rder fr an insider r significant sharehlder that is bundled with a nn- insider r nn- significant sharehlder rder, the entire bundled rder is t be marked insider r significant sharehlder, as apprpriate. In the view f IIROC, the bligatin t mark a bundled rder with the mst restrictive applicable designatin ensures that rders are nt intentinally bundled t avid marking an rder with the applicable restrictive marker. One f the implicatins f requiring that a bundled rder be marked with the mre restrictive applicable designatin is the ver-reprting f trades by certain persns and trade types. Fr example, an rder fr a persn wh is nt an insider that is bundled tgether with an rder fr an insider, will result in the entire rder being marked insider (when in fact, the insider prtin f the bundled rder represents nly a prtin f the bundled rder). Presently, IIROC prvides an infrmal reprting regime whereby a Participant r Access Persn is expected t reprt: in the case f a bundled rder, the crrected vlume f the rder that crrespnds t the marker that was attached t the rder; and in the case f an rder with an errneus marker, the crrect rder designatin. IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 2

3 Insider Trading Task Frce Recmmendatins/Prpsal fr Cnslidated Shrt Psitin Reprts In September 2002, a task frce established by the Ontari, British Clumbia and Alberta Securities Cmmissins, the Cmmissin des valeurs mbilières du Québec, the IDA, the Burse de Mntréal and RS sught t evaluate hw best t address illegal insider trading in the Canadian capital markets ( Insider Trading Task Frce ). In Nvember 2003, the Insider Trading Task Frce released its reprt utlining a series f recmmendatins which, amng ther things, recmmended the public disclsure f all trades n a marketplace that are marked insider (currently, the insider marker is available fr regulatry purpses, but is nt disclsed t the public). In September 2006, the Ontari, Alberta and British Clumbia Securities Cmmissins apprved rders requiring the Trnt Stck Exchange ( TSX ) and the Trnt Venture Exchange ( TSXV ) t, using reasnable cmmercial effrts, cnslidate n a per security basis, all trades n the TSX and TSXV that are marked fr the accunts f insiders f each listed issuer and t publicly disseminate such infrmatin in summary frm at the end f each trading day ( Insider Trading Reprts ). IIROC understands that the TSX and TSXV expect t make these Insider Trading Reprts available starting in August f IIROC als understands that Canadian Trading and Qutatin System ( CNQ ) is als develping a frm f insider trading summaries fr public disseminatin. In Market Integrity Ntice Request fr Cmments Prvisins Respecting Shrt Sales and Failed Trades (September 7, 2007), IIROC prpsed t replace the existing Cnslidated Shrt Psitin Reprt with trading summaries frm all marketplaces trading the same securities. This prpsal is still under review by the applicable securities regulatry authrities. Hwever, the ability t repeal the requirement fr Participants t prepare and file Shrt Psitin Reprts wuld depend upn the ability f IIROC t update in a timely manner trading infrmatin invlving shrt sales in circumstances where a shrt rder had been bundled with a lng rder r where the shrt r shrt exempt marker had been inadvertently mitted r incrrectly included n an rder entered n a marketplace. Prcedures fr Prviding Order Marking Crrectins Presently, all rder marker crrectins (crrected vlumes and designatins fr bundled rders and errneusly marked rders) fr rders entered n a marketplace are reprted t IIROC market surveillance staff by , r by ther means. In the view f IIROC, the current infrmal reprting mechanism in additin t being unsecure ( s are nt encrypted) is an inefficient methd fr Participants and Access Persns t reprt marker crrectins. The new prcedures will facilitate the preparatin f autmated updates that will be necessary fr the prductin f the Insider Trading Reprts and any summary trading reprt that may replace the Cnslidated Shrt Psitin Reprt. Effective August 1, 2008, each Participant r Access Persn reprting an rder marker crrectin will be required t submit an rder marker crrectin reprt using the newly develped web-based regulatry marker crrectin frm ( Regulatry Marker Crrectin Reprt ) that will be available under the Quick Links sectin f the IIROC website at IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 3

4 The new web-based Regulatry Marker Crrectin Reprt will be passwrd prtected and will leverage the same access prcedures currently in place at IIROC fr the n-line Cntinuing Educatin and CmSet systems. Each Participant r Access Persn must appint a persn within its rganizatin t act as administratr ( Crrectin Reprt Administratr ). The Crrectin Reprt Administratr will have the authrity t add r delete ther users within the Participant r Access Persn. The Crrectin Reprt Administratr may file Regulatry Marker Crrectin Reprts n behalf f the Participant r Access Persn r may delegate the respnsibility t ther users within the Participant r Access Persn. The Crrectin Reprt Administratr may be the same individual as the Administratr fr the Cntinuing Educatin and CmSet systems r fr the filing f gatekeeper reprts as described in Market Integrity Ntice Guidance - New Prcedures fr Gatekeeper Reprts (May 16, 2008). In rder t facilitate the intrductin f the new prcedures, each Participant and Access Persn must prvide the name and address f their Crrectin Reprt Administratr t Thmas Mppett at tmppett@iirc.ca nt later than July 31, Questins and Answers The fllwing is a list f the mst frequently asked questins regarding the prcedures fr submitting a Regulatry Marker Crrectin Reprt t IIROC and IIROC s respnse t each: 1. Is the bligatin t ntify IIROC f a regulatry rder marker crrectin a new requirement? N. Under Rule 6.2 f UMIR, a Participant r Access Persn must ensure that each rder entered n a marketplace cntains the apprpriate designatins. If a trade has been imprperly marked n entry, the Participant r Access Persn must ntify IIROC in rder t crrect the audit trail. Similarly, IIROC has permitted the entry f bundled rders frm mre than ne accunt. In these circumstances, IIROC expects that the rder will cntain the mst restrictive f rder markers. If the bundled rder executes, IIROC expects that the Participant r Access Persn will prvide accurate infrmatin regarding the prper marking f the rders. Insfar as Participants and Access Persns currently prvide such marker crrectin infrmatin t IIROC thrugh an infrmal reprting mechanism, the implementatin f the n-line webbased reprting frm simply frmalizes the pre-existing reprting bligatin. 2. Des the requirement t file a Regulatry Marker Crrectin Reprt apply nly t bundled rders? N. IIROC expects a Participant r Access Persn t submit a Regulatry Marker Crrectin Reprt t IIROC in all instances in which an rder entered n a marketplace fails t include the apprpriate rder designatin as required by Rule 6.2 and the rder has executed at least in part. A Regulatry Marker Crrectin Reprt is nt required in respect f an rder IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 4

5 that has nt executed. In the case f a bundled rder, IIROC expects a Participant r Access Persn that has entered a bundled rder that trades n a marketplace t submit a Regulatry Marker Crrectin Reprt with the crrected vlume f the rder(s) that crrespnds t each rder type that makes up the bundled rder. 3. Des the requirement t submit a Regulatry Marker Crrectin Reprt apply t trades that are subsequently cancelled r amended? If a Participant r Access Persn executes a trade and subsequently cancels r varies a trade (as t vlume r price) invlving an insider r significant sharehlder, IIROC expects the Participant r Access Persn t file a Regulatry Marker Crrectin Reprt identifying the nature f the change, including the crrected vlume and/r price. A Regulatry Marker Crrectin Reprt is nt required fr a pst-trade cancellatin r variatin that des nt invlve an insider r significant sharehlder. 4. What infrmatin must be in a Regulatry Marker Crrectin Reprt? At a minimum, the Regulatry Marker Crrectin Reprt must include: the identificatin f the security r securities invlved; the trading number f the Participant that entered the rder n a marketplace; the identificatin f specific rders r trades including: the date and time the rder was entered n a marketplace, the trade date, the marketplace n which the trade was executed, the vlume, and side (buy/sell) f the rder, and fr an rder invlving an insider r significant sharehlder, the price (r average price) and currency; the reasn fr the marker crrectin (i.e. marking errr r bundled rder); the details f the crrectin (i.e. crrected vlume f a bundled rder that is attributable t an insider r rder was marked nn-client instead f client); the name, title and cntact infrmatin f the persn filing the Regulatry Marker Crrectin Reprt; and in the case f an rder that was imprperly marked, the name f the persn respnsible fr the marking errr. IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 5

6 5. T which rder and accunt types des the requirement t file a Regulatry Marker Crrectin Reprt apply? The requirement t file a Regulatry Marker Crrectin Reprt applies t all marker crrectins by a Participant r Access Persn fr a trade executed n a marketplace that is subject t UMIR (and is nt limited t the crrectin f the insider r significant sharehlder markers). Reference shuld be made t Rule 6.2 f UMIR, fr the designatins and markers which must be attached t an rder n entry t a marketplace. 6. Can a single Regulatry Marker Crrectin Reprt be submitted fr an rder that is split and executed n mre than ne marketplace? N. A separate Regulatry Marker Crrectin Reprt is required fr each marketplace n which a prtin f the riginal rder was executed. If an rder entered n a marketplace executes in mre than ne trade, a single Regulatry Marker Crrectin Reprt cvering all trades resulting frm the entry f the rder may be filed. 7. When is a Regulatry Marker Crrectin Reprt due? Fr rder marker crrectins invlving a trade entered as a bundled rder, a Regulatry Marker Crrectin Reprt must be submitted t IIROC n the date f the trade as sn as practicable after the executin f the trade and, in any case, by the later f 5 p.m. and 15 minutes fllwing the clse f trading n the marketplace n which the trade was executed. In all ther cases, IIROC expects that a Participant r Access Persn will submit a Regulatry Marker Crrectin Reprt immediately upn becming aware that an rder had been mismarked n its entry n any marketplace, regardless f hw the Participant r Access Persn became aware f the errr. Fr trades invlving an insider r significant sharehlder that are cancelled r varied n a date ther than the trade date, a Regulatry Marker Crrectin Reprt must be filed immediately upn the cancellatin r variatin f the trade. Fr same day trade cancellatins r variatins that have been reprted t and accunted fr by the marketplace, a Regulatry Marker Crrectin Reprt is nt required t be submitted. 8. Des the bligatin t submit a Regulatry Marker Crrectin Reprt extend t rders entered n a marketplace by a Dealer-Spnsred Access Client ( DSA Client )? Yes. Part 1 f Plicy 7.1 under UMIR prvides that a Participant has an bligatin t supervise rders which are entered n a marketplace directly by a client and ruted t a marketplace thrugh the trading system f a Participant. Plicy 7.1 further stipulates that cmpliance prcedure must be apprpriate fr the lines f business cnducted by a Participant. T the IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 6

7 extent that rders entered by a DSA Client will be subject t limited supervisin prir t entry n a marketplace, the cmpliance prcedures fr DSA Clients shuld, at a minimum, address the prcedures fr testing rders that have been entered fr rder markers as required by Rule 6.2 f UMIR. As part f its cmpliance prcedures, a Participant shuld include guidance n hw testing and crrectin f rders frm a DSA Client is t be cnducted. IIROC Ntice Rules Ntice Guidance Nte UMIR New Prcedures fr Order Marker Crrectins 7