Canada’s IIROC Proposes Changes to its Order Protection Rule

Regulators in the Great North are continuing to fine tune their rules governing order protection.

The Investment Industry Regulatory Organization of Canada, that nation’s leading regulator, announced it was seeking comments regarding changes to the Universal Market Integrity Rules that align with fellow regulator Canada Securities Administrator proposal to revise part 6 of National Market Instrument 23-101 that relates to the Order Protection Rule (OPR.)

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The CSA proposal and now the IIROC proposed amendments and comments pertain to addressing cost and inefficiencies associated with the current OPR application.

Enacted in 2009, the OPR requires all visible and immediately accessible better priced limit orders shall be filled before other limit orders at inferior prices, regardless of the marketplace where the order is entered.
In 2011, the responsibility of ensuring OPR was followed was placed on the trading marketplaces.

It had previously been the responsibility of the IIROC registered broker-dealers. No marketplaces are responsible for establishing, maintaining and enforcing policies and procedures to prevent trade-throughs on that marketplace.

In the CSA proposal, which provides a detailed overview of the purpose and nature of the proposed amendments, a marketplace would have to meet a market share threshold of five percent in order for its displayed orders to be considered “protected” under the OPR. Exchanges that do not meet the threshold will be protected but only for their listed securities. The marketplaces that qualify as protected under the OPR would be considered protected marketplaces under the proposed UMIR amendments by the IIROC.

Furthermore, IIROC broker-dealer members will continue to have a best execution responsibility and will be able to consider whether accessing a transparent marketplace that is not a protected marketplace would be appropriate to achieve best execution for their clients and their orders.

The CSA proposal also addresses concerns about related to trading fees and market data fees.

The deadline for comments is September 19.