March 1, 2013 is deadline day for Canadian brokers.
That’s when brokers in the Great White North must use risk controls on orders sent the marketplace, according to a statement from the Investment Industry Regulatory Organization of Canada–IIROC.
IIROC adopted these rule amendments, which were approved by the Canadian Securities Administrators–CSA–earlier this year. The amendments are supposed to reduce the risks of electronic trading).the effective management of risks associated with electronic trading.
These are similar to the Securities and Exchange Commission?s Market Access Rule 15c3-5 that went into effect last year. The SEC rule requires all orders have risk checks before entering the marketplace.
“The revised rules will help to bolster market integrity by ensuring that electronic trading risks are mitigated through appropriate controls for all trading activity, regardless of source,” said Susan Wolburgh Jenah, IIROC?s President and Chief Executive Officer.
However, in recognition of technology testing needed and as a couretsy to brokers, IIROC said dealers will have until May 31, 2013 to fully implement their automated controls.
The recently passed amendments expand on existing obligations under the Universal Market Integrity Rules–UMIR–by assigning IIROC-regulated dealers supervisory and gatekeeper responsibilities to protect against electronic trading errors. The changes will ensure that market participants have appropriate automated filters, IROC officials say, algorithm testing, and other risk management tools in place for handling orders before those orders enter the marketplace.
The changes establish another tier in a system of controls. These include single-stock and market-wide circuit breakers. They also align UMIR rules with the CSA’s implementation of NI 23-103 Electronic Trading.
The UMIR amendments state broker-dealers are responsible for managing the risks associated with their order flow and their clients? order flow and this responsibility cannot be delegated.
The amendments require automated controls. Regulators say this would prevent the entry of an order that exceeds a pre-determined credit/capital threshold, a pre-determined value or volume limit on orders from a broker-dealer or client, or violates UMIR or any applicable securities regulation.
