On Wednesday, the Investment Industry Regulatory Organization of Canada released proposed guidance intended to make transparent the criteria it would use to determine whether to vary or cancel a trade under the authority of the Universal Market Integrity Rules.
Under Rule 10.9 of UMIR, IIROC may vary or cancel a trade that is "unreasonable" or not in compliance with UMIR or any policy. IIROC's regulatory intervention powers are currently exercised under its broad discretion. The proposed guidance is intended to elaborate upon and set out more transparent standards in regard to the exercise of these powers, particularly with respect to its power under 10.9(1)(d) respecting "unreasonable" trades.
In addition to the factors provided by Rule 10.9(2) for determining whether a trade is unreasonable, the proposed guidance also sets out a number of additional factors IIROC will consider, such as whether the volume or number of trades is unusual in the context of the market and whether the trade was made in error or as the result of a deliberate trade. The notice also includes information regarding halts with respect to situations where there has been "asymmetric" dissemination of material information. In this regard, IIROC acknowledges that intervention in trading related to asymmetric dissemination of material information is fairly unique to Canada, but maintains it has intrinsic value in protecting market integrity and providing a clear and transparent remedy to parties harmed by such activity. The relative certainty and immediacy of this remedy being distinguished from the remedy under the statutory regime for civil liability in secondary markets.
With respect to trades that are not in compliance with UMIR, IIROC stated that it may intervene in cases of rule violations that are self-evident at the time of execution, including violations of the client-principal trading requirement under Rule 8.1 of UMIR, the market stabilization price restrictions under Rule 7.7, the requirement not to "abuse" a person with Market Maker Obligations under Part 1 of Policy 2.1 or the requirement to move the market in an orderly manner over a period of time when executing a pre-arranged trade or intentional cross under Part 2 of Policy 2.1.
IIROC is accepting comments on the proposed guidance until February 14, 2011. For more information, see IIROC Notice 10-0331.
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