Trade-through Protection, Best Execution, Access to Marketplaces and the Consolidation of Data
The CSA are publishing proposals for comment that would amend National Instrument 21-101 Marketplace Operation (NI 21-101), National Instrument 23-101 Trading Rules (NI 23-101) (together, the ATS Rules) and the related companion policies. The purpose of the ATS Rules, which were put into place in December, 2001, was to respond to developments in the markets by establishing a framework that permits competition between traditional exchanges and other marketplaces while ensuring that trading is fair and efficient.
Recent market developments have led to a review of the current rules. As a result, the CSA have concluded that changes should be made to the ATS Rules to reflect the current environment. The CSA have focused on the following three key initiatives:
(1) a "trade-through" discussion, which describes a flexible framework for promoting the value in our markets that all marketplace participants should be treated fairly by requiring all immediately accessible, better-priced visible limit orders, regardless of the marketplaces on which they are entered, to be filled before other limit orders at an inferior price;
(2) proposed amendments to the best execution requirements, which currently limit best execution to achieving best price, to more broadly describe the factors to be considered in seeking best execution, including price, speed of execution, certainty of execution and overall cost of the transaction; and
(3) proposed amendments that would establish requirements that must be met by non-dealers to gain access to a marketplace, including that a non-dealer must enter into an agreement with an exchange or a regulation services provider.
At the same time, RS is publishing proposed consequential amendments to UMIR that are necessary as a result of the proposed CSA amendments. RS is recognized as a self-regulatory entity and a regulation services provider for the purposes of the ATS Rules. RS has adopted UMIR as a common set of market integrity principles that apply to all regulated persons in respect of the marketplaces for which RS is the regulation services provider. A regulation services provider provides regulatory services to its members (ATSs) as well as contracts to provide regulatory services on behalf of exchanges. As such, UMIR allows for the competitive operation of equity marketplaces in Canada under a common set of trading rules regulating various trading practices including: manipulative or deceptive methods of trading; short selling; frontrunning; best execution and best price obligations; order entry and order exposure; and client priority and client-principal trading. As the rules of a self-regulatory entity, the requirements under UMIR must be consistent with applicable securities legislation including the ATS Rules.
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