The Canadian Securities Administrators (CSA) published a staff notice on Monday detailing the markets that will no longer be considered protected under the revised order protection rule (OPR).
The OPR aims to prevent “trade throughs” by requiring orders to execute against best-priced orders. However, amid concerns about the costs of complying with the rule in a highly fragmented market environment, the CSA has amended the OPR to require that a market have a minimum share of trading activity to enjoy order protection. The requirements also do not apply to dark pool trading, or to markets that utilize “speed bumps” to slow down executions and deter high-frequency trading (HFT).
Based on market share thresholds, the list of protected markets includes Toronto Stock Exchange, TSX Venture Exchange, Nasdaq CXC, Nasdaq CX2 and OMEGA.
Aequitas Lit Book will only be protected for Aequitas-listed securities, and Canadian Securities Exchange (CSE) is only to be protected for CSE-listed securities. For securities other than their own listings, the Aequitas Lit Book and CSE will not be protected, nor will Lynx, based on market share.
Currently, orders on ICX, LiquidNet and MatchNow are unprotected because they are dark pools. Aequitas Dark book and Nasdaq CXD will also be unprotected when they are launched, the CSA notice says.
Orders on TSX Alpha Exchange are unprotected as a condition of its approval due to its use of a speed bump. As of July 6, orders displayed on the Neo book of Aequitas NEO Exchange Inc. will be unprotected, toom because it uses a speed bump.
The new market share threshold (currently set at 2.5% of trading activity) takes effect on Oct. 1, and the exclusion from order protection for markets that use “speed bumps” takes effect on July 6. The CSA notices also clarifies the meaning of “automated trading functionality” for markets that impose speed bumps.
In early 2017, the market share of each marketplace will be recalculated based on trading data for 2016; and, in January 2017, the regulators will publish an updated list of protected and unprotected marketplaces that will take effect starting April 1, 2017, running to March 31, 2018. Market shares will be recalculated annually after that based on the prior year’s trading data.