Canadian securities regulators are going ahead with rules to govern electronic trading, but provisions concerning direct market access are being put off for now.
The Canadian Securities Administrators (CSA) announced Thursday that they are planning to adopt a new rule, which establishes a regulatory framework for electronic trading, and imposes requirements on dealers and markets designed to ensure that the risks associated with this sort of trading are well managed. The new rule details specific requirements for controls, policies and procedures relating to electronic trading.
“Electronic trading risks arise from greater speed and automation in the Canadian market. This increases the potential impact of a trading error or a rapid series of errors, caused by a computer or human fault,” the notice says.
The rule aims to address specific risks that may arise from electronic trading, including credit risk, market integrity risk, technology or systems risk, and regulatory arbitrage risk. The framework is designed to ensure that trading venues and dealers are actively monitoring and managing these risks, by maintaining certain policies, procedures and controls.
However, requirements regarding the provision of direct electronic access, which were included in the CSA’s first proposal in this area, are not being included in the new rule. The CSA indicates that it has decided that other forms of marketplace access, such as order execution service accounts, or dealer-to-dealer routing, raise similar risks to direct access, and should be subject to similar requirements. Therefore, the CSA and the Investment Industry Regulatory Organization of Canada (IIROC) are developing a package of proposed rules to deal with these issues, which will be published in the coming months.
The new rule concerning electronic trading is expected to take effect March 1, 2013, subject to ministerial approval. Provinces that belong to the passport system are also publishing amendments to permit the use of the passport system for certain aspects of the new electronic trading rule. And, IIROC is also publishing proposed amendments to the trading rules to conform to the new CSA rule.
“Establishing the right regulatory framework to oversee and manage the risks of electronic trading is a priority for the CSA,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission. “The regulatory obligations in this new rule provide better protection.
The Investment Industry Regulatory Organization of Canada has issued a package of proposed rule changes to align market trading rules with the implementation of the CSA framework.
“These proposed changes to IIROC rules complement the CSA’s establishment of a regulatory framework for the oversight and management of risks associated with the use of electronic trading on Canadian marketplaces,” said Susan Wolburgh Jenah, IIROC’s president and CEO.