Canada’s securities regulators are introducing amendments to trading rules designed to prevent trade-throughs.

On Friday, the Canadian Securities Administrators announced amendments will create an “order protection rule” and other additional requirements relating to trading on multiple marketplaces.

The new rule requires “all visible, immediately accessible, better-priced limit orders to be filled before other limit orders at inferior prices, regardless of the marketplace where the order is entered.” The other amendments include a prohibition on intentionally locking or crossing markets.

The order protection rule will require each marketplace to have policies and procedures in place to reasonably prevent trade-throughs. The CSA says that by introducing these requirements, “the rule maintains the historical obligation of full depth-of-book protection in Canada and continues to facilitate fairness and provide investors an incentive to participate in the price discovery process, which in turn increases market liquidity.”

Securities regulators have been working to address the perceived need for trade-through protection for several years now, since the introduction of numerous alternative trading systems in Canada. A trade-through occurs when a trader doesn’t execute an order at the best available price, which they may be willing to do for the sake of factors such as speed, execution certainty or anonymity. Regulators are concerned orders be protected against trade-throughs to ensure market integrity, enhance investor confidence and preserve liquidity.

“These amendments, the order protection rule in particular, will help maintain investor confidence in the integrity of the Canadian market, which has rapidly evolved into a multiple marketplace environment,” said Jean St-Gelais, chair of the CSA and president & CEO of the Autorité des marchés financiers (Québec). “The new rules will ensure that orders that are entered are being treated fairly, regardless of the participant’s sophistication or the order size.”

Subject to ministerial approvals, the amendments to the existing trading rules will come into force in all CSA jurisdictions on January 28, 2010, and the new order protection rule will take effect on February 1, 2011. The CSA says that it continues to consult with industry and it will be developing and publishing a plan for the rollout of the order protection rule.

IE