The board of directors of Market Regulation Services Inc. (RS) has approved a series of amendments to the Universal Market Integrity Rules (UMIR) regarding manipulative and deceptive trading activities.

According to RS, the amendments aim to achieve greater clarity and consistency, and provide for consistency with the requirements related to manipulative and deceptive activities under Canadian Securities Administrators Trading Rules.

The amendments are also designed to confirm the “gatekeeper” obligations of Participants and Access Persons including the requirement to report to RS significant violations of UMIR, and eliminate potential gaps that may be caused by the current rule, which combines both manipulative “effects” and “methods” in a single requirement.

Notably, a new rule would be introduced by RS that would specifically prohibit the entry of an order or the execution of a trade in circumstances where the participant knew or ought to have known that the order or trade would not be in compliance with various regulatory requirements. The application of this new rule would be extended to directors, officers and employees of the firm.

Early in 2003, RS formed the Staff Working Group on Manipulative and Deceptive Trading comprised of RS staff in both the Eastern and Western Regions in surveillance, investigations and enforcement together with staff from Market Policy and General Counsel. The Staff Working Group undertook a comprehensive review of the current provisions in UMIR related to manipulative and deceptive trading and recommended a number of changes to the rules.

The Rules Advisory Committee of RS reviewed the proposed amendments related to manipulative and deceptive activities and recommended their adoption by the board. RAC is an advisory committee comprised of representatives of each of: the marketplaces for which RS acts as a regulation services provider; participants; institutional investors and subscribers; and the legal and compliance community. The amendments will be effective upon approval of the changes by the regulators following public notice and comment.

Comments on the proposed amendments should be in writing and delivered within 30 days.

In a related development, securities regulators have approved amendments to policies under the UMIR to provide for public access to hearings.

RS explains that the amendment essentially incorporates the standard established for public access to hearings under the Statutory Powers Procedure Act (Ontario). That statute applied to hearings conducted by the Toronto Stock Exchange, as the TSX was created by statute in Ontario. However, as RS is incorporated under the Canada Business Corporations Act, RS does not exercise a statutory power of decision and is therefore not subject to the SSPA nor comparable legislation in any of the other jurisdictions in which RS is recognized as a self-regulatory organization.

The original proposal for public access has been modified by the addition of a subsection that specifically provides that for hearings in Quebec the hearing shall be public, provided the Hearing Panel, on its own initiative or at the request of a party, may order the hearing be held in camera or ban the publication or release of any information or documents it indicates in the interest of “morality or public order”. RS says that the addition of this subsection specifically recognizes the requirements imposed on disciplinary hearings by recognized self-regulatory organizations under the Securities Act (Quebec).

The amendment provides “public access” to a hearing conducted by RS. In the case of an oral hearing, the hearing would be open to the public. The public would be given reasonable access to documents submitted for a written hearing at the office of RS during ordinary business hours. In the case of an electronic hearing, the public shall have reasonable access to the proceedings.