This Guidance Note, which is effective on January 19, 2023, builds on prior guidance on the application of a single-stock circuit breaker1 (“SSCB”) and applies SSCBs to Canadian Depositary Receipts (“CDRs”).
All other aspects of prior SSCB guidance are unchanged.
- 1See IIROC Notice 14-0170 – Rules Notice – Guidance – Guidance Respecting the Expansion of Single-Stock Circuit Breakers (July 10,2014) and IIROC Notice 16-0138 – Rules Notice – Guidance - Additional Guidance Respecting Single-Stock Circuit Breakers and Marketplace Thresholds (June 20, 2016).
Discussion of SSCB Guidance
Application of SSCBs to CDRs
We are applying SSCBs to CDRs in order to enhance market integrity in the trading of these securities. Similar to ETFs which are comprised of listed securities, CDRs have underlying securities that are listed for trading on foreign markets, many of which are considered highly liquid. Therefore, ensuring that we may halt the trading of a particular CDR that experiences a rapid price movement will help foster a fair and orderly market for these types of securities. We note that certain CDRs are currently subject to SSCBs as they meet the threshold for being an actively-traded security. We believe that it is appropriate to impose SSCBs on all CDRs given the recent growth and proliferation of CDRs in the Canadian markets.
Operation of SSCBs
Until changed with the issuance of further guidance, SSCBs:
- apply to:
- each security that is a constituent of the S&P/TSX Composite Index,2
- each Exempt Exchange-traded Fund (“ETF”),3 the assets of which are comprised principally of listed securities,
- each Canadian Depositary Receipt4 (“CDR”), the assets of which are comprised solely of foreign securities,
- each security that is considered “actively-traded”5 for the purposes of this guidance, including any Leveraged ETFs (collectively “qualifying securities”);
- provide for a trigger level for each qualifying security, other than a qualifying Leveraged ETF, such that there would be a halt in the event of a price increase or decline of:
- at least 10% and 20 trading increments in a five-minute period between 9:50 a.m. and 3:30 p.m.
- at least 20% and 40 trading increments in a five-minute period between 9:30 a.m. and 9:50 a.m.
- at least 20% and 40 trading increments in a five-minute period during the 30 minute period following the resumption of trading after a regulatory halt, including a regulatory halt caused by the triggering of a SSCB
- provide for a trigger level for qualifying Leveraged ETFs that is calculated by multiplying the trigger levels for qualifying securities other than Leveraged ETFs with the leverage ratio of the Leveraged ETF. For example, for a qualifying Leveraged ETF with a 2:1 ratio, the trigger levels are set at twice the usual levels for qualifying securities that are not Leveraged ETFs
- provide that a Market Integrity Official may, with notice, temporarily widen the threshhold used to calculate the trigger level of a particular security in response to an extraordinary event where increased volatility may be considered “normal” trading activity
- apply from 9:30 a.m. to 3:30 p.m.
- provide for an initial trading halt of 5 minutes that may be extended for a further 5-minute period
- exclude from the trigger calculation prices of trades that may execute outside the “best bid – best ask” spread
- would result in the cancellation of any trade that executed at more than 5% beyond the trigger level.
- 2A description of the S&P/TSX Composite index is available at https://tmxinfoservices.com/tmx-datalinx/products-and-services/sp-tsx-indices#tsx
- 3In UMIR, an Exempt Exchange-traded Fund means a mutual fund for the purposes of applicable securities legislation, the units of which:
(a) are a listed security or a quoted security; and
(b) are in continuous distribution in accordance with applicable securities legislation but does not include a mutual fund that has been designated by the Market Regulator to be excluded from the definition.
- 4A Canadian Depositary Receipt or CDR is a product listed on an Exchange and represents shares of foreign-listed securities.
- 5A listed security is considered actively-traded if the particular listed security traded, in total, on one or more marketplaces as reported on a consolidated market display during the three calendar months ending immediately preceding the determination:
• an average of at least 500 times per trading day, and
• with an average trading value of at least $1,200,000 per trading day.