Exemption Granted for Contingent Option Trades

On July 4, 2024, the Canadian Investment Regulatory Organization (CIRO) sought approval for and the Canadian Securities Administrators (CSA) approved or did not object to, the following exemption for a class of transactions from the application of UMIR (the Exemption):

• An exemption from the requirements under UMIR Rule 8.1 Client-Principal Trading for certain orders entered on the Toronto Stock Exchange (TSX), where the entry and execution price of such orders are contingent upon a related pre-existing trade(s) in an option on the Montreal Exchange (MX), and where such orders are executed in accordance with the procedures of both the TSX and the MX (Contingent Option Trades).

Background

On July 4, 2024, the Ontario Securities Commission approved amendments to the TSX Rule Book to facilitate changes to Contingent Option Trades.1  These changes will be effective in Q3 2024.

While the Universal Market Integrity Rules (UMIR) do not currently define a specific order that is consistent with a Contingent Option Trade on the TSX, the UMIR definition of a “Special Terms Order” generally captures such transactions.

Special Terms Orders are excluded from certain UMIR definitions and provisions but are not excluded from the application of UMIR Rule 8.1. Where a Participant is executing a client order that is a Contingent Option Trade against a principal order or a non-client order, UMIR Rule 8.1 requires the client order to receive a “better price” as defined in UMIR, unless the quantity of the client order is more than 50 standard trading units or has a value of more than $100,000 (or another available exception is applicable). Given that the price of a Contingent Option Trade is determined by the related option transaction(s), it may not be possible to execute the trade on the TSX at a better price. As a result, UMIR Rule 8.1 may limit the use of Contingent Option Trades to orders that meet or exceed the applicable order quantity threshold. However, this order quantity threshold is not a condition required by the relevant rules and policies of the TSX.

CIRO Market Policy staff are of the view that the exemption:

1. is not contrary to the provisions of any applicable securities legislation and the regulation and rules thereunder:
2. is not prejudicial to the public interest or to the maintenance of a fair and orderly market; and
3. is warranted after due consideration of the circumstances of the transaction.

The Exemption is effective on the date of the publication of this Rules Bulletin and is valid until the implementation of forthcoming material amendments to UMIR to reflect the Exemption pursuant to the requirements under UMIR 11.1(3).

For questions and further information regarding this Bulletin, please contact:

Market Regulation Policy
Canadian Investment Regulatory Organization
Bay Adelaide North
40 Temperance Street, Suite 2600
Toronto, Ontario, M5H 0B4
e-mail: [email protected]

• 1Notice of Approval – Contingent Option Trades – TSX Inc.