Guidance on Trading Halt Procedures for CDRs and Single-Stock ETFs

1. Background

This Guidance Note provides guidance on our approach to halting trading in certain CDRs and single-stock Exempt Exchange-traded Funds, where CIRO becomes aware of a trading halt in the underlying security on a listing market in the U.S.

A CDR is a transferrable depositary receipt relating to a single class of equity security of an issuer incorporated or formed outside of Canada. These products are designed to provide Canadian investors with direct access to ownership of the shares underlying the CDR through Canadian dollar denominated trading on Canadian markets.

A single-stock Exempt Exchange-traded Fund1 is an ETF that invests in a single specified public issuer in a foreign jurisdiction.

For the purposes of this Guidance Note, we refer to these products collectively as Covered Equity Instruments.

1.1 Current approach to addressing volatility

CIRO has established a multi-tiered approach to controlling short term, unexplained price volatility. One element of this approach includes Single-stock Circuit Breakers (SSCBs) which are designed to address rapid, significant and unexplained price movement in a particular security. Since the introduction of SSCBs in 2012, ETFs (including single-stock ETFs) have been subject to this price volatility control mechanism. Generally, the SSCB regime:

• applies from 9:30 a.m. to 3:30 p.m.;
• provides for an initial halt of 5 minutes that may be extended for an additional 5 minutes; and
• provides for the cancellation of any trade that executes at more than 5% beyond the SSCB trigger level.

In January 2023, CIRO published Additional Guidance Respecting Application of Single-Stock Circuit Breakers. With the additional guidance, we applied the existing SSCB regime to all CDRs, with the goal of enhancing market integrity in the trading of these securities.

However, under the current approach, CIRO is not expected to initiate a halt when the security underlying a Covered Equity Instrument is halted in a foreign jurisdiction (for reasons such as for the dissemination of material information).

1.2 Expansion of Covered Equity Instrument Listings

Canadian listings of Covered Equity Instruments continue to grow and now include issuers domiciled outside of North America. In some instances, the underlying security may be included in more than one Covered Equity Instrument. With the increase in both the number of listings and the expansion of listings into European and other overseas jurisdictions, there is increased risk that the issuer that underlies the Covered Equity Instrument may disseminate material information during Canadian trading hours.

CIRO has heard concerns from both listing exchanges and issuers of Covered Equity Instruments that they are not able to monitor for halts in the underlying security. In particular, listing exchanges in Canada have noted that they have no relationship with the underlying issuer of a Covered Equity Instrument, and therefore do not have similar insights into the issuer that they have with traditional exchange listings. Additionally, listing exchanges in Canada can only implement “business halts”2  which serve only to halt trading on the listing exchange, and not other marketplaces that may also trade the Covered Equity Instrument.

CIRO also does not have a relationship with the underlying issuer as they are domiciled in a foreign jurisdiction. CIRO Surveillance staff do not monitor the timely disclosure of material information by the underlying issuer of a Covered Equity Instrument, nor do staff review news releases that contain material information as it relates to the underlying issuer. However, we are able to leverage our existing surveillance processes and the expertise of CIRO Surveillance staff, including the ability to implement regulatory halts that halt trading across all Canadian marketplaces.

A new approach to halting trading in certain Covered Equity Instruments that leverages CIRO’s strengths will provide better outcomes for investors, rather than relying on the listing exchange or the issuer of the Covered Equity Instrument.

2. New trading halt procedures for certain Covered Equity Instruments

Given the expansion of listings of Covered Equity Instruments and the fact that CIRO does not currently take any specific action when the security underlying a Covered Equity Instrument is halted in a foreign jurisdiction, CIRO is introducing new trading halt procedures for certain Covered Equity Instruments as described below. The procedures will depend on the specific issuer underlying the Covered Equity Instrument.

2.1 Underlying issuer is a listed issuer in the U.S. or underlying issuer has a sponsored American Depositary Receipt (ADR)

For underlying issuers that are listed on a U.S. exchange, or that have a U.S.-listed ADR (i.e., a sponsored ADR), CIRO will monitor for halt messages from the U.S. listing exchange that relate to disclosure of material information. When a U.S. halt is identified that relates to material information disclosure, CIRO Surveillance will impose a manual halt in Canada. We will also endeavour to resume trading in a manually halted security in alignment with a resumption in trading in the U.S.

CIRO Surveillance will generally not impose a manual halt in Canada for other U.S. halt reasons such as the triggering of U.S. mechanisms designed to address short term market volatility in a manner similar to SSCBs. These U.S. controls are typically referred to as “Limit Up–Limit Down”.

This process will not be automated and will be subject to a delay. Subject to regulatory interventions described below under subsections 2.3 and 2.4, in the normal course CIRO will not cancel or vary trades that occur during the time between the U.S. halt and the manual halt in Canada.

2.2 Underlying issuer is not a listed issuer in the U.S. and has no sponsored ADR in the U.S.

There is no readily accessible method to monitor trading halts of Covered Equity Instruments with no U.S. listing. In addition, the trading hours of the listing exchange of the underlying issuer of such Covered Equity Instruments will often not align with Canadian trading hours. As a result, CIRO Surveillance does not expect to be able to perform this function as described above. Therefore, for these Covered Equity Instruments, CIRO will not impose manual halts and will continue to rely on our existing approach to addressing volatility, described above in subsection 1.1.

2.3 Existing SSCB regime will not change and will continue to apply

CIRO will continue to leverage our SSCB regime with no changes to existing processes or guidance. As a result, for all Covered Equity Instruments, our existing SSCB regime as described above in subsection 1.1 will continue to provide protection against rapid price movements.

2.4 Guidance on regulatory intervention for the variation and cancellation of trades will not change and will continue to apply

Under the authority of UMIR Rule 10.9, CIRO may undertake discretionary regulatory intervention in order to vary or cancel any trade that is, in the opinion of the Market Integrity Official:

• “unreasonable” as undertaken when material information related to the issuer of the security may be known to certain parties trading in the market but the information has not been publicly disseminated in accordance with applicable timely disclosure standards (“asymmetric dissemination of material information”);
• “unreasonable” in connection with an unintentional “erroneous” trade; or
• not in compliance with the provisions of UMIR.

Our Guidance on Regulatory Intervention for the Variation or Cancellation of Trades sets out the circumstances in which CIRO may exercise this authority. This guidance does not change with the publication of this guidance note and continues to apply with respect to trading in Covered Equity Instruments.

As was previously noted, the process of halting certain Covered Equity Instruments is not automated and requires manual intervention by CIRO Surveillance staff. CIRO will generally not cancel or vary trades that occur during the time between the halt in the U.S. and the halt in Canada. However, the existing SSCB regime will continue to apply with respect to Covered Equity Instruments and will continue to address short term volatility. In addition, CIRO may undertake discretionary regulatory intervention under our existing authority where warranted and as described in our existing guidance.

2.5 Trading halts where the issuer of the Covered Equity Instrument on a Canadian listing exchange has material information

Pursuant to existing trading halts and timely disclosure processes3, when CIRO Surveillance staff believes that the issuer of a Covered Equity Instrument (i.e., the issuer of the security traded on a Canadian listing exchange) has information that is material enough to significantly impact the price of the security, a halt in trading on all Canadian marketplaces may be issued.

3. Implementation

The trading halt procedures for Covered Equity Instruments are effective immediately on publication of this notice.

4. Applicable Rules

UMIR Rules this Guidance Note relates to:

UMIR 10.9

5. Related Documents

This Guidance Note is related to the following documents:

• Guidance Note 12-0258 – Guidance on Regulatory Intervention for the Variation or Cancellation of Trades (August 20, 2012).
• Guidance Note 23-0006 – Additional Guidance Respecting Application of Single-Stock Circuit Breakers (January 19, 2023).

• 1An “Exempt Exchange-traded Fund is defined in Rule 1.1 to mean “…a mutual fund for the purposes of applicable securities legislation, the units of which: 
  1. are a listed security or quoted security; and
  2. 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 this definition.
• 2A “business halt”, also known as an exchange halt, is implemented by a Canadian listing exchange. Reasons for a business halt include a company undergoing a corporate transaction or an interruption in trading caused by system issues.
• 3Information on Trading Halts and Timely Disclosure can be found at: Trading Halts & Timely Disclosure