Guidance on ​“Locked” and ​“Crossed” Markets

1. Background

A “locked market” occurs when a bid (offer) on one marketplace is entered at the same price as an offer (bid) on another marketplace for a security trading on multiple marketplaces. Had both orders been entered on the same marketplace, the bid and the offer would have matched and a trade would have executed. There are two ways for a “locked market” to be resolved:

• typically, more bids and offers are entered, resulting in the execution of a trade and immediate resolution; or
• one of the participants involved in the lock removes its order and places the order on another marketplace to immediately execute the trade.

In contrast, a “crossed market” occurs when one participant’s bid (offer) on one marketplace is higher (lower) than another participant’s offer (bid) on a different marketplace. A “crossed market” condition is usually shortly resolved as someone takes advantage of the arbitrage opportunity.

The Trading Rules were amended in January 2010 with the introduction of the Locked and Crossed Order Provisions2. Section 6.5 of the Trading Rules states:

A marketplace participant or a marketplace that routes or reprices orders must not intentionally [emphasis added] enter a displayed order on a marketplace that is subject to section 7.1 of NI 21-101, at a price that,

1. in the case of an order to purchase, is the same as or higher than the best protected offer; or
2. in the case of an order to sell, is the same as or lower than the best protected bid.

For the purposes of the Trading Rules, a marketplace participant includes a Participant or Access Person under UMIR.3 UMIR Rule 2.3 provides that a Participant or Access Person shall not enter an order on a marketplace or execute a trade if the Participant or Access Person knows or ought reasonably to know that the entry of the order or the execution of the trade would not comply with a number of requirements including applicable securities legislation. As such, the entry of an order that does not comply with the Locked and Crossed Order Provisions will constitute a violation of Rule 2.3 and may constitute a violation of other provisions of UMIR.

To comply with Policy 7.1 of UMIR, each Participant is expected to review its policies and procedures to ensure they meet the requirements of both the Locked and Crossed Order Provisions and this Bulletin. Each Participant is also expected to periodically review a sample of orders and trades to test the adequacy of its policies and procedures. This Bulletin is intended to supplement and complement the provisions of Companion Policy 23-101CP.

A Participant or Access Person that believes that a marketplace participant is entering orders on marketplaces in contravention of this Guidance Note is encouraged to notify CIRO Trade Surveillance4.

2. Questions and Answers

The following are questions relating to the obligations of a Participant under UMIR in the context of a “locked” or “crossed” market and CIRO’s response to each question:

2.1 Is the entry of any order that results in a “locked market” a violation of a Participant’s or Access Person’s obligations under the Locked and Crossed Order Provisions or UMIR?

Not necessarily. Companion Policy 23-101CP recognizes that locked or crossed markets may occur unintentionally and includes several examples of “unintentional” locks.5 CIRO will determine compliance with the requirements based on the information that a Participant or Access Person has or should have had when entering the order on a marketplace, and how that information was used in making their order routing decisions.

CIRO recognizes that “locked” or “crossed” markets may be created unintentionally resulting from:

• “race conditions” when competing orders are entered on protected marketplaces at essentially the same time with neither party having knowledge of the other order at the time of entry;
• ordinary differences in processing times and latencies between the systems of the Participant or Access Person, the various marketplaces, service providers, the information processor and information data vendors;
• a failure, malfunction or material delay in the systems of a Participant or Access Person, marketplace, service provider, information processor or information data vendor;
• the use of a “bypass order” by a Participant or Access Person (generally in connection with the obligations of the Participant pursuant to Part 6 of the Trading Rules to orders on protected marketplaces when using a “directed action order” or when intending to execute certain types of trades on a foreign organized regulated market) that initially “bypasses” hidden liquidity at better prices and that hidden liquidity emerges immediately after the execution of the “bypass order”;
• marketplaces having different mechanisms to “restart” trading following a halt in trading for either regulatory or business purposes; and
• the execution of Opening Orders or Market-on-Close on a particular protected marketplace when trading is on-going (in the case of Opening Orders) or continues (in the case of Market-on-Close Orders) on at least one other protected marketplace.

When securities legislation requires that an order be entered or executed on a particular marketplace, the resulting “lock” of the markets will not be considered as intentional. For example, for a security subject to resale restrictions in the United States that being is sold in Canada on a “designated offshore securities market” under Rule 904 of Regulation S of the Securities Act of 1933,6 a bid (offer) in that security may be entered on a particular marketplace when an offer (bid) at the same price is already displayed on another marketplace. However, the requirement to execute the order on a particular marketplace or class of marketplace would not permit the intentional entry of an order that would “cross” the markets.

If a CIRO Market Integrity Official determines that a Participant or Access Person has entered an order that locks or crosses the market contrary to the Locked and Crossed Order Provisions or UMIR, CIRO may require the Participant or Access Person to take steps to “unlock” or “uncross” the market.

2.2 May an order to purchase a security be entered on a marketplace if an order to sell the same security at the same price has been entered on another marketplace by the same person or group of persons?

No. Not only is the market being intentionally locked, contrary to the Locked and Crossed Order Provisions, but UMIR Rule 2.2 prohibits a Participant or Access Person from entering an order on a marketplace if the Participant or Access Person knows or ought reasonably to know that the entry of the order will create, or could reasonably be expected to create, a false or misleading appearance of trading activity in or interest in the purchase or sale of the security. If the orders for purchase and sale had been entered on the same marketplace, the orders would have executed and the resulting trade would be considered a “wash trade”. A Participant or Access Person that enters an order on one marketplace for the purchase of a security and enters another order for the sale of the same security at the same price on another marketplace for the benefit of the same person or group of persons has engaged in a manipulative and deceptive activity contrary to Rule 2.2.7

2.3 Are all “rebate arbitrage” strategies acceptable?

No. Under a “maker-taker” trading fee model, a marketplace rewards Participants and Access Persons that enter limit orders on its marketplace by paying a “make” or “liquidity providing” rebate fee. Conversely, a marketplace charges a “take” fee for an order that interacts with the posted limit orders. The marketplace generally profits from the spread on the price it pays for liquidity and charges for orders that trade with this liquidity. Currently, each marketplace may establish the fees it pays or charges for orders that either “make” or “take” liquidity.8

Intentionally creating or continuing a “locked” market to maximize liquidity rebates is not in compliance with the Locked and Crossed Order Provisions and is therefore also not in compliance with UMIR Rule 2.3 concerning improper orders and trades. In addition, Rule 2.2 prohibits a Participant or Access Person from entering an order on a marketplace if the Participant or Access Person knows or ought reasonably to know that the entry of the order will create or could reasonably be expected to create a false or misleading appearance of trading activity in or interest in the purchase or sale of the security. A Participant or Access Person may also be engaging in activity that is contrary to Rule 2.2 if the Participant or Access Person enters orders on a protected marketplace that, upon execution, is followed immediately by the entry on a protected marketplace of an order for the same security at the same price on the other side of the market that creates or continues a “locked” market.

2.4 During a “crossed” market, may a Participant or Access Person execute against the order that has caused a “crossed” market or the order that was “bid-through” or “offered-through”?

Yes. The entry of an order that is a “bid-through” or “offer-through” will result in a “crossed” market, and failing to take reasonable efforts to avoid the “bid-through” or “offer-through” would constitute a UMIR violation. However, CIRO also recognizes that increases in order message traffic may lead to a corresponding increase in unintentional “crossed” markets incidents. Once markets are “crossed”, the entry of a subsequent order that resolves this condition is allowed under UMIR and the Order Protection Rule.9

For example, if a security is offered on a protected marketplace at $10 and a bid at $11 is entered on another protected marketplace, the entry of the bid at $11 is a “bid-through” and would not be compliant with UMIR. A subsequent trade with the offer at $10 or the bid at $11 is compliant with UMIR or the Locked and Crossed Order Provisions provided there are no offers below $10 or bids above $11 on any other protected marketplace. Trading to take advantage of opportunities presented by “crossed” markets falls under the UMIR definition of activities permitted by an arbitrage account.

2.5 If markets are “locked”, may a Participant or Access Person intentionally enter an order that would have the effect of increasing the volume displayed at the bid or the ask price?

No. Once a Participant or Access Person is aware that the market is “locked”, the intentional entry of any limit order on a protected marketplace at the price at which the lock has occurred will be considered a violation of the Locked and Crossed Order Provisions.

2.6 What happens if a Participant or Access Person uses an order type or order router functionality that is designed to “reprice” orders and the repricing locks the market?

Both the Locked and Crossed Order Provisions and UMIR preclude a Participant or Access Person from intentionally “locking” the market. If the use of an order type or order router functionality that “reprices” orders results in the order being repriced to a level that creates a “locked” market or increases the volume of orders displayed at the “locked” price, the Participant or Access Person using this order type or order router functionality is considered responsible for intentionally “locking” the market. Furthermore, the Participant or Access Person bears this responsibility even in circumstances where the repricing of the order is undertaken by a third party such as a service provider or a marketplace.

2.7 May a client electronically enter an order that has the effect of creating or continuing a “locked” or “crossed” market?

No. The Participant must ensure that orders entered electronically by a client (either with direct electronic access (DEA) to a marketplace or with a connection to the order management system of the Participant) does not intentionally “lock” or “cross” the market.

2.8 May the policies and procedures adopted by a Participant allow it to exclude from consideration protected orders displayed on a particular marketplace?

No. A Participant’s policies and procedures to prevent intentional “locking” or “crossing” of markets must ensure that the Participant consider all protected orders. For example, a Participant may trade on marketplaces that disclose the Participant’s identifier in the order and trade information disseminated by that marketplace. In that case, the policies and procedures adopted to comply with the Locked and Crossed Market Order Provisions must also consider protected orders displayed by a marketplace that does not disclose Participant identifiers. The Participant can withhold the entry of an order until it could be entered on a preferred marketplace without “locking” or “crossing” the market. However, in these circumstances, if the order is a client order subject to UMIR Rule 6.3 regarding the immediate exposure of orders for 50 standard trading units or less on a transparent marketplace, the Participant must obtain the specific instruction from the client to withhold the order from entry on a marketplace until prevailing market prices allow the entry of the order on a marketplace that discloses the identifier of Participants without “locking” or “crossing” the market.

2.9 Is there an exception for persons with Marketplace Trading Obligations from the prohibition on intentionally “locking” or “crossing” markets?

No. Even if a person with Marketplace Trading Obligations on a particular marketplace has agreed to maintain a two-sided market with a specified “spread” between the best bid price and best ask price on that marketplace, the market maker may not intentionally enter orders that create, or add to, a “locked” or “crossed” market.

2.10 Are there restrictions on the limit price of various “specialty” orders?

No. For example, an Opening Order entered on a particular marketplace may be entered with a bid price at or above the best ask price or with an ask price at or below the best bid price displayed on a marketplace that is open for trading at that time. In these circumstances, the Participant or Access Person entering the order does not know what the prevailing market price will be at the time the particular marketplace opens for trading and therefore has not intentionally “locked” or “crossed” the market. The same holds for orders which are entered to trade at a calculated price or a price that will be established at a future point in time (such as Closing Price Orders, Market-on-Close Orders, Call Market Orders and Volume Weighted Average Price Orders). A Closing Price Order may be entered on a marketplace to trade at the closing sale price of that security on that marketplace on that trading day even though, in the case of an order to buy, the closing price may be at or above the best ask price then displayed on another marketplace or, in the case of an order to sell, at or below the best bid price then displayed on another marketplace.

3. Applicable Rules

IDPC and UMIR Rules this Guidance Note relates to:

• IDPC Rule 3100 Part C
• UMIR 2.1
• UMIR 2.2
• UMIR 2.3
• UMIR 7.1

4. Previous Guidance Note(s)

This Guidance Note combines and replaces:

• Guidance Notice 10-0032 – Repeal of Guidance on Aspects of “Locked” and “Crossed” Markets (February 10, 2010)
• Guidance Notice 11-0043 – Guidance on “Locked” and “Crossed” Markets (February 1, 2011)

5. Related Document

This Guidance Note is related to the following Guidance Note:

• Guidance Note GN-URPART6-25-0003 – Guidance on Best Execution (August 19, 2025)

• 2Canadian Securities Administrators Notice, Notice of Technical Corrections to Amendments to National Instrument 23-101 Trading Rules, (2009) 32 OSCB 10503, provided notice that the Locked and Crossed Order Provisions were to come into effect on January 28, 2010. Other amendments to Part 6 of the Trading Rules related to the introduction of “a framework to require all visible, immediately accessible, better-price limit orders to be filled before other limit orders at inferior prices, regardless of the marketplace where the order in entered” (Order Protection Rule). When the Order Protection Rule became effective on February 1, 2011, the Locked and Crossed Order Provisions became section 6.5 of the Trading Rules.
• 3See section 1.1 of the Trading Rules for the definitions of “protected order”, “protected bid” and “protected offer”.
• 4Surveillance Contacts can be found at: Surveillance Contacts.
• 5See subsection (3) of section 6.4 of Companion Policy 23-101CP.
• 6Previously, only the Toronto Stock Exchange and TSX Venture Exchange qualified as a designated offshore securities market. See CIRO Guidance Note – GN-URPART1-26-0002 – Sales of Restricted Securities (March 16, 2026). On March 8, 2010, CNSX Markets Inc. announced that CNSX and Pure Trading (now known as the Canadian Securities Exchange) was granted designated offshore securities market status from the United States Securities and Exchange Commission.
• 7See Part 3 of the Trading Rules which sets out activities by a client that may be considered manipulation and fraud.
• 8Fees established by a marketplace must comply with the access requirements in National Instrument 21-101. See section 5.1 of National Instrument 21-101 and section 7.1 of Companion Policy 21-101CP for provisions related to exchanges, alternative trading systems, and quotation and trade reporting systems.
• 9See section 6.5 of the Trading Rules and section 6.4 of Companion Policy 23-101CP.