Guidance on Certain Manipulative and Deceptive Trading Practices

1. Risks to market integrity from certain strategies using automated order systems

Over many years, technological developments have brought changes to Canadian markets (and markets globally). These changes include the now common utilization of trading strategies that rely on automated order systems, many of which also leverage the capability to submit large numbers of orders across multiple marketplaces. The increase in the use of automated order systems in the trading of securities has been valued by some market participants for perceived benefits to market efficiency, but it has also led to concerns that the frequency at which trading strategies can be employed may enable abusive practices in the securities markets on a larger scale.

While technological developments may facilitate market abuse, it is the abusive nature of the practice, not the means through which the practice is conducted, that produce negative impacts to market integrity. The manipulative and deceptive trading strategies described in this Guidance Note are not an exhaustive list and there may be other forms of abusive trading practices that contravene UMIR. Manipulative and deceptive trading practices are prohibited whether such activities are conducted manually or electronically and whether conducted with or without the use of automated order systems and/or third-party electronic access. An Access Person, Participant or any client that manipulates the market by any means has engaged in misconduct that is prohibited under UMIR or otherwise under securities legislation.

As gatekeepers to the securities market, Participants must develop and implement appropriate policies and procedures to effectively address, detect, prevent and report manipulative and deceptive activity, in accordance with the requirements of UMIR 7.1. As part of each trade conduct examination undertaken by CIRO staff, a Participant’s policies and procedures will be reviewed in regard to their adequacy to detect and prevent violations of Requirements in light of the type and volume of business of the Participant. As applicable, this would include assessing whether firms have adequate testing and controls to detect and prevent potential trading abuses related to trading strategies that may be implemented through the use of an automated order system. The review of the policies and procedures does not, however, constitute an approval of the policies and procedures by CIRO.

2. Questions and answers

The following list of questions, together with CIRO’s response to each, address the obligations of a Participant or Access Person under UMIR with respect to manipulative or deceptive acts or practices related to the use of automated order systems and/or third-party electronic access to marketplaces:

2.1 Are there trading strategies that could be employed through an automated order system that CIRO considers manipulative and deceptive practices?

Yes. Use of the following strategies through an automated order system will be considered to be manipulative and deceptive activities that contravene Rule 2.2 or otherwise violate securities legislation:

Layering: Placing a bona fide order on one side of the market while simultaneously “layering” orders in the consolidated market display on the other side of the market without intention to trade may be a contravention of Rule 2.2(2) and Parts 2 and 3 of Policy 2.2, by inducing a false or misleading appearance of trading activity or artificial price. In this case, the purpose of the “layering” is to “bait” other market participants to react and trade with the bona fide order on the other side of the market at an artificial price.

Quote Stuffing: The input by a Participant or Access Person of excessive market data messages with the intent to “flood” systems and create “information arbitrage” opportunities for itself, may be a contravention of Rule 2.2(1) as an activity which, by its very nature, will be considered to be a manipulative or deceptive method, act or practice.

Quote Manipulation: Entering non-bona fide orders on displayed marketplaces in an attempt to change the best bid price and/or the best ask price and affect the price calculation at which a trade will occur with a dark order, may contravene Rule 2.2(1), 2.2(2)(b) and Policy 2.2, Part 2(e). This activity (which may be combined with liquidity detection) can result in a trade with a dark order at an improved price, following which the non-bona fide orders are removed from the displayed marketplace.

Spoofing: The entry of non-bona fide orders in the pre-opening on a marketplace that displays a “Calculated Opening Price” (indicating the price at which trading would commence based on the orders entered to that point on the marketplace), with the intent of affecting the Calculated Opening Price to the advantage of the party that entered the order, may contravene Rule 2.2(2) and Policy 2.2, Part 2(f).

Abusive Liquidity Detection: Strategies that enter orders (disclosed or partially disclosed (i.e., iceberg orders) during the pre-open, or “pinging”2) to detect the existence of a large buyer or seller with the intention to trade ahead of, rather than with, the large buyer or seller, may be a manipulative and deceptive practice contrary to Rule 2.2(1). This strategy can disadvantage the large trading interest regardless of the direction in which the market moves.

In the event of a profitable price movement, the market participant that traded ahead of the large buyer or seller may exit the position. In the event the price moves contrary to the position taken, the trading interest of the large buyer or seller provides a known liquidity source that can be used to exit the position with minimal risk.

2.2 Is a Participant required to undertake compliance testing to detect for any manipulative and deceptive trading strategies?

Yes. As a gatekeeper to the securities markets and to assist in maintaining market integrity, a Participant plays an important role in acting to mitigate the risks associated with the use of automated order systems and/or third-party electronic access to marketplaces. UMIR Rule 7.1 requires that a Participant adopt policies and procedures that are adequate to ensure compliance with all Requirements and the level and nature of testing for compliance with the Requirements must be appropriate to the size and type of business conducted by the Participant.

If the Participant provides third-party electronic access to clients, and/or utilizes automated order systems, the Participant must ensure that compliance procedures adopted include:

• the ability to monitor all orders,
• the use of automated pre-trade controls, and
• real-time alert systems.

These elements should be included as part of the Participant’s risk management and supervisory controls and may assist in curtailing potentially abusive trading practices. CIRO also expects the Participant to engage in regular post-trade review and analysis to detect patterns related to layering, spoofing, quote manipulation, quote stuffing and abusive liquidity detection strategies. Given the additional risks of manipulative and deceptive acts or practices that may be associated with automated order systems and/or third-party electronic access, it may be appropriate to sample higher percentages of these orders. Participants should also consider using an automated compliance system for post-trade review and analysis of orders that have been generated by an automated order system. In addition, CIRO expects a Participant to comply with gatekeeper obligations concerning manipulative trading activity and take steps to ensure that any problematic strategies detected are immediately terminated and further prevented.

2.3 Is there an exception from the prohibition on manipulative and deceptive trading available for persons with Marketplace Trading Obligations?

Rule 2.2 confirms that the entry of an order or the execution of a trade on a marketplace by a person in accordance with the Marketplace Trading Obligations shall not be considered a violation of prohibitions on manipulative and deceptive activities provided such order or trade complies with applicable Marketplace Rules or marketplace requirements, and the order or trade was required to fulfill applicable Marketplace Trading Obligations. However, a person with Marketplace Trading Obligations that manipulates the market in any way for personal financial purposes without the intention of fulfilling their obligations would be in contravention of Rule 2.2. In addition, a person with Marketplace Trading Obligations that “takes advantage” of a party to a trade may be considered not to be trading “openly and fairly” and such trades may be subject to regulatory intervention by cancellation.3

2.4 What are some examples of acceptable strategies?

This Guidance Note is intended to highlight strategies that are potentially harmful and manipulative trading behaviours, without restraint on legitimate trading activity and strategies that do not put market integrity at risk. Trading strategies employed through the use of automated order systems are components of the current market structure and some of the strategies may benefit market quality even while others do not.

For example, passive market making strategies consisting of the submission of limit orders that provide liquidity to the marketplace at specified prices are an important source of liquidity. While the firm engaging in passive market making may sometimes take liquidity if necessary to liquidate a position rapidly, the primary sources of profits are from earning the spread by buying at the bid and selling at the offer and capturing any liquidity rebates offered by marketplaces to liquidity-supplying orders.4

As well, some arbitrage strategies seek to capture pricing inefficiencies between related products or markets such as discrepancies between the price of an Exempt Exchange-traded Fund and the underlying basket of stocks, and may involve trading with a firm using a passive market making strategy, in which case both firms profit from the trade.

Some “directional” algorithmic strategies also exist which may be straightforward and contribute to the quality of price discovery in a stock, such as establishing a position in the belief that the price of a stock has moved away from its “fundamental value” and will return to such value.

2.5 Is an Access Person, Participant or client utilizing an automated order system or third-party electronic access subject to the order designation requirements?

Yes. All orders entered on a marketplace must be properly designated pursuant to UMIR Rule 6.2. This includes a requirement to ensure that each applicable order sent to a marketplace includes:

• client identifiers in the form of a Legal Entity Identifier or account number,
• a designation for orders entered through third-party electronic access (direct electronic access, routing arrangements or OEO) if applicable, and
• unique identifiers for clients of a foreign dealer equivalent that automatically generates an order on a predetermined basis.

CIRO expects the Participant to review the designation of orders by clients with third-party electronic access as part of the Participant’s supervisory procedures required by Rule 7.1 of UMIR.

For certain accounts that adopt a “directionally neutral” trading strategy, orders to purchase or sell a security must carry a “short-marking exempt” designation.5 In particular, this designation will be required for a client, non-client or principal account:

• for which order generation and entry is fully-automated; and
• which, in the ordinary course, does not have at the end of each trading day more than a nominal position, whether short or long, in a particular security.

The Participant should review periodically, and no less frequently than monthly, whether an account should be designating purchase and sale orders for particular securities as “short-marking exempt”.

3. Applicable Rules

UMIR Rules this Guidance Note relates to:

• UMIR 1.1
• UMIR 2.2
• UMIR 6.2
• UMIR 7.1

4. Previous Guidance Note(s)

This Guidance Note replaces:

• Guidance Note 13-0053 – Guidance on Certain Manipulative and Deceptive Trading Practices (February 14, 2013).

5. Related Documents

This Guidance Note is related to the following Guidance Notes:

• GN-URPart2-25-0002 – Guidance on Double Printing (November 5, 2025)
• GN-URPart2-25-0001 – Avoiding Double Printing in the Use of an Error Account (August 19, 2025)
• GN-URPart2-26-0002 – Facilitation of a Client Special Settlement Trade and Double Printing (February 23, 2026)
• GN-URPart2-26-0004 – Guidance on “Locked” and “Crossed” Markets (March 16, 2026)
• GN-URPart2-26-0001 – Entering Orders on Both Sides of the Market (February 23, 2026)
• GN-URPart2-26-0003 - Use of Market-on-Close Facilities (February 23, 2026)
• GN-URPart7-25-0002 – Guidance Respecting Electronic Trading (August 19, 2025)
• GN-URPart7-26-0004 – Guidance Respecting Third-Party Electronic Access to Marketplaces – (March 24, 2026)
• GN-URPart2-26-0005 – Guidance Respecting Order Execution Only Accounts as a Form of Third-Party Electronic Access to Marketplaces – (March 24, 2026)

• 2A “pinging” order is a tradeable order that can be used to search for and access all types of non-displayed liquidity, including in dark pools and dark orders on displayed marketplaces.
• 3See Guidance Note 12-0258 – Guidance on Regulatory Intervention for the Variation or Cancellation of Trades (August 20, 2012).
• 4See, however, CIRO Guidance Note GN-URPart2-26-0004 - Guidance on “Locked” and “Crossed” Markets (March 16, 2026) where it is discussed at Question 3 that If a market participant intentionally creates or continues a “locked” market in an attempt to maximize the amount of liquidity rebates that the market participant earns, such behaviour is not in compliance with the Locked and Crossed Order Provisions and is therefore not in compliance with Rule 2.3 of UMIR dealing with improper orders and trades. In addition, in the view of CIRO, a Participant or Access Person is engaging in an activity analogous to “double printing” contrary to Rule 2.2 of UMIR 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 which has the effect of creating or continuing a “locked” market.
• 5See UMIR definition of a “short-marking exempt order”.