1. A Participant that receives a client order for 50 standard trading units or less of a security with a value of $100,000 or less may execute the client order against a principal order or non-client order at a better price provided the Participant has taken reasonable steps to ensure that the price is the best available price for the client under prevailing market conditions.
2. Subsection (1) does not apply if the client has directed or consented that the client order be:
   1. a Call Market Order;
   2. an Opening Order;
   3. a Market-on-Close Order;
   4. a Volume-Weighted Average Price Order;
   5. a Basis Order;
   6. a Closing Price Order;
   7. a Contingent Derivative Order;
   8. a Net Asset Value Order.
3. Subsection (1) does not apply if the client order has been entered directly by the client of the Participant on a marketplace that does not require the disclosure of the identifier of the Participant in a consolidated market display and the director, officer, partner, employee or agent of the Participant who enters a principal order or a non-client order does not have knowledge that the client order is from a client of the Participant until the execution of the client order.

POLICY 8.1 – CLIENT PRINCIPAL TRADING

Part 1 – General Requirements

Rule 8.1 governs client-principal trades. It provides that, for trades of 50 standard trading units or less, a Participant trading with one of its clients as principal must give the client a better price than the client could obtain on a marketplace. A Participant must take reasonable steps to ensure that the price is the best available price for the client taking into account the condition of the market. If the security is traded on more than one marketplace, the client must receive, when the Participant is buying, a higher price than the best bid price, and, if the Participant is selling, the client must pay a lower price than the best ask price.

For client-principal trades greater than 50 standard trading units, the Participant may do the trade provided the client could not obtain a better price on a marketplace in accordance with its best execution obligation under Part C of Corporation Rule 3100 – Best Execution of Client Orders. The Participant must take reasonable steps to ensure that the best price is obtained and the price to the client is justified by the condition of the market.

Part 2 – Legal Aspects of the Client-Principal Relationship

A Participant owes a fiduciary duty to its clients. This duty and investors’ trust in our Participants are fundamental to investor confidence in the integrity of the market. In the Market Regulator’s view, this relationship of trust arises where there is reliance by the client on the Participant’s expertise in securities matters. From the point of view of both the client and the Participant, the fiduciary responsibility exists regardless of the legal form of the transaction. In other words, an investor who relies on the expertise of a Participant expects the Participant to act in the investor's best interests regardless of whether the Participant is acting as agent or as principal. The legal framework underpinning client-principal trades was stated in the 1965 report of the Royal Commission on the Windfall Co. scandal:

An agent must conduct himself so that the interest of the person in whose behalf he is acting is not brought into conflict with his personal interest. An agent may not make for himself any deal which could have been made for his client within the scope of the client’s instructions; if he does, he is assumed to have been acting on his client’s behalf and the client is entitled to the benefit of the transaction. An agent must disclose to the client any fact known to the agent which would be likely to operate on the client’s judgment. An agent may not, in connection with his client’s business, make a secret profit for himself.

These restrictions flow from the recognition of the serious conflicts inseparable from the agency relationship, and from a corresponding recognition that every such conflict must be resolved in favour of the client. A principal trade may be subject to attack if it appears that the Participant did not act to the best advantage of its client even if the Participant complies with the technical requirements of the Rule. For example, if the principal account profited from the trade by unwinding the position again soon after the principal trade was made, or if the Registered Representative receives a higher commission than for agency transactions of a similar size involving similar securities, the Participant will find it more difficult to justify its actions. Participants should obtain their own legal advice as to the propriety of their client-principal trading practices. The following are considerations in any client-principal trade:

Consent — At common law, the prior informed consent of the client must be obtained before the agent may act as principal. This is impractical in the context of trading securities on a marketplace, where at the time of receipt of the client's order the Participant will likely not know who will be on the other side. If the Participant, through the Registered Representative or other employee knows that the firm or a non-client of the firm will or probably will take the other side, the client's consent should be obtained. In particular, if the Registered Representative wishes to take the other side of the trade with their client, the client must be informed and consent to the trade in advance. Such consent must be specific to that trade and cannot be in a general consent to any future trades with the Registered Representative. As promptly as possible following the execution of a principal trade, the client should be advised that all or part of the securities taken or supplied were from an account in which the Participant or a non-client of the Participant has an interest. This advice would form part of the usual discussion that occurs when a Registered Representative confirms to the client that the client’s order has been filled. In addition, the written confirmation must disclose that the order has been filled in a principal transaction.

Nature of the Client — Some clients are in greater need of protection from the potential conflict of interest in client-principal trades. The onus on the Participant usually will be reduced if the client is a fully informed institutional client with regard to the state of the market. Sophisticated institutional clients are able to judge whether a specific net price is appropriate in the context of the market. If there was no prior discussion with the client concerning executing the client's order in a client-principal trade, or if there are no standing instructions on handling of orders, the Participant must judge whether any steps need be taken, taking into account the size of the order and other circumstances, to ensure that a better price is not available. To a large degree this will depend on the depth of the market and normal liquidity of the security.

Suitability — Compliance with the client-principal trading rules does not relieve a Participant of its suitability and "know your client" obligations. As with any other trade, Participants must ensure that the trade is suitable for the client, even if the best possible price has been obtained.

Facilitation Accounts — The rules do not apply to a client-principal trade where the inventory account was used solely to facilitate the execution or confirmation of a client order (for example, an inventory accumulation account used to give an institutional client a single average-price confirmation). In these cases, the client is the beneficial owner of the position in the inventory account at all times.

Refusal by Client — Participants should ensure that procedures are in place to identify orders that should not be effected on a principal basis. This is necessary to deal with situations where clients notify a Participant that they do not consent to principal trading generally or to particular principal trades.

Part 3 – Factors in Determining “Best Available Price”

The price of the principal transaction must also be justified by prevailing market conditions. Participants should consider such factors as:

• prices and volumes of the last sale and previous trades;
• direction of the market for the security;
• posted size on the bid and offer;
• the size of the spread; and
• liquidity of the security.

For example, if the market is $10 bid and $10.50 asked and a client wants to sell 1,000 shares, it would be inappropriate for a Participant to do a principal trade at $10.05 if the security has been trading heavily at $10.50 and there is strong bidding for the security at $10 compared to the number of securities being offered at $10.50. The condition of the market suggests that the client should be able to sell at a better price than $10.05. Accordingly, the Participant as agent for the client should post an offer at $10.45 or even $10.50, depending on the circumstances. The desire of the client to obtain a fill quickly is always a consideration.

Of course, if a client expressly consents to a principal trade on a fully-informed basis, following the client’s instructions will be reasonable.

In determining the “best available price”, Participants should consider the price and size of orders displayed on marketplaces other than protected marketplaces if such information is available or known to the Participant. Specifically, we expect an employee of a Participant to use all order price information that is available or known to that employee when determining the “best available price”. For example, an employee that has access to price information from both protected and unprotected marketplaces would be in compliance with the requirement to determine the “best available price” only if all price information from both protected and unprotected marketplaces was considered when executing a principal order or non-client order with a client order. However, a Participant will be considered not to have complied with Rule 8.1 if an employee executes a principal order or non-client order with a client order at a better price which is inferior to the price that would have been available to the client on a displayed marketplace that is not a protected marketplace and the employee executes, in whole or in part, with the order displayed on the marketplace that is not a protected marketplace.

1. A Participant that is a member, user or subscriber may:
   1. grant direct electronic access or enter into a routing arrangement provided that the Participant has:
      1. established standards that are reasonably designed to manage, in accordance with prudent business practices, the Participant’s risks associated with providing direct electronic access to a client or implementing a routing arrangement with an investment dealer or foreign dealer equivalent,
      2. assessed and documented that the client, investment dealer or foreign dealer equivalent meets the standards established by the Participant, and
      3. executed a written agreement with the client, investment dealer or foreign dealer equivalent; and
   2. not grant direct electronic access if the client is acting and registered as a dealer in accordance with applicable securities legislation.
2. The standards established by the Participant under subsection (1) must include a requirement that the client, investment dealer or foreign dealer equivalent:
   1. has sufficient resources to meet any financial obligations that may result from use of direct electronic access or the routing arrangement;
   2. has reasonable arrangements in place to ensure that all personnel transmitting orders using direct electronic access or the routing arrangement have reasonable knowledge of and proficiency in the use of the order entry system;
   3. has reasonable knowledge of and the ability to comply with all applicable Requirements, including the marking of each order with the designations and identifiers required by Rule 6.2;
   4. has reasonable arrangements in place to monitor the entry of orders transmitted using direct electronic access or the routing arrangement;
   5. takes all reasonable steps to ensure that the use of automated order systems, by itself or any client, does not interfere with fair and orderly markets; and
   6. ensures that each automated order system, used by itself or any client, is tested in accordance with prudent business practices, including initially before use or introduction of a significant modification and at least annually thereafter.
3. The written agreement entered into by a Participant under subsection (1) with the client, investment dealer or foreign dealer equivalent must provide that:
   1. in the case of an agreement for direct electronic access or a routing arrangement:
      1. the trading activity of the client, investment dealer or foreign dealer equivalent will comply with:
         1. all Requirements, and
         2. the product limits or credit or other financial limits specified by the Participant;
      2. the client, investment dealer or foreign dealer equivalent will maintain all technology facilitating direct electronic access or a routing arrangement in a secure manner and will not permit any person to transmit an order using the direct electronic access or the routing arrangement other than the personnel authorized by the client and named under the provision of the agreement referred to in sub-clause (b)(i), or personnel authorized by the investment dealer or foreign dealer equivalent;
      3. the client, investment dealer or foreign dealer equivalent will fully co-operate with the Participant in connection with any investigation or proceeding by any marketplace or the Market Regulator with respect to trading conducted pursuant to direct electronic access or a routing arrangement, including upon request by the Participant, providing access to information to the marketplace or Market Regulator that is necessary for the purposes of the investigation or proceeding;
      4. the Participant is authorized, without prior notice, to:
         1. reject any order,
         2. vary or correct any order entered on a marketplace to comply with Requirements,
         3. cancel any order entered on a marketplace, or
         4. discontinue accepting orders, 
            from the client, investment dealer or foreign dealer equivalent;
      5. the client, investment dealer or foreign dealer equivalent will immediately inform the Participant if the client, investment dealer or foreign dealer equivalent fails or expects not to meet the standards set by the Participant; and
   2. in the case of an agreement for direct electronic access:
      1. the client will immediately notify the Participant in writing of:
         1. the names of the personnel of the client authorized by the client to enter an order using direct electronic access, and
         2. details of any change to the information in sub-clause (A);
      2. the client may not trade for the account of any other person unless the client is:
         1. registered or exempted from registration as an adviser under securities legislation, or
         2. a person conducting business in a foreign jurisdiction in a manner analogous to an adviser and that is subject to the regulatory jurisdiction of a signatory to the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding in that foreign jurisdiction and the order is for or on behalf of a person who is itself a client of the client acting in the capacity of adviser for that person;
      3. if the client trades for the account of any other person in accordance with sub-clause (ii), the client must:
         1. ensure that the orders for the other person are transmitted through the systems of the client before being entered on a marketplace, and
         2. ensure that the orders for the other person are subject to reasonable risk management and supervisory controls, policies and procedures established and maintained by the client;
      4. the Participant shall provide to the client, in a timely manner, any relevant amendments or changes to:
         1. applicable Requirements, and
         2. the standards established by the Participant under subsection (1); and
   3. in the case of a routing arrangement agreement, the investment dealer or foreign dealer equivalent will not allow any order entered electronically by a client of the investment dealer or foreign dealer equivalent to be entered directly to a marketplace unless:
      1. the client’s order is transmitted through the systems of the investment dealer or foreign dealer equivalent, prior to being transmitted through the systems of the Participant for automatic onward transmission to a marketplace or transmitted directly to a marketplace without being electronically transmitted through the system of the Participant, and
      2. the client’s order is subject to reasonable risk management and supervisory controls, policies and procedures established and maintained by the investment dealer or foreign dealer equivalent.
4. A Participant must not allow any order to be transmitted using direct electronic access or through a routing arrangement unless:
   1. the Participant is:
      1. maintaining and applying the standards established by the Participant under subsection (1),
      2. satisfied the client, investment dealer or foreign dealer equivalent meets the standards established by the Participant under subsection (1), and
      3. satisfied the client, investment dealer or foreign dealer equivalent is in compliance with the written agreement entered into with the Participant; and
   2. the order is subject to the risk management and supervisory controls, policies and procedures established by the Participant including the automated controls to examine each order before entry on a marketplace.
5. The Participant shall:
   1. at least annually review and confirm that:
      1. the standards established by the Participant under subsection (1) are adequate, and
      2. the Participant has maintained and consistently applied the standards in the period since the establishment of the standards or the date of the last annual review; and
   2. at least annually by the anniversary date of the written agreement assess, confirm and document that the client, investment dealer or foreign dealer equivalent:
      1. is in compliance with the written agreement with the Participant, and
      2. has met the standards established by the Participant under subsection (1) since the date of the written agreement or the date of the last annual review.
6. A Participant shall forthwith notify the Market Regulator:
   1. upon entering into a written agreement respecting direct electronic access, of the name of the client that is not eligible to obtain a Legal Entity Identifier under the standards set by the Global Legal Entity Identifier System; and
   2. of any change in the information described in clause (a).

A Participant or Access Person shall not enter an order on a particular marketplace if the Participant or Access Person knows or ought reasonably to know that the handling of the order by the marketplace and the trading systems of the marketplace may result in the display of the order or the execution of the order not being in compliance with any of the applicable requirements of UMIR.

No trade executed on a marketplace shall, subsequent to the execution of the trade, be:

1. cancelled; or
2. varied or corrected with respect to:
   1. the price of the trade,
   2. the volume of the trade, or
   3. the date for settlement of the trade,
3. except:
4. by the Market Regulator in accordance with UMIR; or
5. with the prior consent of the Market Regulator, if the variation, cancellation or correction would be necessary to correct an error caused by a system or technological malfunction of the marketplace’s systems or equipment or caused by an individual acting on behalf of the marketplace; or
6. with notice to the Market Regulator immediately following the variation, cancellation or correction of the trade in such form and manner as may be required by the Market Regulator and such notice shall be given, if the variation, cancellation or correction is made:
   1. prior to the settlement of the trade, by:
      1.  the marketplace on which the trade was executed at the request of a party to the trade and with the consent of each Participant and Access Person that is a party to the trade, or
      2. the clearing agency through which the trade is or was to be cleared and settled, and
   2. after the settlement of the trade, by each Participant and Access Person that is a party to the trade.

1. If within ten trading days following the date for settlement contemplated on the execution of a failed trade, the account:
   1. in the case of a sale, other than a short sale, that failed to make available securities in such number and form;
   2. in the case of a short sale, that failed to make: 
      1. available securities in such number and form, or
      2. arrangements with the Participant or Access Person to borrow securities in such number and form; and
   3. in the case of a purchase, that failed to make available monies in such amount,
2. as to permit the settlement of the trade at the time on the date contemplated on the execution of the trade has not made available such securities or monies or has not made arrangements for the borrowing of the securities, as the case may be, the Participant or Access Person that entered the order on a marketplace shall give notice to the Market Regulator at such time and in such form and manner and containing such information as may be required by the Market Regulator.
3. If a Participant or Access Person is required to provide notice of a failed trade to the Market Regulator in accordance with subsection (1), the Participant or Access Person shall, upon the account making available the applicable securities or monies or making arrangement for the borrowing of the applicable securities, give notice to the Market Regulator at such time and in such form and manner and containing such information as may be required by the Market Regulator.

A Participant who is a derivatives market maker shall comply when trading on any marketplace with such additional requirements as may be required by:

1. an Exchange when trading on that Exchange in listed securities or derivatives; and
2. a QTRS when trading on that QTRS in quoted securities.

1. Prohibitions - Except as permitted, a dealer‑restricted person shall not at any time during the restricted period:
   1. bid for or purchase a restricted security for an account:
      1. of a dealer-restricted person, or
      2. over which the dealer‑restricted person exercises direction or control; or
   2. attempt to induce or cause any person to purchase a restricted security.
2. Prohibitions on Acting for Issuer-Restricted Persons - Except as permitted, if a dealer‑restricted person knows or ought reasonably to know that a person is an issuer‑restricted person, the dealer‑restricted person shall not at any time during the restricted period applicable to a particular issuer-restricted person bid for or purchase a restricted security for the account of that issuer-restricted person or an account over which that issuer-restricted person exercises direction or control.
3. Deemed Recommencement of a Restricted Period - If a Participant appointed to be an underwriter in a prospectus distribution or a restricted private placement receives a notice or notices of the exercise of statutory rights of withdrawal or rights of rescission from purchasers of, in the aggregate, not less than 5% of the offered securities allotted to or acquired by the Participant in connection with the prospectus distribution or the restricted private placement then a restricted period shall be deemed to have commenced upon receipt of such notice or notices and shall be deemed to have ended at the time the Participant has distributed its participation, including the securities that were the subject of the notice or notices of the exercise of statutory rights of withdrawal or rights of rescission.
4. Exemptions - Subsection (1) does not apply to a dealer‑restricted person in connection with:
   1. market stabilization or market balancing activities where the bid for or purchase of a restricted security is for the purpose of maintaining a fair and orderly market in the offered security by reducing the price volatility of or addressing imbalances in buying and selling interests for the restricted security provided that the bid or purchase is at a price which does not exceed:
      1. in the case of an offered security, the least of:
         1. the price at which the offered security will be issued in a prospectus distribution or restricted private placement, if that price has been determined,
         2. the best independent bid price at the commencement of the restricted period if the price at which the offered security will be issued in a prospectus distribution or restricted private placement has not been determined or if the offered security will be issued pursuant to a securities exchange take‑over bid, an issuer bid or an amalgamation, arrangement, capital reorganization or similar transaction, and
         3. the best independent bid price at the time of the entry on a marketplace of the order to purchase,
      2. in the case of a connected security, the lesser of:
         1. the best independent bid price at the commencement of the restricted period, and
         2. the best independent bid price at the time of the entry on a marketplace of the order to purchase,
      3. provided that if the restricted security has not previously traded on a marketplace, the price also does not exceed the price of the last trade of the security executed on a foreign organized regulated market other than a trade that the dealer‑restricted person knows or ought reasonably to know has been entered by or on behalf of a person that is a dealer-restricted person or an issuer‑restricted person;
   2. a restricted security that is:
      1. a highly-liquid security, 
      2. a unit of an Exempt Exchange‑traded Fund, or
      3. a connected security of a security referred to in subclause (i) or (ii);
   3. a bid or purchase by a dealer‑restricted person on behalf of a client, other than a client that the dealer‑restricted person knows or ought reasonably to know is an issuer-restricted person provided that:
      1. the client order has not been solicited by the dealer‑restricted person, or
      2. if the client order was solicited, the solicitation by the dealer‑restricted person occurred prior to the commencement of the restricted period;
   4. the exercise of an option, right, warrant or a similar contractual arrangement held or entered into by the dealer‑restricted person prior to the commencement of the restricted period; 
   5. a bid for or purchase of a restricted security is made pursuant to a Small Securityholder Selling and Purchase Arrangement undertaken in accordance with National Instrument 32‑101 or similar rules applicable to any marketplace on which the bid or purchase is entered or executed;
   6. the solicitation of a tender of securities to a securities exchange take‑over bid or issuer bid;
   7. a subscription for or purchase of an offered security pursuant to a prospectus distribution or restricted private placement;
   8. a bid or purchase of a restricted security to cover a short position entered into prior to the commencement of the restricted period;
   9. a bid or purchase of a restricted security is solely for the purpose of rebalancing a portfolio, the composition of which is based on an index as designated by the Market Regulator, to reflect an adjustment made in the composition of the index;
   10. a purchase that is or a bid that on execution would be:
       1. a basket trade, or
       2. a Program Trade; or
   11. a bid for a purchase of a restricted security for an arbitrage account and the dealer‑restricted person knows or has reasonable grounds to believe that a bid enabling the dealer‑restricted person to cover the purchase is then available and the dealer-restricted person intends to accept such bid immediately.
5. Exemptions on Acting for an Issuer-restricted Person - Subsection (2) does not apply to a dealer‑restricted person in connection with:
   1. the exercise by an issuer‑restricted person of an option, right, warrant, or a similar contractual arrangement held or entered into by the issuer-restricted person prior to the commencement of the restricted period;
   2. a bid or purchase by an issuer‑restricted person of a restricted security pursuant to a Small Securityholder Selling and Purchase Arrangement made in accordance with National Instrument 32-101 or similar rules applicable to any marketplace on which the bid or purchase is entered or executed;
   3. an issuer bid described in clauses 93(3)(a) through (d) of the Securities Act (Ontario) or similar provisions of applicable securities legislation if the issuer did not solicit the sale of the securities sold under those provisions;
   4. the solicitation of the tender of securities to a securities exchange take‑over bid or issuer bid; or
   5. a subscription for or purchase of an offered security pursuant to a prospectus distribution or a restricted private placement.
6. Compilations and Industry Research - Despite subsection (1), a dealer‑restricted person may, if permitted under applicable securities legislation, publish or disseminate any information, opinion or recommendation relating to the issuer of a restricted security, if the information, opinion or recommendation is in a publication that is disseminated with reasonable regularity in the normal course of business of the dealer-restricted person and:
   1. the restricted security is a highly‑liquid security; or
   2. the publication:
      1. includes similar coverage in the form of information, opinions or recommendations with respect to a substantial number of issuers in the issuer’s industry or contains a comprehensive list of securities currently recommended by the dealer-restricted person, and
      2. gives no materially greater space or prominence to the information, opinion or recommendation related to the restricted security or the issuer of the restricted security than that given to other securities or issuers.
7. Transactions by Person with Marketplace Trading Obligations - Despite subsection (1), a dealer-restricted person with Marketplace Trading Obligations for a restricted security may, for their trading account in respect of such Marketplace Trading Obligations:
   1. with the prior approval of a Market Integrity Official, enter a bid to move the calculated opening price of a restricted security to a more reasonable level;
   2. purchase a restricted security pursuant to their Marketplace Trading Obligations; and
   3. bid for or purchase a restricted security:
      1. that is traded on another marketplace or foreign organized regulated market for the purpose of matching a higher-priced bid posted on such marketplace or foreign organized regulated market,
      2. that is convertible, exchangeable or exercisable into another listed security for the purpose of maintaining an appropriate conversion, exchange or exercise ratio, and
      3. to cover a short position resulting from sales made under their Marketplace Trading Obligations.
8. Transactions by the Derivatives Market Maker – Despite subsection (1), a dealer-restricted person who is a derivatives market maker with responsibility for a derivative security the underlying interest of which is a restricted security may, for their derivatives market making trading account, bid for or purchase a restricted security if:
   1. the restricted security is the underlying security of the option for which the person is the specialist;
   2. there is not otherwise a suitable derivative hedge available; and
   3. such bid or purchase is:
      1. for the purpose of hedging a pre-existing options position,
      2. reasonably contemporaneous with the trade in the option, and
      3. consistent with normal market-making practice.
9. Application of Exemptions to a Dealer-Restricted Person and Issuer-Restricted Person – Where a dealer-restricted person is also an issuer-restricted person the exemptions in subsections (4), (6), (7) and (8) continue to be available to the dealer-restricted person.

POLICY 7.7 – TRADING DURING CERTAIN SECURITIES TRANSACTIONS

Part 1 – Manipulative or Deceptive Activity

Provisions prohibiting manipulative or deceptive activities, including activities that may create misleading pricing or trading activity that is detrimental to investors and the integrity of the markets, are contained in Rule 2.2. Rule 7.7 generally prohibits purchases of or bids for restricted securities in circumstances where there is heightened concern over the possibility of manipulation by those with an interest in the outcome of the distribution or transaction. Rule 7.7 also provides certain exemptions to permit purchases and bids in situations where there is no, or a very low possibility of manipulation. However, the Market Regulator is of the view that notwithstanding that certain trading activities are permitted under Rule 7.7, these activities continue to be subject to the general provisions relating to manipulative or deceptive activities in Rule 2.2 and the provisions on manipulation and fraud found in applicable securities legislation such that any activities carried out in accordance with Rule 7.7 must still meet the spirit of the general anti-manipulation provisions.

Part 2 – Market Stabilization and Market Balancing 

Rule 7.7(4)(a) provides a dealer-restricted person with an exemption from the prohibitions in subsection (1) for market stabilization and market balancing activities subject to price limitations. Market stabilization and market balancing activities should be engaged in for the purpose of maintaining a fair and orderly market in the offered security by reducing the price volatility of or addressing imbalances in buying and selling interests for the restricted security.

The Market Regulator considers it to be inappropriate for a dealer to engage in market stabilization activities in circumstances where dealer knows or should reasonably know that the market price is not fairly and properly determined by supply and demand.  This might exist where, for example, the dealer is aware that the market price is a result of inappropriate activity by a market participant or that there is undisclosed material information regarding the issuer.

Market balancing activities should contribute to a fair and orderly market by contributing to price continuity and depth and by minimizing supply-demand disparity. Market balancing does not seek to prevent or unduly retard any price movements, but merely to prevent erratic or disorderly changes in price.

Part 3 – Short Position Exemption

Rule 7.7(4)(h) provides an exemption from the prohibitions in subsection (1) for a dealer-restricted person in connection with a bid for or purchase to cover a short position provided that short position was entered into before the commencement of the restricted period. Short positions entered into during the restricted period may be covered by purchases made in reliance upon the market stabilization exemption in Rule 7.7(4)(a), subject to the price limits set out in that exemption. (See “Part 5 – Trading Pursuant to Marketplace Trading Obligations” for a discussion of the ability of persons with Marketplace Trading Obligations to cover short positions arising during the restricted period pursuant to their Marketplace Trading Obligations.)

Part 4 – Research

The Market Regulator is of the view that although sections 4.1 and 4.2 of OSC Rule 48-501 do permit a dealer-restricted person to disseminate research reports, this dissemination continues to be subject to the usual restrictions that are applicable to a dealer-restricted person in possession of material information regarding the issuer that has not been generally disclosed.

Rule 7.7(6) provides circumstances where a dealer-restricted person may publish or disseminate information, an opinion, or a recommendation relating to the issuer of a restricted security.  The Rule requires that the information, opinion or recommendation is contained in a publication which is disseminated with reasonable regularity in the normal course of business of the dealer-restricted person. The Market Regulator considers that it is a question of fact whether a publication was disseminated “with reasonable regularity” and whether it was in the “normal course of business”. A research publication would not likely be considered to have been published with reasonable regularity if it had not been published within the previous twelve month period or there had been no coverage of the issuer within the previous twelve month period. The nature and extent of the published information should also be consistent with prior publications and the dealer should not undertake new initiatives in the context of the distribution. For example, the inclusion of projections of issuers’ earnings and revenues would likely only be permitted if they had previously been included on a regular basis. The Market Regulator may consider the distribution channels for the dissemination of the publication when considering whether a publication was “in the normal course of business”. The research should be distributed through the dealer-restricted person’s usual research distribution channels and should not be targeted or distributed specifically to prospective investors in the distribution as part of a marketing effort.  However, the research may be distributed to a prospective investor if that investor was previously on the mailing list for the research publication.

Rule 7.7(6)(b) requires that the information, opinion or recommendation includes similar coverage in the form of information, opinions or recommendations with respect to a substantial number of issuers in the issuer’s industry. In this context, reference should be made to the relevant industry when determining what constitutes a “substantial number of issuers”. Generally, the Market Regulator would consider a minimum of six issuers to be a sufficient number. However, where there are less than six issuers in an industry, then all issuers should be included in the research report, and in any event the number of issuers should not be less than three.

Part 5 – Trading Pursuant to Marketplace Trading Obligations

Under Rule 7.7(7)(b), a dealer-restricted person with Marketplace Trading Obligations for a restricted security may, for their trading account in connection with such Marketplace Trading Obligations, purchase a restricted security pursuant to their Marketplace Trading Obligations. Not every purchase of a restricted security by a person with Marketplace Trading Obligations will be considered to be undertaken pursuant to their Marketplace Trading Obligations. For example, if a market making system of an Exchange or QTRS permits a market maker to voluntarily participate in trades that participation may only result in purchases that are:

• made at prices which are permitted by Rule 7.7(4)(a); or
• to cover a short position resulting from sales made under their Marketplace Trading Obligations.

Use of a voluntary participation feature in other circumstances, may result in the market maker not complying with the prohibitions or restrictions on trading under Rule 7.7.

If a trade is cancelled, a subsequent trade on any marketplace which was:

1. executed as a result of the price of the cancelled trade; or
2. permitted only as a result of the price of the cancelled trade, 

shall stand unless cancelled by the consent of the buyer and the seller or by a Market Integrity Official who is of the opinion that the cancellation of the subsequent trade is appropriate under the circumstances.