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.

1. No Participant acting as agent shall execute a transaction through a marketplace in which the price recorded on the marketplace is:
   1. in the case of a purchase by a client, higher than the net cost to the client; or
   2. in the case of a sale by a client, lower than the net proceeds to the client.
2. No Participant acting as principal shall execute a transaction through a marketplace in which the price recorded on the marketplace is:
   1. in the case of a sale to a client, 
      1. higher than the net cost to the client, or
      2. lower than the net cost to the client by more than the usual agency commission that would be charged by that Participant to that client for an order of the same size; and
   2. in the case of a purchase from a client, 
      1. lower than the net proceeds to the client, or
      2. higher than the net proceeds to the client by more than the usual agency commission that would be charged by that Participant to that client for an order of the same size.

POLICY 7.5 – RECORDED PRICES

If the price of:

• an internal cross or intentional cross to be recorded on a marketplace; or
• a trade that has been executed outside of Canada that is to be reported to a marketplace in accordance with clause (e) of Rule 6.4,

has been agreed to in a foreign currency and the trade is to be recorded or reported in Canadian currency, the price in foreign currency shall be converted to Canadian dollars using the exchange rate the Participant would have applied in respect of a trade of similar size on a foreign organized regulated market at the time of the internal cross, intentional cross or execution of the trade outside of Canada. If the trade price converted into Canadian currency falls between two trading increments for the marketplace on which the cross is to be entered or the trade reported, the price shall be rounded to the nearest trading increment. A Participant shall maintain with the record of the order the exchange rate used for the purpose of entering the internal cross or intentional cross or reporting the foreign trade and such information shall be provided to the Market Regulator upon request in such form and manner as may be reasonably required by the Market Regulator in accordance with Rule 10.11(3).

1. The electronic record of an order or a trade in a security or a derivative as provided by a marketplace to an information processor or an information vendor in accordance with the Marketplace Operation Instrument is the official transaction record for the purpose of determining:
   1. best ask price;
   2. best bid price; and
   3. last sale price.
2. Despite subsection (1), the electronic record of a trade in a security or a derivative as maintained by the marketplace on which the trade occurred shall be the record of the contract made on that trade and in the event of a dispute between parties to the contract or discrepancy with the records of the clearing agency effect shall be given to the record of the marketplace.
3. Each marketplace shall provide to the information processor or information vendor information respecting each cancellation, variation or correction of a trade as soon as practicable after the cancellation, variation or correction has been made to the record of the contract as maintained by the marketplace and the information processor or information vendor shall amend the transaction record accordingly.

1. A Participant shall retain:
   1. the record of each order as required by Rule 10.11; and 

   2. sufficient information to identify the beneficial owner of each account for which a record of an order is retained,

      for a period of not less than seven years from the creation of the record of the order, and for the first two years, such record and information shall be kept in a readily accessible location.

2. An Access Person shall keep information respecting an order on the marketplace:
   1. of which the Access Person is a subscriber; or

   2. on which the order of the Access Person was executed,

      during the period of not less than seven years from the date of the origination of the order, and for the first two years, such information shall be kept in a readily accessible location.

1. All bids and offers for securities or derivatives made and accepted on a marketplace shall be binding and all contracts thereby effected shall be subject to the exercise by the marketplace on which the trade is executed of the powers vested in the marketplace and the Market Regulator of that marketplace.
2. A Participant shall be responsible for all bids and offers that are entered into, or arise by operation of the trading system of a marketplace and that originate from any terminal or computer system allowing access to trading on the marketplace that is operated by or is under the control of that Participant whether or not the Participant has authorized the entry of the order.
3. Subject to the obligation of an Access Person for compliance with applicable provisions of UMIR and the Policies, an ATS shall be responsible for all bids and offers that are entered into, or arise by operation of the trading system of the ATS and that originate from any terminal or computer system allowing access to trading on the ATS that is operated by or is under the control of the Access Person of that ATS whether or not the Access Person has authorized the entry of the order.

1. No order to purchase or sell a security or a derivative shall be entered by a Participant on a marketplace unless the Participant or the director, officer, partner or employee of the Participant entering the order or responsible for the order has:
   1. completed the Trader Training Course of the Canadian Securities Institute or such course, examination or other means of demonstrating proficiency in UMIR and Policies as may be acceptable to the Market Regulator of the marketplace on which the order is entered or the applicable securities regulatory authority; or
   2. received approval of an Exchange or QTRS for the entry of orders to the trading system of that Exchange or QTRS.
2. A marketplace shall ensure that each Access Person with access to that marketplace is trained in such provisions of UMIR and such Policies as may be applicable to an Access Person.

1. Each Participant shall develop, implement and maintain written policies and procedures to be followed by directors, officers, partners and employees of the Participant that are reasonably designed, taking into account the business and affairs of the Participant, to ensure compliance with UMIR and each Policy as applicable.
2. Prior to the entry of an order on a marketplace by a Participant, the Participant shall comply with:
   1. applicable regulatory standards with respect to the review, acceptance and approval of orders;
   2. the policies and procedures adopted in accordance with subsection (1); and
   3. all applicable requirements of UMIR and each Policy.
3. Each Participant shall appoint a head of trading who shall be responsible to supervise the trading activities of the Participant in a marketplace.
4. The head of trading together with each person who has authority or supervision over or responsibility to the Participant for an employee of the Participant shall fully and properly supervise such employee as necessary to ensure the compliance of the employee with UMIR and each Policy.
5. Notwithstanding any other provision of this Rule, a Participant or Access Person shall not mark an order on entry to a marketplace as a directed action order unless the Participant or Access Person has established, maintained and ensured compliance with written policies and procedures that are reasonably designed to prevent trade‑throughs other than those trade‑throughs permitted in Part 6 of the Trading Rules.
6. Notwithstanding any other provision of this Rule, a Participant or an Access Person shall adopt, document and maintain a system of risk management and supervisory controls, policies and procedures reasonably designed, in accordance with prudent business practices, to ensure the management of the financial, regulatory and other risks associated with:
   1. access to one or more marketplaces; and
   2. if applicable, the use by the Participant, any client of the Participant or the Access Person of an automated order system.
7. A Participant may, on a reasonable basis:
   1. authorize an investment dealer to perform on its behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure; or
   2. use the services of a third party that provides risk management and supervisory controls, policies and procedures.
8. An authorization over the setting or adjusting of a specific risk management or supervisory control, policy or procedure or retaining the services of a third party under subsection (7) must be in a written agreement with the investment dealer or third party that;
   1. precludes the investment dealer or third party from providing any other person control over any aspect of the specific risk management or supervisory control, policy or procedure;
   2. unless the authorization is to an investment dealer that is a Participant, precludes the authorization to the investment dealer over the setting or adjusting of a specific risk management or supervisory control, policy or procedure respecting an account in which the investment dealer or a related entity of the investment dealer holds a direct or indirect interest other than an interest in the commission charged on a transaction or reasonable fee for the administration of the account; and
   3. precludes the use of a third party unless the third party is independent of each client of the Participant other than affiliates of the Participant.
9. A Participant shall forthwith notify the Market Regulator:
   1. upon entering into a written agreement with an investment dealer or third party described in subsection (8), of:
      1. the name of the investment dealer or third party, and
      2. the contact information for the investment dealer or the third party which will permit the Market Regulator to deal with the investment dealer or third party immediately following the entry of an order or execution of a trade for which the Market Regulator wants additional information; and
   2. of any change in the information described in clause (a).
10. The Participant shall review and confirm:
    1. at least annually that:
       1. the risk management and supervisory controls, policies and procedures under subsection (6) are adequate,
       2. the Participant has maintained and consistently applied the risk management and supervisory controls, policies and procedures since the establishment of the controls, policies and procedures or the date of the last annual review, and
       3. any deficiency in the adequacy of a control, policy or procedure has been documented and promptly remedied;
    2. if the Participant has authorized an investment dealer to perform on its behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure or retained the services of a third party, at least annually by the anniversary date of the written agreement with the investment dealer or third party that:
       1. the risk management and supervisory controls, policies and procedures adopted by the investment dealer or third party under subsection (6) are adequate,
       2. the investment dealer or third party has maintained and consistently applied the risk management and supervisory controls, policies and procedures since the establishment of the controls, policies and procedures or the date of the last annual review,
       3. any deficiency in the adequacy of a control, policy or procedure has been documented by the Participant and promptly remedied by the investment dealer or third party, and
       4. the investment dealer or third party is in compliance with the written agreement with the Participant.

POLICY 7.1 – TRADING SUPERVISION OBLIGATIONS

Part 1 – Responsibility for Supervision and Compliance

For the purposes of Rule 7.1, a Participant shall supervise its employees, directors and officers and, if applicable, partners to ensure that trading in securities or derivatives on a marketplace (an Exchange, QTRS or ATS) is carried out in compliance with the applicable Requirements (which includes provisions of securities legislation, UMIR, the Trading Rules and the Marketplace Rules of any applicable Exchange or QTRS). An effective supervision system requires a strong overall commitment on the part of the Participant, through its board of directors, to develop and implement a clearly defined set of policies and procedures that are reasonably designed to prevent and detect violations of Requirements. The board of directors of a Participant is responsible for the overall stewardship of the firm with a specific responsibility to supervise the management of the firm. On an ongoing basis, the board of directors must ensure that the principal risks for non‑compliance with Requirements have been identified and that appropriate supervision and compliance procedures to manage those risks have been implemented.

Management of the Participant is responsible for ensuring that the supervision system adopted by the Participant is effectively carried out. The head of trading and any other person to whom supervisory responsibility has been delegated must fully and properly supervise all employees under their supervision to ensure their compliance with Requirements. If a supervisor has not followed the supervision procedures adopted by the Participant, the supervisor will have failed to comply with their supervisory obligations under Rule 7.1(4).

When the Market Regulator reviews the supervision system of a Participant (for example, when a violation occurs of Requirements), the Market Regulator will consider whether the supervisory system is reasonably well designed to prevent and detect violations of Requirements and whether the system was followed.

The compliance department is responsible for monitoring and reporting adherence to rules, regulations, requirements, policies and procedures. In doing so, the compliance department must have a compliance monitoring system in place that is reasonably designed to prevent and detect violations. The compliance department must report the results from its monitoring to the Participant’s management and, where appropriate, the board of directors, or its equivalent. Management and the board of directors must ensure that the compliance department is adequately funded, staffed and empowered to fulfill these responsibilities.

The obligation to supervise applies whether the order is entered on a marketplace:

• by a trader employed by the Participant, 
• by an employee of the Participant through an order routing system,
• directly by a client and routed to a marketplace through the trading system of the Participant, or
• by any other means.

In performing the trading supervision obligations, the Participant will act as a “gatekeeper” to help prevent and detect violations of applicable Requirements.

When an order is entered on a marketplace by direct electronic access, under a routing arrangement or through an order execution service, the Participant retains responsibility for that order and the supervision policies and procedures should adequately address the additional risk exposure which the Participant may have for orders that are not directly handled by staff of the Participant. For example, it may be appropriate for the Participant to sample for compliance testing a higher percentage of orders that have been entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service than the percentage of orders sampled in other circumstances.

In addition, the “post order entry” compliance testing should recognize that the limited involvement of staff of the Participant in the entry of orders by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service may restrict the ability of the Participant to detect orders that are not in compliance with specific rules. For example, “post order entry” compliance testing may be focused on whether an order entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or a client through an order execution service:

• has created an artificial price contrary to Rule 2.2;
• is part of a “wash trade” (in circumstances where the client has more than one account with the Participant);
• is an unmarked short sale (if the trading system of the Participant does not automatically code as “short” any sale of a security not then held in the account of the client other than a client required to use the “short-marking exempt” designation); and
• has complied with other order marking requirements and in particular the requirement to mark an order as from an insider or significant shareholder (unless the trading system of the Participant restricts trading activities in affected securities or derivatives).

Part 2 – Minimum Elements of a Supervision System

For the purposes of Rule 7.1, a supervision system consists of both policies and procedures aimed at preventing violations from occurring and compliance procedures aimed at detecting whether violations have occurred.

The Market Regulator recognizes that there is no one supervision system that will be appropriate for all Participants. Given the differences among firms in terms of their size, the nature of their business, whether they are engaged in business in more than one location or jurisdiction, the experience and training of their employees and the fact that effective compliance can be achieved in a variety of ways, this Policy does not mandate any particular type or method of supervision of trading activity. Furthermore, compliance with this Policy does not relieve Participants from complying with specific Requirements that may apply in certain circumstances. In particular, in accordance with subsection (2) of Rule 10.1, orders entered (including orders entered by a client under direct electronic access, an investment dealer or foreign dealer equivalent under a routing arrangement or by a client through an order execution service) must comply with the Marketplace Rules on which the order is entered and the Marketplace Rules on which the order is executed.

Participants must develop, implement and maintain supervision and compliance procedures that exceed the elements identified in this Policy where the circumstances warrant. For example, previous disciplinary proceedings, warning and caution letters from the Market Regulator or the identification of problems with the supervision system or procedures by the Participant or the Market Regulator may warrant the implementation of more frequent supervision or compliance testing and more detailed supervision or compliance procedures.

Regardless of the circumstances of the Participant, however, every Participant must:

1. Identify the relevant Requirements, securities laws and other regulatory requirements that apply to the lines of business in which the Participant is engaged (the “Trading Requirements”).
2. Document the supervision system by preparing a written policies and procedures manual. The manual must be accessible to all relevant employees. The manual must be kept current and Participants are advised to maintain an historical copy.
3. Ensure that employees responsible for trading in securities or derivatives are appropriately registered and trained and that they are knowledgeable about the Trading Requirements that apply to their responsibilities. Persons with supervisory responsibility must ensure that employees under their supervision are appropriately registered and trained. Each Participant should provide a continuing training and education program to ensure that its employees remain informed of and knowledgeable about changes to the rules and regulations that apply to their responsibilities.
4. Designate individuals responsible for supervision and compliance. The compliance function must be conducted by persons other than those who supervise the trading activity.
5. Develop and implement supervision and compliance procedures that are appropriate for the Participant’s size, lines of business in which it is engaged and whether the Participant carries on business in more than one location or jurisdiction.
6. Identify the steps the Participant will take when a violation or possible violation of a Requirement or any regulatory requirement has been identified. These steps shall include the procedure for the reporting of the violation or possible violation to the Market Regulator if required by Rule 10.16. If there has been a violation or possible violation of a Requirement, identify the steps that would be taken by the Participant to determine if:
    
   • additional supervision should be instituted for the employee, the account or the business line that may have been involved with the violation or possible violation of a Requirement; and
   • the written policies and procedures that have been adopted by the Participant should be amended to reduce the possibility of a future violation of the Requirement.
7. Review the supervision system at least annually to ensure it continues to be reasonably designed to prevent and detect violations of Requirements. More frequent reviews may be required if past reviews have detected problems with supervision and compliance.
8. Document each step of the compliance review process to include details of the following:
    
   • individual(s) who conducted the review
   • date(s) of the review
   • sources of information used to conduct the review, including the initial alert that may have been triggered
   • sample(s) used to conduct the review and the criteria for sample selection (if samples are used)
   • queries made to the trader, client, and anyone else who handled the order, if any
   • results of the review
   • measures taken to escalate concerns, if any
   • corrective actions taken, if any.
9. Maintain results of all reviews for at least five years.
10. Report to the board of directors of the Participant or, if applicable, the partners, a summary of the compliance reviews conducted and the results of the supervision system review. These reports must be made at least annually. If the Market Regulator or the Participant identifies significant issues concerning the supervision system or compliance procedures, the board of directors or, if applicable, the partners, must be advised immediately.

Part 3 – Supervision and Compliance Procedures for Trading on a Marketplace

Each Participant must develop, implement and maintain supervision and compliance procedures for trading in securities or derivatives on a marketplace that are appropriate for its size, the nature of its business and whether it carries on business in more than one location or jurisdiction. Such procedures should be developed having regard to the training and experience of its employees and whether the firm or its employees have been previously disciplined or warned by the Market Regulator concerning the violations of the Requirements. Participants must identify any high-risk areas and ensure that their policies and procedures are adequately designed to address these heightened risks.

In developing supervision systems, Participants must identify any exception reports, trading data and any other relevant documents to be reviewed. In appropriate cases, relevant information that cannot be obtained or generated by the Participant should be sought from sources outside the firm including from the Market Regulator.

Each Participant must develop written policies and procedures in relation to all Requirements that apply to their business activities. A Participant’s supervision system must at a minimum include the regular review of compliance with respect to the following provisions for trading on a marketplace where applicable to their lines of business:

• Audit Trail requirements (Rule 10.11)
• Electronic Access to Marketplaces (Rule 7.1)
• Specific Unacceptable Activities (Rule 2.1)
• Manipulative and Deceptive Activities (Rule 2.2)
• Trading in restricted securities (Rule 7.7)
• Trading of grey list securities (Rule 2.2)
• Reasonable expectation to settle prior to the entry of an order for a short sale requirements (Rule 3.3)
• Disclosure requirements (Rule 10.1)
• Frontrunning (Rule 4.1)
• Client/Principal Trading (Rule 8.1)
• Client Priority (Rule 5.3)
• Best Execution (Part C of Corporation Rule 3100 – Best Execution of Client Orders)
• Order Exposure requirements (Rule 6.3)
• Time synchronization requirements (Rule 10.14).

Each Participant must develop, implement and maintain a risk-based supervision system that identifies and prioritizes those areas that pose the greatest risk of violations of Requirements. This enables the Participant to focus its review on the areas that pose a higher risk of non-compliance with Requirements. The frequency of review and sample size used in reviews must be commensurate with, among other things:

• the Participant’s size (considering factors such as revenue, market share, market exposure and volume of trades)
• the Participant’s organizational structure
• number and location of the Participant’s offices
• the nature and complexity of the products and services offered by the Participant
• the number of registrants assigned to a location
• the disciplinary history of registered representatives or associated persons
• the risk profile of the Participant’s business and any indicators of irregularities or misconduct i.e. “red flags”.

Part 4 – Specific Procedures Respecting Client Priority

Each Participant must develop, implement and maintain a supervision system to ensure its trading does not violate Rule 5.3 -

The purpose of the Participant’s compliance review is to ensure that inventory or non-client orders are not knowingly traded ahead of client orders. This would occur if a client order is withheld from entry into the market and a person with knowledge of that client order enters another order that will trade ahead of it. Doing so could take a trading opportunity away from the client. Withholding an order for normal review and order handling is allowed under Rule5.3 and Part C of Corporation Rule 3100 – Best Execution of Client Orders, as this is done to ensure that the client gets a good execution. To ensure that a supervision system is effective it must address potential problem situations where trading opportunities may be taken away from clients.

Part 5 – Specific Procedures Respecting Manipulative and Deceptive Activities and Reporting and Gatekeeper Obligations

Each Participant must develop, implement and maintain a supervision system to ensure that orders entered on a marketplace by or through a Participant are not part of a manipulative or deceptive method, act or practice nor an attempt to create an artificial price or a false or misleading appearance of trading activity or interest in the purchase or sale of a security or a derivative.

In particular, the policies and procedures must address:

• the steps to be taken to monitor the trading activities of:
  • an insider or an associate of an insider
  • part of or an associate of a promotional group or other group with an interest in effecting an artificial price, either for banking and margin purposes, for purposes of effecting a distribution of the securities of the issuer or for any other improper purpose
• the steps to be taken to monitor the trading activity of any person who has multiple accounts with the Participant including other accounts in which the person has an interest or over which the person has direction or control
• those circumstances when the Participant is unable to verify certain information (such as the beneficial ownership of the account on behalf of which the order is entered, unless that information is required by applicable regulatory requirements)
• the fact that orders which are intended to or which affect an artificial price are more likely to appear at the end of a month, quarter or year or on the date of the expiry of options where the underlying interest is a listed security, and
• the fact that orders which are intended to or which affect an artificial price or a false or misleading appearance of trading activity or investor interest are more likely to involve securities or derivatives with limited liquidity.

A Participant will be able to rely on information contained on a “New Client Application Form” or similar know-your-client record maintained in accordance with requirements of securities legislation or a self-regulatory entity provided such information has been reviewed periodically in accordance with such requirements and any additional practices of the Participant.

While a Participant cannot be expected to know the details of trading activity conducted by a client through another dealer, nonetheless, a Participant that provides advice to a client on the suitability of investments should have an understanding of the financial position and assets of the client and this understanding would include general knowledge of the holdings by the client at other dealers or directly in the name of the client. The supervision system of the Participant should allow the Participant to take into consideration, information which the Participant has collected respecting accounts at other dealers as part of the completion and periodic updating of the “New Client Application Form”.

Each Participant must review a sample of its trading for manipulative and deceptive activities at least on a quarterly basis.

Part 6 – Specific Provisions Respecting Trade-throughs

Each Participant must develop, implement and maintain a supervision system to ensure that an order:

• marked as “directed action order” in accordance with Rule 6.2 does not result in a trade‑through other than a trade-through permitted under Part 6 of the Trading Rules; or
• entered on a foreign organized regulated market complies with the conditions in subsection (3) of Rule 6.4.

Each Access Person must adopt written policies and procedures reasonably designed to detect and prevent an order marked as a “directed action order” in accordance with Rule 6.2 from resulting in a trade‑through other than a trade‑through permitted under Part 6 of the Trading Rules.

The policies and procedures must set out the steps or process to be followed by the Participant or Access Person to ensure that the execution of an order does not result in a trade-through. The policies and procedures must specifically address the circumstances when the bypass order marker will be used in conjunction with a “directed action order”. These policies and procedures must address the steps which the Participant or Access Person will undertake on a regular basis, which shall not be less than monthly, to test that the policies and procedures are adequate.

Part 7 – Specific Provisions Applicable to Electronic Access

Trading supervision related to electronic access to marketplaces must be performed by a Participant or Access Person in accordance with a documented system of risk management and supervisory controls, policies and procedures reasonably designed to ensure the management of the financial, regulatory and other risks associated with electronic access to marketplaces.

The risk management and supervisory controls, policies and procedures employed by a Participant or Access Persons must include:

• automated controls to examine each order before entry on a marketplace to prevent the entry of an order which would result in:
  • the Participant or Access Person exceeding pre-determined credit or capital thresholds
  • a client of the Participant exceeding pre-determined credit or other limits assigned by the Participant or to that client, or
  • the Participant, Access Person or client of the Participant exceeding pre-determined limits on the value or volume of unexecuted orders for a particular security or derivative or class of securities or derivatives
• provisions to prevent the entry of an order that is not in compliance with applicable Requirements
• provision of immediate order and trade information to compliance staff of the Participant or Access Person
• regular post-trade monitoring for compliance with Requirements.

A Participant or Access Person is responsible and accountable for all functions that they outsource to a service provider as set out in Part 11 of Companion Policy 31-103CP Registration Requirements and Exemptions.

Supervisory and compliance monitoring procedures must be designed to detect and prevent account activity that is or may be a violation of Requirements which includes applicable securities legislation, requirements of any self-regulatory organization applicable to the account activity and the rules and policies of any marketplace on which the account activity takes place. These procedures must include “post-order entry” compliance testing enumerated under Part 1 of Policy 7.1 to detect orders that are not in compliance with specific rules, and by addressing steps to monitor trading activity, as provided under Part 5 of Policy 7.1, of any person who has multiple accounts, with the Participant and other accounts in which the person has an interest or over which the person has direction or control.

Part 8 – Specific Provisions Applicable to Automated Order Systems

Trading supervision by a Participant or Access Person must be in accordance with a documented system of risk management and supervisory controls, policies and procedures reasonably designed to ensure the management of the financial, regulatory and other risks associated with the use of an automated order system by the Participant, the Access Person or any client of the Participant.

Each Participant or Access Person must have a level of knowledge and understanding of any automated order system used by the Participant, the Access Person or any client of the Participant that is sufficient to allow the Participant or Access Person to identify and manage the risks associated with the use of the automated order system.

The Participant or Access Person must ensure that every automated order system used by the Participant, the Access Person or any client of the Participant is tested in accordance with prudent business practices initially before use and at least annually thereafter. A written record must be maintained with sufficient details to demonstrate the testing of the automated order system undertaken by the Participant, Access Person and any third party employed to provide the automated order system or risk management or supervisory controls, policies and procedures.

The scope of appropriate order and trade parameters, policies and procedures should be tailored to the strategy or strategies being pursued by an automatic order system with due consideration to the potential market impact of defining such parameters too broadly and in any event must be set so as not to exceed the limits publicly disclosed by the Market Regulator for the exercise of the power of a Market Integrity Official under Rule 10.9 of UMIR.

The Market Regulator expects the risk management and supervisory controls, policies and procedures to comply with the Electronic Trading Rules and be reasonably designed to prevent the entry of any order that would interfere with fair and orderly markets. This includes adoption of compliance procedures for trading by clients, if applicable, containing detailed guidance on how testing of client orders and trades is to be conducted to ensure that prior to engagement and at least annually thereafter, each automated order system is satisfactorily tested assuming various market conditions. In addition to regular testing of the automated order systems, preventing interference with fair and orderly markets requires development of pre-programmed internal parameters to prevent or “flag” with alerts on a real-time basis, the entry of orders and execution of trades by an automated order system that exceed certain volume, order, price or other limits.

Each Participant or Access Person must have the ability to immediately override or disable automatically any automated order system and thereby prevent orders generated by the automated order system from being entered on any marketplace.

Notwithstanding any outsourcing or authorization over of risk management and supervision controls, a Participant or Access Person is responsible for any order entered or any trade executed on a marketplace, including any order or trade resulting from the improper operation or malfunction of the automated order system. This responsibility includes instances in which the malfunction which gave rise to a “runaway” algorithm is attributed to an aspect of the algorithm or automated order system that was not “accessible” to the Participant or Access Person for testing.

Part 9 – Specific Provisions Applicable to Direct Electronic Access and Routing Arrangements

Standards for Clients, Investment Dealers and Foreign Dealer Equivalents

In addition to other trading supervision requirements, a Participant that provides direct electronic access or implements a routing arrangement must establish, maintain and apply reasonable standards for granting direct electronic access or a routing arrangement and assess and document whether each client, investment dealer or foreign dealer equivalent meets the standards established by the Participant for direct electronic access or a routing arrangement. The Market Regulator expects that as part of its initial “screening” process, non‑institutional investors will be precluded from qualifying for direct electronic access except in exceptional circumstances generally limited to sophisticated former traders and floor brokers or a person or company having assets under administration with a value approaching that of an institutional investor that has access to and knowledge regarding the necessary technology to use direct electronic access. The Participant offering direct electronic access or a routing arrangement must establish sufficiently stringent standards for each client granted direct electronic access or each investment dealer or foreign dealer equivalent under a routing arrangement to ensure that the Participant is not exposed to undue risk and in particular, in the case of a non-institutional client the standards must be set higher than for institutional investors.

The Participant is further required to confirm with the client granted direct electronic access or an investment dealer or foreign dealer equivalent in a routing arrangement, at least annually, that the client, investment dealer or foreign dealer equivalent continues to meet the standards established by the Participant including to ensure that any modification to a previously “approved” automated order system in use by a client, investment dealer or foreign dealer equivalent continues to maintain appropriate safeguards.

Breaches by Clients with Direct Electronic Access or by Investment Dealers or Foreign Dealer Equivalents in a Routing Arrangement

A Participant that has granted direct electronic access to a client or entered into a routing arrangement with an investment dealer or foreign dealer equivalent must further monitor orders entered by the client, investment dealer or foreign dealer equivalent to identify whether the client, investment dealer or foreign dealer equivalent may have:

• breached any standard established by the Participant for the granting of direct electronic access or a routing arrangement;
• breached the terms of the written agreement regarding the direct electronic access or the routing arrangement;
• improperly granted or provided its access under direct electronic access or a routing arrangement to another person;
• engaged in unauthorized trading on behalf of the account of another person; or
• failed to ensure that its client’s orders are transmitted through the systems of the client, or Participant, investment dealer or foreign dealer equivalent (which include proprietary systems or systems that are provided by a third party) before being entered on a marketplace.

Identifying Originating Investment Dealer or Foreign Dealer Equivalent

In relation to the assignment of a unique identifier to an investment dealer or foreign dealer equivalent in a routing arrangement, if orders are routed through multiple investment dealers or foreign dealer equivalents, the executing Participant is responsible for properly identifying the originating investment dealer or foreign dealer equivalent and must establish and maintain adequate policies and procedures to assure that orders routed by an investment dealer or foreign dealer equivalent to the executing Participant containing the Participant’s identifier are also marked with all identifiers and designations relevant to the order as required under Rule 6.2 of UMIR on the entry of the order to a marketplace.

Identifying Clients with Direct Electronic Access

In relation to the assignment of a unique identifier to a client that is granted direct electronic access, the Participant must establish and maintain adequate policies and procedures to assure that orders routed by the client to the executing Participant containing the Participant’s identifier are marked with all identifiers and designations relevant to the order as required under Rule 6.2 of UMIR on the entry of the order to a marketplace.

Part 10 – Specific Procedures Respecting Audit Trail and Record Retention Requirements

Each Participant must develop, implement and maintain a supervision system to ensure that an accurate and complete audit trail of orders and trades under Rule 10.11 and Rule 10.12 is recorded and maintained.

At a minimum, policies and procedures regarding audit trail requirements must ensure the accurate recording of the following information for each order and trade as applicable:

• date and time of entry, amendment, cancellation, execution and expiration
• quantity
• buy, sell or short‑sale marker
• market or limit order marker
• price (if limit order)
• name or symbol of security or derivative
• identity of order recipient or trader
• client name or account number and special client instructions
• client consent
• applicable designations and identifiers under Rule 6.2 (identifier would allow compliance and regulators to track the history of the order, from time of order entry to execution or expiration)
• for CFOd orders, subsequent time of entry and quantity or price changes.

Sample sets must be randomly selected to proportionately cover orders and trades related to all lines of business of a Participant. Reviews for compliance with Audit Trail Requirements must be carried out at least on a quarterly basis and reviews for compliance with Record Retention Requirements must be carried out at least annually.

Part 11 – Specific Procedures Respecting Order Handling

Each Participant must develop, implement and maintain a supervision system to ensure that its trading does not violate order exposure requirements under Rule 6.3 or client priority requirements under Rule 8.1. Reviews for compliance with these provisions must at a minimum include:

• verifying that client orders of 50 standard trading units or less are not withheld from the market without a valid exemption from order exposure rule
• reviewing client-principal trades of 50 standard trading units or less with a trade value of $ 100,000 or less for compliance with client‑principal rules.

Each Participant must review the order entry and trading described above at least quarterly.

Part 12 – Specific Provisions Respecting Grey List and Restricted Securities

Each Participant must develop, implement and maintain a supervision system to review securities:

• about which a Participant may have non‑public information (e.g. Grey or Watch list)
• subject to trading restrictions with respect to Rule 7.7 or any other Requirement (e.g. Restricted List)
• trading outside Canada during Regulatory halts, delays and suspensions (e.g.CTO halts).

Policies and procedures designed to monitor trading around Grey and Restricted list securities must consider:

• insider trading requirements under subsection 76.(1) of Securities Act (Ontario) and similar provisions that prohibit a person or company in a special relationship with a reporting issuer from purchasing or selling such securities with knowledge of a material change that has not been generally disclosed
• OSC Policy 33-601- Guidelines for Policies and Procedures Concerning Insider Information.

Each Participant must review the trading described above on a daily basis.

Part 13 – Specific Provisions Respecting Client Disclosures

Each Participant must develop, implement and maintain a supervision system to verify that appropriate trade disclosures are made on client confirmations. To comply with Corporation rules, such disclosures must include:

• the quantity and description of the security purchased or sold
• whether or not the person or company that executed the trade acted as principal or agent
• the consideration of the trade (may include average price of the security traded)
• the related issuers of the security traded
• the date of the trade and name of the marketplace on which the transaction took place (if applicable, Participants may use a general statement that the transaction took place on more than one marketplace or over more than one day)
• the name of the salesperson responsible for the transaction
• the settlement date of the trade.

Each Participant must review a sample of trade confirmations at least on a quarterly basis.

Part 14 – Specific Provisions Applicable to Normal Course Issuer Bids (“NCIBs”) and Sales from Control Blocks

Each Participant must develop, implement and maintain a supervision system to review NCIB-related trading to ensure:

• maximum daily and annual stock purchase limits are observed
• purchases for NCIBs do not occur while a sale from control for the same security is in effect
• NCIB purchases are not made on upticks
• NCIB trade reporting to Exchange (if the firm reports on behalf of issuer).

Each Participant must review trading related to NCIBs described above at least quarterly.

Supervisory policies and procedures must also be designed to review trading related to sales from control blocks. Such reviews must be carried out as when determined necessary by the Participant and must include:

• reviewing of all known sales from control blocks to ensure regulatory requirements have been met
• sampling of large trades to determine if they are undisclosed sales from a control block.