1. If a Participant or Access Person enters an order on a marketplace for the purchase or sale of a security that order may execute with a Dark Order provided the order entered by the Participant or Access Person is executed:
   1. at a better price;
   2. in the case of a purchase, at the best ask price if:
      1. the order on entry to the marketplace is for more than 50 standard trading units and has a value of more than $30,000 or has a value of more than $100,000, and
      2. on the execution of the trade with the Dark Order, no orders for the sale of the security included in the calculation of the best ask price are displayed on that marketplace at that best ask price; or
   3. in the case of a sale, at the best bid price if:
      1. the order on entry to the marketplace is for more than 50 standard trading units and has a value of more than $30,000 or has a value of more than $100,000, and
      2. on the execution of the trade with the Dark Order, no orders for the purchase of the security included in the calculation of the best bid price are displayed on that marketplace at that best bid price.
2. Subsection (1) does not apply if the order entered by the Participant or Access Person is:
   1. a Basis Order;
   2. a Call Market Order;
   3. a Closing Price Order;
   4. a Market-on-Close Order;
   5. an Opening Order;
   6. a Volume-Weighted Average Price Order;
   7. for less than one standard trading unit;
   8. a Contingent Derivative Order;
   9. a Net Asset Value Order.

A Participant or Access Person shall not enter an order for the purchase or sale of a security on a marketplace if:

1. the order is a Dark Order and the order does not exceed the number of units as designated from time to time by the Market Regulator for the purposes of this clause; or
2. less than one standard trading unit of the order or such greater number of units as designated from time to time by the Market Regulator for the purposes of this clause will be displayed in a consolidated market display on the entry of the order on the marketplace and at any time prior to the full execution of the order.

1. A Participant acting as principal or agent may not trade nor participate in a trade in a security by means other than the entry of an order on a marketplace.
2. Subsection (1) does not apply to a trade:
   1. Unlisted or Non-Quoted Security – in a security which is not a listed security or a quoted security;
   2. Regulatory Exemption – required or permitted by a Market Regulator to be executed other than on a marketplace in order to maintain a fair or orderly market and provided, in the case of a listed security or quoted security, the Market Regulator requiring or permitting the order to be executed other than on a marketplace shall be the Market Regulator of the Exchange on which the security is listed or of the QTRS on which the security is quoted;
   3. Error Adjustment – to adjust by a journal entry an error in connection with a client order;
   4. On a Foreign Organized Regulated Market – executed on a foreign organized regulated market;
   5. Outside of Canada – executed as principal with a non-Canadian account or as agent if both the purchasers and seller are non-Canadian accounts provided the trade is reported to a marketplace or a foreign organized regulated market in accordance with the reporting requirements of the marketplace or foreign organized regulated market;
   6. Term of Securities – as a result of a redemption, retraction, exchange or conversion of a security in accordance with the terms attaching to the security;
   7. Options – as a result of the exercise of an option, right, warrant or similar pre-existing contractual arrangement;
   8. Prospectus and Exempt Distributions – pursuant to a prospectus, take-over bid, issuer bid, amalgamation, arrangement or similar transaction including any distribution of previously unissued securities by an issuer;
   9. Non-Regulatory Halt, Delay or Suspension – in a listed security or quoted security in respect of which trading has been halted, delayed or suspended in circumstances described in clause (3)(a) or subclause (3)(b)(i) of Rule 9.1 that is not listed, quoted or traded on a marketplace other than the Exchange or QTRS on which the security is halted, delayed or suspended provided such trade is reported to a marketplace; or
   10. Acceptable Foreign Trade Reporting Facility – in a listed security or quoted security that is reported to an acceptable foreign trade reporting facility and :
       1. is more than 50 standard trading units and has a value of more that $100,000; or
       2. originated from a contingent order related to a derivative transaction where the derivative transaction occurs outside of Canada and the trade in the listed or quoted security is handled by the same intermediary as the derivative transaction; or
   11. Resale Restriction - in a listed security that is:
       1. subject to a restricted period as determined in accordance with National Instrument 45-102 Resale of Securities, and
       2. pursuant to a prospectus exemption available under applicable securities legislation; or
3. The exemption provided for in clause (d) of subsection (2) is unavailable to an order of a Canadian account denominated in Canadian funds that:
   1. is part of an intentional cross;
   2. is part of a pre-arranged trade;
   3. is for more than 50 standard trading units; or
   4. has a value of $250,000 or more
      if the entry of the order on a foreign organized regulated market would avoid execution against a better-priced order entered on a marketplace pursuant to Part 6 of the Trading Rules.

POLICY 6.4 – TRADES TO BE ON A MARKETPLACE

Part 1 – Trades Outside of Marketplace Hours

In accordance with section 6.1 of the Trading Rules, each marketplace shall set requirements in respect of the hours of trading to be observed by marketplace participants. Occasions may arise when a Participant may wish to make an agreement to trade as principal with a Canadian account, or to arrange a trade between a Canadian account and a non-Canadian account, outside of the trading hours of any marketplace that trades the particular security.

Rule 6.4 states that all trades must be executed on a marketplace unless otherwise exempted from this requirement. Participants are reminded of the exemption in clause (2)(d) of Rule 6.4 that permits a trade on a foreign organized regulated market. Participants are also reminded of the exemption in clause (2)(e) of Rule 6.4 that permits them to trade as principal with non-Canadian accounts off of a marketplace provided that any unwinding trade with a Canadian account is made in accordance with Rule 6.4.

A Participant may make an agreement to trade in a listed security or a quoted security with a Canadian account as principal or as agent outside of the trading hours of marketplaces, however, such agreements must be made conditional on execution of the trade on a marketplace or on a foreign organized regulated market. There is no trade until such time as there is an execution on a marketplace or a foreign organized regulated market or the trade is otherwise completed in accordance with one of the exemptions set out in Rule 6.4. The trade on a marketplace is to be done at or immediately following the opening of the marketplace on which the order is entered. A Participant may cross the trade at the agreed-upon price provided that the normal Requirements on order displacement are followed. If the Participant determines that the condition of recording the agreement to trade on a marketplace or foreign organized regulated market cannot be met, the agreement to trade shall be cancelled. Use of an error account to preserve the transaction is prohibited.

Part 2 – Application to Foreign Affiliates and Others

The Market Regulator considers that any use by a Participant of another person that is not subject to Rule 6.4 in order to make a trade off of a marketplace (other than as permitted by one of the exemptions) to be a violation of clause (a) of subsection (2) of Rule 2.1 respecting specific unacceptable activities.

Although certain affiliated entities of a Participant, including their foreign affiliates, are not directly subject to Requirements, Rule 6.4 means that a Participant may not transfer an order to a foreign affiliate, or book a trade through a foreign affiliate, and execute the order in a manner that does not comply with Rule 6.4. In other words, an order directed to a foreign affiliate by the Participant or any other person subject to Rule 6.4 shall be executed on a marketplace unless one of the exemptions set out in Rule 6.4 applies. Foreign branch offices of a Participant are not separate from the Participant and as such are subject to Requirements.

Part 3 – Non-Canadian Accounts

Clause (2)(e) of Rule 6.4 permits a Participant to trade off of a marketplace either as principal with a non-Canadian account or as agent for the purchaser and seller both of whom are non-Canadian accounts. A "non-Canadian account" is defined as an account of a client of the Participant or a client of an affiliated entity of the Participant held by a Participant or an affiliated entity of a Participant and the client is considered to be a non-resident for the purposes of the Income Tax Act (Canada). There may be certain situations arising where a Participant is uncertain whether a particular account is a "non-Canadian account" for the purpose of this exemption. In these situations the account should be treated as a “Canadian account”. The fact that an individual may be located temporarily outside of Canada, that a foreign location is used to place the order or as the address for settlement or confirmation of the trade does not alter the account's status as a Canadian account. Trades made by or on behalf of bona fide foreign subsidiaries of Canadian institutions are considered to be non-Canadian accounts, if the order is placed by the foreign subsidiary.

For the purpose of this Policy, the relevant client of the Participant is the person to whom the order is confirmed.

Part 4 – Reporting Foreign Trades

Clause (2)(e) of Rule 6.4 requires a Participant to report to a marketplace any trade in a listed security or a quoted security that is made as principal with a non-Canadian account or as agent if both the purchaser and seller are non-Canadian accounts, unless the trade is reported to a foreign organized regulated market. If such an “outside Canada” trade has not been reported to a foreign organized regulated market, a Participant shall report such trade to a marketplace no later than the close of business on the next trading day. The report shall identify the security, volume, price (in the currency of the trade and in Canadian dollars) and time of the trade.

Part 5 – Application of UMIR to Orders Not Entered on a Marketplace

Under Rule 6.4, a Participant, when acting as principal or agent, may not trade nor participate in a trade in a security by means other than the entry of an order on a marketplace except in accordance with an exemption specifically enumerated within Rule 6.4. For the purposes of UMIR, a “marketplace” is defined as an Exchange, QTRS or an ATS and a “Participant” is defined essentially as a dealer registered in accordance with securities legislation of any jurisdiction and who is a member of an Exchange, a user of a QTRS or a subscriber to an ATS. If a person is a Participant, certain provisions of UMIR will apply to every order handled by that Participant even if the order is entered or executed on a marketplace that has not adopted UMIR as its market integrity rules or if the order is executed over-the-counter. In particular, the following provisions of UMIR and the Corporation Rules will apply to an order handled by a Participant notwithstanding that the order is not entered on a marketplace that has adopted UMIR:

• Rule 4.1 prohibits a Participant from frontrunning certain client orders;
• Part C of Corporation Rule 3100 - Best Execution Of Client Orders with respect to the “best execution obligation” of a client order;
• Rule 8.1 governing client-principal trading; and
• Rule 9.1 governing regulatory halts, delays and suspensions of trading.

In accordance with Rule 11.9, UMIR will not apply to an order that is entered or executed on a marketplace in accordance with the Marketplace Rules of that marketplace as adopted in accordance with Part 7 of the Trading Rules or if the order is entered and executed on a marketplace or otherwise in accordance with the rules of an applicable regulation services provider or in accordance with the terms of an exemption from the application of the Trading Rules.

Part 6 – Foreign Currency Translation

If a trade is to be executed on a foreign organized regulated market in a foreign currency, the foreign trade price 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 in that foreign jurisdiction in order to determine whether the condition in subsection (3) of Rule 6.4 restricting avoidance of Part 6 of the Trading Rules has been met. The Market Regulator regards a difference of one trading increment or less as "marginal" because the difference would be attributable to currency conversion. A Participant shall maintain with the record of the order the exchange rate used for the purpose of determining whether a better priced order existed on a marketplace 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 subsection (3) of Rule 10.11.

1. A Participant shall immediately enter for display on a marketplace that displays orders in accordance with Part 7 of the Marketplace Operation Instrument a client order to purchase or sell 50 standard trading units or less of a security unless:
   1. the client has specifically instructed the Participant to deal otherwise with the particular order;
   2. the Participant executes the order upon receipt at a better price;
   3. the Participant returns the order for confirmation of the terms of the order;
   4. the Participant withholds the order pending confirmation that the order complies with applicable securities requirements or, if applicable, the Marketplace Rules of any Exchange on which the security is listed or of any QTRS on which the security is quoted;
   5. the Participant determines based on market conditions that entering the order on a marketplace would not be in the best interests of the client;
   6. the order has a value of more than $100,000;
   7. the order is part of a trade to be made in accordance with Rule 6.4 by means other than entry on a marketplace; or
   8. the client has directed or consented to the order being entered on a marketplace as:
      1. a Call Market Order,
      2. an Opening Order,
      3. a Special Terms Order,
      4. a Volume-Weighted Average Price Order,
      5. a Market-on-Close Order,
      6. a Basis Order,
      7. a Closing Price Order,
      8. a Contingent Derivative Order, or
      9. a Net Asset Value Order.
2. If a Participant withholds a client order from entry on a marketplace based on market conditions in accordance with clause (1)(e), the Participant may enter the order in parts over a period of time or adjust the terms of the order prior to entry but the Participant must guarantee that the client receives:
   1. a price at least as good as the price the client would have received if the client order had been executed on receipt by the Participant; and
   2. if the Participant executes the client order against a principal order or non-client order, a better price than the price the client would have received if the client order had been executed on receipt by the Participant.

POLICY 6.3 – EXPOSURE OF CLIENT ORDERS

Part 1 – Reviewing Small Orders for Market Impact

Rule 6.3 requires a Participant to immediately enter client orders for the purchase or sale of 50 standard trading units or less on a marketplace. This requirement is subject to certain exceptions. The Participant may withhold the order based on a determination that market conditions were such that immediate entry of the order would not be in the best interests of the client. If the order is withhold the Participant must guarantee that the client receives a price at least as good as the price the client would have received had the client order been executed on receipt by the Participant. If the order is executed against a principal order or non-client order the client must receive a better price.

Part 2 – Confirmation of Order Terms

Pursuant to Rule 6.3, a Participant may withhold entry of the order and return the order to its source for confirmation of its terms. For example, a Participant who receives an order to sell a security at $3 in a stock trading at $20 may return the order to the branch, as it is likely that either the price or the stock symbol is wrong.

Part 3 – Client Request to Withhold Order

A Participant does not have to immediately enter a client order on a marketplace if the client has requested that the order be withheld (for example, the client does not want the order executed in the open market but wishes to do a tax-related trade with their spouse).  Any request must be specific to that order. A client cannot give a blanket request to withhold any future orders the client may give the Participant.  Furthermore, the Participant may not solicit a request to withhold the order. A Participant must keep a record of the client’s request to withhold orders for seven years from the date of the instruction and, for the first two years, the request must be kept in a readily accessible location.

1. Each order in a listed security entered on a marketplace shall contain:
   1. the identifier of:
      1. the Participant or Access Person entering the order as assigned to the Participant or Access Person in accordance with Rule 10.15,
      2. the marketplace on which the order is entered as assigned to the marketplace in accordance with Rule 10.15,
      3. the Participant for or on behalf of whom the order is entered, if the order is a jitney order,
      4. the client for or on behalf of whom the order is entered:
         1. in the form of a Legal Entity Identifier for:
            1. orders entered using direct electronic access
            2. orders entered using a routing arrangement
            3. an identified order execution only client that is eligible to receive a Legal Entity Identifier under the standards set by the Global Legal Entity Identifier System
            4. orders for accounts that are supervised under Part D of Corporation Rule 3900 – Supervision of institutional client accounts
         2. in the form of an account number for all other client orders not included under UMIR 6.2(1)(a)(iv)(1)
      5. the client of a foreign dealer equivalent for or on behalf of whom the order is entered under a routing arrangement, where such client order is automatically generated on a predetermined basis by that client, and in the form and manner acceptable to the Market Regulator; and
   2. a designation acceptable to the Market Regulator for the marketplace on which the order is entered, if the order is:
      1. a Call Market Order,
      2. an Opening Order,
      3. a Market-on-Close Order,
      4. a Special Terms Order,
      5. a Volume-Weighted Average Price Order,
         (v.1) a Basis Order,
         (v.2) a Closing Price Order,
         (v.3) a bypass order,
         (v.4) a directed action order as defined in the Trading Rules, 
         (v.5) a Contingent Derivative Order, 
         (v.6) a Net Asset Value Order,
      6. part of a Program Trade,
      7. part of an intentional cross or internal cross,
         (vii.1) a derivative-related cross,
      8. a short sale but not including an order which is designated as a “short-marking exempt order” in accordance with subclause 6.2(1)(b)(ix),
      9. a short-marking exempt order,
      10. a non-client order,
      11. a principal order,
      12. a jitney order,
      13. for the account of a derivatives market maker,
      14. for the account of a person who is an insider of the issuer of the security which is the subject of the order,
      15. for the account of a person who is a significant shareholder of the issuer of the security which is the subject of the order,
      16. for the account of a client where the order is sent using direct electronic access,
      17. for the account of a client where the order is sent under a routing arrangement,
      18. for the account of an order execution only client,
      19. of a type for which the Market Regulator may from time to time require a specific or particular designation,
      20. a bundled order, or
      21. a multiple client order.
   3. Where a designation is required under 6.2(1)(b)(xx) or (xxi), the Participant does not need to include a client identifier on the order under 6.2(1)(a)(iv).
2. Each order in a listed derivative entered on an Exchange shall contain:
   1. the identifier of:
      1. the Participant or Access Person entering the order as assigned to the Participant or Access Person in accordance with Rule 10.15,
      2. the Exchange on which the order is entered as assigned to the Exchange in accordance with Rule 10.15,
      3. the Participant for or on behalf of whom the order is entered, if the order is a jitney order,
      4. the client for or on behalf of whom the order is entered under direct electronic access, and
      5. the investment dealer or foreign dealer equivalent for or on behalf of whom the order is entered under a routing arrangement; and
   2. a designation acceptable to the Market Regulator for the Exchange on which the order is entered, if the order is:
      1. a non-client order,
      2. a principal order,
      3. for the account of a derivatives market maker,
      4. for the account of a person who is an insider of the issuer of the underlying security which is the subject of the order,
      5. for the account of a person who is a significant shareholder of the issuer of the underlying security which is the subject of the order,
      6. one that includes an opening or closing transaction indicator
      7. of a type for which the Market Regulator may from time to time require a specific or particular designation.
3. If the order entered on a marketplace is a Special Terms Order, the order shall contain, in addition to all designations and identifiers required by subsection (1), information in such form as is acceptable to the Market Regulator of the marketplace on which the order is entered respecting:
   1. any condition on the execution of the order; and
   2. the settlement date.
4. If following the entry of an order on a marketplace for the sale of security that has not been designated as a short sale such order would become a short sale on execution, the order shall be modified to include the short sale designation required by subsection (1).
5. Each order entered on a marketplace including all designations and identifiers required by subsection (1) and (2) shall be disclosed to each Market Regulator.
6. The marketplace on which the order is entered shall determine if the identifier of the Participant or the marketplace shall be displayed:
   1. in a consolidated market display for a security, or
   2. in a marketplace for a derivative.
7. Unless otherwise permitted or directed by the Market Regulator, a marketplace shall:
   1. disclose for display in a consolidated market display any designation attached to an order that is required by sub-clause (i) to (vii.1) inclusive of clause (1)(b), but for a bypass order that is not part of a designated trade, and
   2. not disclose for display in a consolidated market display any designation attached to an order that is required by:
      1. sub-clause (viii) to (xxi) inclusive of clause (1)(b)
      2. sub-clause (i) to (vii) inclusive of clause (2)(b).

1. Regulatory Halts and Suspensions - No order for the purchase or sale of a security or a derivative shall be executed on a marketplace or over-the-counter, at any time while:
   1. an order of a securities regulatory authority to cease trading in the security, derivative, related security or related derivative remains in effect;
   2. in the case of a listed security or a listed derivative, the Market Regulator of the Exchange on which the security or derivative is listed has halted or suspended trading in the security or derivative while such halt or suspension remains in effect;
   3. in the case of a quoted security, the Market Regulator of the QTRS has halted or suspended trading in the security while such halt or suspension remains in effect; and
   4. in the case of any security other than a listed security or a quoted security, a Market Regulator of an ATS on which such security may trade has halted trading for the purposes of the public dissemination of material information respecting such security or the issuer of such security.
2. Regulatory Delay - No order for the purchase or sale of a security or derivative shall be executed on a marketplace or over-the-counter, at any time while:
   1. in the case of a listed security or a listed derivative, the Market Regulator of the Exchange on which the security or derivative is listed has delayed trading in the security or derivative while such delay remains in effect; and
   2. in the case of a quoted security, the Market Regulator of the QTRS has delayed trading in the security while such delay remains in effect.
3. Exceptions for Non-Regulatory Purposes - Despite subsections (1) and (2), an order may be entered on a marketplace or an order may trade on a marketplace, if the Exchange or QTRS has:
   1. suspended trading in the security or derivative by reason only that the issuer of the security or underlying security has:
      1. ceased to meeting listing or quotation requirements established by the Exchange or QTRS, or
      2. failed to pay to the Exchange or QTRS any fees in respect of the listing or quotation of securities of the issuer or underlying securities of a derivative; or
   2. delayed or halted trading in the security or the derivative as a result of:
      1. technical problems affecting only the trading system of the Exchange or QTRS, or
      2. the application of a Marketplace Rule.
4. Trading Outside Canada During Regulatory Halts, Delays and Suspensions -
   1. If trading in a security has been prohibited on a marketplace in accordance with clauses (1)(b), (c) or (d) or subsection (2), a Participant may execute a trade in the security, if permitted by applicable securities legislation, outside of Canada on a foreign organized regulated market;
   2. If trading in a security has been prohibited on a marketplace under clause 1(a), a Participant may execute a sale in the security on a foreign organized regulated market if:
      1. all conditions set forth in the order of a securities regulatory authority are met, and
      2. the sale is in accordance with applicable securities legislation.

(4)-(6) Repealed and moved to Rules 3.2 and 3.4  

POLICY 6.1 – ENTRY OF ORDERS TO A MARKETPLACE

Part 1 – Execution Price of Orders

An order may execute at such price increment as established by the marketplace for the execution of such orders and the marketplace shall report the execution price to the information processor and information vendor provided, if required by the information processor or information vendor, the marketplace shall report the price at which the trade was executed as the nearest trading increment and if the price results in one-half of a trading increment the price shall be rounded up to the next trading increment.

1. A Participant shall not enter on a marketplace or an organized regulated market a principal order or a non-client order of the Participant that, based on the information known or reasonably available to the person or persons originating or entering the principal order or non-client order, the Participant knows or should have known will execute or have a reasonable likelihood of executing in priority to a client order received by the Participant prior to the entry of the principal order or non-client order for the same security that is:
   1. at the same price or a lower price than the client order in the case of a purchase or the same or a higher price than the client order in the case of a sale; and
   2. on the same side of the market.
2. Despite subsection (1) but subject to Rule 4.1, a Participant is not required to give priority to a client order if:
   1. the client specifically has consented to the Participant entering principal orders and non-client orders for the same security at the same price on the same side of the market on the same settlement terms;
   2. the principal order or non-client order is:
      1. automatically generated by the trading system of a marketplace in respect of the Marketplace Trading Obligations of that marketplace,
      2. automatically generated by a system operated by the Participant or on behalf of the Participant based on pre-determined order and trading parameters established, programmed and enabled for trading prior to the receipt of the client order,
      3. for a managed account and the client order is for a managed account under the direction of the same person and in respect of which executions are allocated between the various managed accounts on an equitable basis in accordance with the established practices of the Participant,
      4. a Basis Order,
      5. a Contingent Derivative Order, or
      6. a Net Asset Value Order;
   3. the client order has been entered directly by the client of the Participant on a marketplace;
   4. the principal order or non-client order is executed pursuant to an allocation by the trading system of a marketplace and:
      1. either:
         1. the security which is the subject of the order trades on no marketplace other than that marketplace,
         2. the principal order or non-client order is a Call Market Order, a Contingent Derivative Order, an Opening Order, a Market-on-Close Order, a Net Asset Value Order or a Volume-Weighted Average Price Order,
         3. each of the client order and the principal order or non-client order was entered on the same marketplace,
         4. the client has instructed the Participant to enter the client order on a particular marketplace, or
         5. the client has instructed the Participant to enter the client order in a manner that does not disclose the identifier of the Participant in a consolidated market display,
      2. the client order was entered by the Participant on that marketplace immediately upon receipt by the Participant, and
      3. if the client order was varied or changed by the Participant at any time after entry, the variation or change was on the specific instructions of the client;
   5. either the client order or the principal order or non-client order is a Special Terms Order and the client order would not have executed in the transaction or transactions involving the principal order or non-client order due to the terms and conditions of at least one Special Terms Order; or
   6. a Market Integrity Official requires or permits the principal order or non-client order to be executed in priority to a client order.
3. For the purposes of clause (2)(a), a client shall be deemed to have consented to the Participant entering principal orders and non-client orders for the same security at the same price on the same side of the market on the same conditions and settlement terms if the client order, in accordance with the specific instructions of the client, is to be executed in part at various times during the trading day or at various prices during the trading day.

POLICY 5.3 – CLIENT PRIORITY

Part 1 – Background

Rule 5.3 restricts a Participant and its employees from trading in the same securities as a client of the Participant. The restriction is designed to minimize the conflict of interest that occurs when a Participant or its employee compete with the firm’s clients for execution of orders. The Rule governs:

• trading ahead of a client order, which is taking out a bid or offering that the client could have obtained had the client order been entered first. By trading ahead, the pro order obtains a better price at the expense of the client order.
• trading along with a client, or competing for fills at the same price.

The application of the rule can be quite complex given the diversity of professional trading operations in many firms, which can include such activities as block facilitation, market making, derivative and arbitrage trading. In addition, firms may withhold particular client orders in order to obtain for the client a better execution than the client would have received if the order had been entered directly on a marketplace. Each firm must analyze its own operations, identify risk areas and adopt compliance procedures tailored to its particular situation.

A Participant has overriding agency responsibilities to its clients and cannot use technical compliance with the rule to establish fulfillment of its obligations if the Participant has not otherwise acted reasonably and diligently to obtain best execution of its client orders. 

Part 2 – Prohibition on Intentional Trading Ahead

A Participant can never intentionally trade ahead of a client order that is either a market order or tradeable limit order received prior to the entry of the principal order or non-client order except in accordance with an exemption from the requirements of Rule 5.3(1), which exemptions include obtaining the specific consent of the client. Examples of "intentional trades” include, but are not limited to:

• withholding a client order from entry on a marketplace (or removing an order already entered on a marketplace) to permit the entry of a competing principal order or non-client order ahead of the client order;
• entering a client order on a relatively illiquid market (other than on the instructions of the client) and entering a principal order or non-client order on a more liquid marketplace where the principal order or non-client order is likely to obtain faster execution;
• adding terms or conditions to a client order (other than on the instructions of the client) so that the client order ranks behind principal orders or non-client orders at that price;
• putting terms or conditions on a principal order or non-client order for the purpose of differentiating the principal order or non-client order from a client order that would otherwise have priority at that price; and
• entering a principal order or non-client order as an “anonymous order” (without the identifier of the Participant) which results in an execution in priority to a previously entered client order that discloses the identifier of the Participant.

Part 3 – No Knowledge of Client Order

The Participant must have reasonable procedures in place to ensure that information concerning client orders is not used improperly within the firm. These procedures will vary from firm to firm and no one procedure will work for all firms. If a firm does not have reasonable procedures in place, it cannot rely on the exceptions. Reference should be made to Policy 7.1 – Policy on Trading Supervision Obligations, and in particular Part 4 – Specific Procedures Respecting Client Priority.

If a client has instructed a Participant to withhold an order or has granted a Participant discretion with respect to the entry of an order, details of the instruction or grant of discretion must be retained for a period of seven years from the date of the instruction or grant of discretion and, for the first two years, the consent must be kept in a readily accessible location.

Part 4 – Client Consent

A Participant does not have to provide priority to a client order if the client specifically consents to the Participant trading alongside or ahead of the client. The consent of the client must be specific to a particular order and details of the agreement with the client must be noted on the order ticket. A client cannot give a blanket form of consent to permit the Participant to trade alongside or ahead of any future orders the client may give the Participant.

If the client order is part of a pre-arranged trade that is to be completed at a price below the best bid price or above the best ask price as indicated on a consolidated market display, the Participant will be under an obligation to ensure that “better-priced” orders on a protected marketplace are filled prior to the execution of the client order. Prior to executing the client order, the Participant must ensure that the client is aware of the better-priced orders and has consented to the Participant executing as against them in priority to the client order. The consent of the client must be noted on the order ticket.

If the client has given the Participant an order that is to be executed at various times during a trading day (e.g. an “over-the-day” order) or at various prices (e.g. at various prices in order to approximate a volume-weighted average price), the client is deemed to have consented to the entry of principal orders and non-client orders that may trade ahead of the balance of the client order. Unless the client has provided standing written instructions that all orders are to be executed at various times during the trading day or at various prices during the trading day, the client instructions should be treated as specific to a particular order and the details of the instructions by the client must be noted on the order ticket. However, if the un-entered portion of the client order would reasonably be expected to affect the market price of the security, the Participant may be precluded from entering principal orders or non-client orders as a result of the application of the frontrunning rule.

In certain circumstances, a client may provide a conditional consent for the Participant to trade alongside or ahead of the client order. For example, a client may consent to a principal order of Participant sharing fills with the client order provided the client order is fully executed by the end of the trading day. If the client's order is not fully executed, the client may expect that the Participant "give up" its fills to the extent necessary to complete the client order. In this situation, the Participant should mark its orders as "principal" throughout the day. Any part of the execution which is given up to the client should not be re-crossed on a marketplace but should simply be journalled to the client (since the condition of the consent has not been met, the fills in question could be viewed as properly belonging to the client rather than the principal order). To the extent that a Participant "gives up" part of a fill of a principal order to a client based on the conditional consent, the Participant shall report the particulars of the "give up" to the Market Regulator not later than the opening of trading on marketplaces on the next trading day. The conditional consent of the client must be specific to a particular order. The details of the agreement with the client must be noted on the order ticket.

POLICY 5.2 – BEST PRICE OBLIGATION – Repealed

POLICY 5.1 – BEST EXECUTION OF CLIENT ORDERS - Repealed