Part 6 - Order Entry and Exposure
Defined Terms:
NI 21-101 section 1.1 – “order”
NI 21-101 section 1.4 – Interpretation -- “security”
NI 23-101 section 1.1 – “directed-action order”
NI 31-103 section 1.1 – “investment dealer”
UMIR section 1.1 – “Access Person”, “Basis Order”, “bypass order”, “bundled order”, “Call Market Order”, ”Closing Price Order”, “consolidated market display”, “derivative”, “derivatives market maker”, “derivative-related cross”, “direct electronic access”, “Exchange”, “foreign dealer equivalent”, “identified order execution only client”, “Global Legal Entity Identifier System”, “insider”, “intentional cross”, “internal cross”, “jitney order”, “Legal Entity Identifier”, “listed derivative”, “listed security”, ”Market-on-Close Order”, “Market Regulator”, “marketplace”, “multiple client order”, “non-client order”, “Opening Order”, “Participant”, “principal order”, “Program Trade”, “routing arrangement”, “short-marking exempt order”, “short sale”, “significant shareholder”, “Special Terms Order”, “Trading Rules” and “Volume-Weighted Average Price Order”
UMIR section 1.2 – “person”
Related Provision:
UMIR sections 7.13, 10.15
Partially Repealed Guidance: See Notice 14-0264 - “Guidance Respecting Order Execution only as a Form of Third-Party Electronic Access to Marketplaces” (November 13, 2014). Item 4 in reference to client account numbers in ACCOUNT_ID field of each order and Question 1 in Item 5 of this Notice were partially repealed and replaced effective July 26, 2021 by IIROC Notice 21-0099 – “Use of Identifiers and Notification Requirements Respecting Certain Order Execution Only and Direct Electronic Access Clients and Advisers” (May 25, 2021).
Regulatory History:
Effective April 8, 2005, the applicable securities commissions approved an amendment to require marking of Basis Orders. See Market Integrity Notice 2005-010 – “Provisions Respecting a “Basis Order”” (April 8, 2005).
Effective March 9, 2007, the applicable securities commissions approved an amendment to require marking of a Closing Price Order. See Market Integrity Notice 2007‑002 – “Provisions Respecting Competitive Marketplaces” (February 26, 2007).
On May 16, 2008, the applicable securities commissions approved an amendment to require marking of a bypass order. The implementation date of this amendment was determined by the IIROC Board of Directors to be June 1, 2009. See Market Integrity Notice 2008‑008 – “Provisions Respecting “Off-Marketplace” Trades” (May 16, 2008) and see IIROC Notice 09‑0034 – “Implementation Date for the Marking of Bypass Orders” (February 3, 2009).
Effective February 1, 2011, the applicable securities commissions approved an amendment to require marking of a directed action order. See IIROC Notice 11‑0036 – “Provisions Respecting the Implementation of the Order Protection Rule” (January 28, 2011).
On April 13, 2012, the applicable securities commissions approved amendments to section 6.2, effective October 15, 2012, to replace the short sale language (that referenced price restrictions) with short sale and short-marking exempt order marker requirements. See IIROC Notice 12‑0078 – “Provisions Respecting Regulation of Short Sales and Failed Trades” (March 2, 2012).
On July 4, 2013, the applicable securities commissions approved amendments to section 6.2, effective March 1, 2014, to add identifier requirements for direct electronic access clients and routing arrangements. See IIROC Notice 13‑0184 – "Provisions Respecting Third-Party Electronic Access to Marketplaces" issued July 4, 2013.
On November 13, 2014, the applicable securities commissions approved amendments to 6.2, effective June 1, 2015, to require an identifier if the order requires an identifier under Dealer Member Rule 3200. See IIROC Notice 14‑0263 – “Provisions Respecting Order Execution Services as a Form of Third-Party Electronic Access to Marketplaces” (November 13, 2014).
On February 3, 2017, the applicable securities commissions approved amendments to section 6.2, effective September 14, 2017. See IIROC Notice 17‑0039 – Notice of Approval – “Amendments Respecting Designations and Identifiers” (February 16, 2017).
Effective July 26, 2021, the applicable securities commissions approved amendments to sections 1.1, 6.2, 7.13 and 10.15 to add identifier and/or designation requirements for clients on orders sent to a marketplace. See IIROC Notice 19-0071 – “Amendments Respecting Client Identifiers” (April 18, 2019).
Effective December 31, 2021, the applicable securities commissions approved housekeeping amendments to replace rule references to the Dealer Member Rules with provisions of the IIROC Rules. See IIROC Notice 21-0236 – Rules Notice – Notice of Approval – UMIR – "Housekeeping amendments to UMIR 6.2 to update reference to IIROC Rules" (December 16, 2021).
Effective December 14, 2022, the applicable securities commissions approved amendments to UMIR 6.2 to add designations and identifiers applicable to trading in a listed derivative. See IIROC Notice 22-0140 – “Amendments Respecting the Trading of Derivatives on a Marketplace” (September 15, 2022).
Disciplinary Proceedings: Rule 6.2(1)(b)(viii) and (x) was considered In the Matter of Salman Partners Inc. (“Salman”), Sameh Magid (“Magid”), William Burk (“Burk”) and Ian Todd (“Todd”) (February 18, 2005) SA 2005-001.See Disciplinary Proceedings under Rule 3.1.
Disciplinary Proceedings: In the Matter of Union Securities Ltd. (“Union”) (April 18, 2006) DN 2006-004
Facts – Between 15 October 2002 and 31 July 2005, Union failed to implement adequate trade supervision and compliance systems and appoint a Head of Trading with the effective responsibility for supervising trading. In failing to do so, Union’s supervisory system could not adequately mitigate certain risks to the marketplace which were identified by RS in the course of its trade desk reviews. In particular, Union failed to update its written policies and procedures in a timely fashion to ensure that orders entered on a marketplace contained acceptable order designations, failed conduct accurate internal auditing and maintain an appropriate audit trail in its paper ticket practices.
Disposition – A Participant is required to implement an updated trade supervision and compliance system which is appropriate for its business and which allows the Participant and its directors, officers, partners and employees to detect, prevent and address violations or a possible violations of UMIR. Union failed to adopt, implement and update its trading supervision and compliance policies and procedures such that they met the minimum requirements under UMIR.
Requirements Considered – Rules 6.2, 10.11, 7.1 and Policy 7.1
Sanction – $150,000 fine; certification to RS by Union’s President and a director of Union (on behalf of the Board of Directors) that:
Also, Union will consent to and cooperate with any and all reasonable trade desk review and information requests from RS to monitor progress on achieving targets.
Disciplinary Proceedings: Rule 6.2(1)(b) was considered In the Matter of Raymond James Ltd. (“Raymond James”) and Marc Deslongchamps (“Deslongchamps”) (June 30, 2006) DN 2006-006.See Disciplinary Proceedings under Rule 5.3
Disciplinary Proceedings: In the Matter of Golden Capital Securities Ltd. (“Golden”), Jack Finkelstein (“Finkelstein”) and Jeff Rutledge (“Rutledge”) (November 23, 2007) DN 2007-004
Facts – Between April 1, 2002 and July 31, 2005, Golden was deficient in a number of its order designation and audit trail requirements. Golden also failed to appoint a Head of Trading and trading supervisor and failed to ensure its employees with trade supervision functions were properly trained.
Between June 2004 and March 2005, Finkelstein participated in several trades that involved matching buy and sell orders to “cross” securities that were either missing or contained inaccurate order information related to the size, price, time of receipt and/or variations to an order. In one case Finkelstein failed to correctly designate the inventory side of a client/principal cross involving 50 standard trading units or less which resulted in the cross being executed without the required price improvement to the client.
Between June 2004 and March 2005, Rutledge participated in several trades involving matching buy and sell orders to “cross” securities that were either missing or contained inaccurate order information related to the size, price, time of receipt and/or variations to an order. In one case Rutledge failed to correctly designate the inventory side of a client/principal cross involving 50 standard trading units or less which resulted in the cross being executed without the required price improvement to the client.
Disposition – By failing to ensure that each order entered on a marketplace contained the proper order designations and failing to implement adequate policies and procedures to ensure compliance with UMIR, Golden contravened Rule 6.2(1)(b), Rule 7.1, Rule 7.1(3) and Policy 7.1 of UMIR. Finkelstein and Rutledge, by failing to record all order designations and information required with respect to the entry of an order on a marketplace and failing to ensure that a client order executed against a principal order or non-client order receive the required price improvement breached Rules 6.2, 6.2(1)(b) and 8.1 of UMIR.
Requirements Considered – Rules 6.2, 7.1, 8.1, 10.11 and Policy 7.1
Sanction – Golden - $180,000 fine and costs of $20,000;
Finkelstein - $25,000 fine; and
Rutledge - $35,000 fine and costs of $5,000.
Disciplinary Proceedings: In the Matter of Vinh-Phat Nguyen-Qui (“Nguyen-Qui”) (October 11, 2012) DN 12-0298
Facts – Between October and December 2009 (the “Relevant Period”), Nguyen-Qui, a Registered Representative employed by W.D. Latimer Co. Limited, entered buy and sell orders on the TSX in the pre-opening market and cancelled them prior to market opening for the sole objective of acquiring a better chronological position once the market opened. Nguyen-Qui also entered short sale orders in the pre-opening market without designating them as short sales and/or at a price below the last sale price as indicated in the consolidated market display.
Disposition – In the Relevant Period, Nguyen-Qui entered orders he knew or ought to reasonably have known would create or could reasonably be expected to create, a false or misleading appearance of trading activity or interest in the purchase or sale of the security, contrary to UMIR 2.2(2)(a); entered short sale orders in the pre-opening market without proper designation contrary to UMIR 6.2(1)(b)(viii); and entered short sale orders in the pre-opening market below the last sale price, contrary to UMIR 3.1(1).
Requirements Considered – Rule 2.2(2)(a), 3.1(1) and 6.2(1)(b)(viii).
Sanction – The Hearing Panel imposed a prohibition on Nguyen-Qui from accessing the market as a Registered Representative for a period of two months and a fine of $10,000 for the first violation plus fines of $5,000 for each of the two additional violations; Nguyen-Qui was also required to take the Trader Training Course again and pay costs in the amount of $10,00
Disciplinary Proceedings: In the Matter of RBC Dominion Securities (“RBC”) (July 20, 2022), 2022 IIROC 19
Facts – Between August 2017 and October 2021 (the “Relevant Period”), the Respondent did not include proper order designations on numerous orders entered on an IIROC-regulated marketplace as required by UMIR 6.2(1)(b). The incorrectly designated orders were self-reported to IIROC and the various underlying causes have been remedied by the Respondent; and during the Relevant Period, the Respondent’s internal surveillance and trade supervision in respect of the subject orders was based on erroneous underlying data as was IIROC’s ability to effectively perform its market oversight responsibilities in connection with them.
Disposition and Sanction – Pursuant to a Settlement Agreement, RBC admitted that it contravened UMIR 6.2(1)(b). RBC agreed to pay a fine of $140,000 and costs of $22,500.
Requirements Considered – Rule 6.2(1)(b)