Part 6 - Order Entry and Exposure
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.
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.
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.
Defined Terms:
NI 21-101 section 1.1 – “order”
NI 21-101 section 1.4 – Interpretation -- “security”
UMIR section 1.1 – “Basis Order”, “better price”, “Call Market Order”, “client order”, “Closing Price Order”, “Exchange”, ”Market-on-Close Order”, “marketplace”, “Marketplace Operation Instrument”, “Marketplace Rules”, “non-client order”, “Opening Order”, “Participant”, “principal order”, “QTRS”, “Special Terms Order”, “standard trading unit” and “Volume-Weighted Average Price Order”
UMIR section 1.2(2) – “trade”
Related Provision:
UMIR section 1.2(3) - Interpretation
Partially Repealed Guidance: See Market Integrity Notice 2007-019 – “Entering Client Orders on Non-Transparent Marketplaces and Facilities” (September 21, 2007). Q. 2 and 6 of this Notice was partially repealed effective January 2, 2018 by IIROC Notice 17-0138 – “Guidance on Best Execution” (July 6, 2017).
Regulatory History:
Effective April 8, 2005, the applicable securities commissions approved an amendment to clause (h) of subsection (1) of Rule 6.3 to add subclause (vi). 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 subsection (1) of Rule 6.3 to add the phrase “that displays orders in accordance with Part 7 of the Marketplace Operation Instrument” after the first occurrence of the word “marketplace” and to amend clause (h) to add subclause (vii). See Market Integrity Notice 2007‑002 – “Provisions Respecting Competitive Marketplace” (February 26, 2007).
On April 13, 2012, the applicable securities commissions approved amendments to subsection (1) of Rule 6.3, effective October 15, 2012, to add the phrase “for display” after the word “enter”, to clause (e) of subsection (1) to add the phrase “on a marketplace” after the word “order” and to subsection (2) to add the phrase “on a marketplace” before the word “based”. See IIROC Notice 12‑0131 – “Provisions Respecting the Execution and Reporting of Certain “Off-Marketplace” Trades” (April 13, 2012).
Effective December 9, 2013, the applicable securities commissions approved amendments to the French version of UMIR. See IIROC Notice 13-0294 – Notice of Approval and Implementation – “Amendments to the French version of UMIR” (December 9, 2013).
Disciplinary Proceedings: Rule 6.3(1) was considered In the Matter of TD Securities Inc. (“TDSI”) (July 5, 2006) DN 2006-007. See Disciplinary Proceedings under Rule 5.1.
Disciplinary Proceedings: In the Matter of BMO Nesbitt Burns (“BMO”) (October 4, 2019), 2019 IIROC 28
Facts – Between September 2014 and March 2016, BMO Nesbitt approved and permitted an order execution procedure for a Registered Representative which resulted in some retail client orders that were less than 50 standard trading units (5,000 units for securities priced $1.00 or more) being accumulated over a one hour period before they were entered on a marketplace. This was contrary to UMIR 6.3, commonly known as the “Order Exposure Rule.”
Disposition and Sanction – Pursuant to a Settlement Agreement, BMO admitted that it permitted an RR to use an order execution procedure that was contrary to UMIR 6.3. BMO paid a fine of $50,000 and costs of $5,000.
Requirements Considered – Rule 6.3.