7.13 Direct Electronic Access and Routing Arrangements

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

Defined Terms:

NI 14-101 section 1.1(3) – “securities legislation”

NI 21-101 section 1.1 – “member”, “order”, “subscriber” and “user”

NI 23-103 section 1 – “automated order system”

NI 31-103 section 1.1 – “investment dealer”

UMIR section 1.1 – “direct electronic access”, “foreign dealer equivalent”, “Global Legal Entity Identifier System”, “Legal Entity Identifier”, “Market Regulator”, “marketplace”, “Participant”, “Requirements” and “routing arrangement”

Related Provisions:

UMIR sections 6.2 and 10.18 and Policy 7.1, Parts 7 and 8

Bulletins

Partially Repealed Technical Notice: See IIROC Notice 13-0290 – “Gatekeeper and Notice Requirements For Direct Electronic Access and Routing Arrangements” (December 3, 2013). Part A of this Notice in reference to Rule 7.13(6): Notification of DEA or Routing Arrangement was 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).

Use of Identifiers and Notification Requirements Respecting Certain Order Execution Only and Direct Electronic Access Clients and Advisers

October 14, 2021

Guidance Note

GN-3200-21-006

Regulatory History:

On July 4, 2013 the applicable securities commissions approved an amendment, effective March 1, 2014, to add Rule 7.13. See IIROC Notice 13-0184 – “Provisions Respecting Third-Party Electronic Access to Marketplaces” (July 4, 2013).

Effective March 27, 2018 the applicable securities commissions approved amendments to UMIR 7.13. See IIROC Notice 17-0189 - “Amendments Respecting Trading Supervision Obligations” (September 28, 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).

Disciplinary History

Disciplinary Proceedings: In the Matter of CIBC World Markets. (“CIBC”) (March 30, 2022), 2022 IIROC 05

Facts – Between September 2019 and July 2020, the Respondent failed to comply with its trading supervision obligations to 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 financial, regulatory and other risks associated with the use by its DEA [“direct electronic access”] client of an automated order system contrary to UMIR 7.1, UMIR Policy 7.1 and UMIR 7.13.

Disposition and Sanction – Pursuant to a Settlement Agreement, CIBC admitted that it contravened UMIR 7.1, UMIR Policy 7.1 and UMIR 7.13. CIBC agreed to pay a fine of $150,000 and costs of $15,000.

Requirements Considered – Rule 7.1, Policy 7.1, Rule 7.13.

Disciplinary Proceedings: In the Matter of Clarus Securities Inc. (December 12, 2024), 2024 CIRO 90

Facts – Between July 26, 2017, and April 30, 2018, Clarus failed to ensure that client orders entered through its firm were not part of a potential manipulative or deceptive method, act or practice, nor an attempt to create a false or misleading appearance of trading activity or interest in relation to trading in Liberty Health Sciences (“LHS”), a CSE-listed issuer. The trading activity consisted of pre-arranged trades executed by Clarus with other Participants, that were being coordinated by a Clarus client who directed and controlled a group of related accounts. The pre-arranged trades were between related accounts held at Clarus and related accounts held at other Participants. Clarus also executed two intentional crosses that were potentially manipulative and deceptive for two related accounts held at Clarus.

Disposition and Sanction – Pursuant to a Settlement Agreement, Clarus admitted that it contravened UMIR 7.1 and UMIR Policy 7.1. Clarus agreed to pay a fine of $425,000 and costs of $25,000.

Requirements Considered – Rule 7.1, Policy 7.1, Rule 7.13.

Part 1 - Definitions and Interpretation

1.1 Definitions

1.2 Interpretation

1.3 Transitional Provision

Part 2 - Abusive Trading

2.1 Specific Unacceptable Activities

2.2 Manipulative and Deceptive Activities

2.3 Improper Orders and Trades

Part 3 - Short Selling

3.1 Restrictions on Short Selling – Repealed

3.2 Prohibition on the Entry of Orders