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The Investment Industry Regulatory Organization of Canada (IIROC) today published proposed rule amendments and guidance that together seek to update and streamline existing best execution requirements for IIROC-regulated firms.
IIROC is proposing to consolidate the best execution requirements in Universal Market Integrity Rules and Dealer Member Rulebook requirements for fair pricing of over-the-counter securities into a single dealer member rule respecting best execution.
Today’s publication addresses findings of an IIROC survey that looked at the best execution practices of IIROC-regulated firms. These updates are intended to assist dealer members in complying with their best execution obligations in a multi-marketplace environment. IIROC’s proposal also aligns with changes being proposed by the Canadian Securities Administrators that would require firms to disclose their best execution policies.
IIROC also considered feedback from a roundtable discussion it hosted earlier this year to foster debate about the best approach to maintaining healthy and competitive Canadian markets.
The roundtable explored alternatives to IIROC’s proposed Dark Rules Anti-Avoidance Provision published in January 2015 which sought to impose price discovery and “better price” requirements to cross-border trading.
IIROC concluded that enhanced best execution requirements and guidance may form part of an effective solution to address concerns about systematic routing of small orders southbound and is proposing additional requirements to help dealer members better understand the circumstances under which routing to a foreign market may not achieve best execution.
Specifically, a statement is included in the Proposed Rule that the sending of client orders in bulk to a specific foreign organized regulated market without considering other liquidity sources, including liquidity sources in Canada, is not in compliance with the requirement to achieve best execution. IIROC intends to withdraw the proposed Dark Rules Anti-Avoidance Provision.
“After careful consideration of all the constructive feedback we received from stakeholders and with enhanced transparency, we believe best execution for Canadian investors can be achieved efficiently and with consistency,” said Victoria Pinnington, Senior Vice President, Market Regulation for IIROC.
Comments on the proposals are requested by March 24, 2016.
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IIROC is the national self-regulatory organization which oversees all investment dealers and their trading activity in Canada’s debt and equity markets. IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.
