The Trading Conduct Risk Assessment Model is a risk management tool to help identify, define, assess and “weigh” risks in respect to IIROC Dealer Members, who are also marketplace participants, to determine priority focus in the Trading Conduct examination cycle of Dealer Members. The model gives an indication of the comparable risk assessment for each Dealer Member relative to all firms and relative to other in a Peer Group, who are also marketplace participants.

The objective of the TC Risk Assessment Model is to identify Dealer Members having a higher than average, or lower than average, probability of failing to maintain or uphold market integrity and/or comply with the requirements set out in the Universal Market Integrity Rules (UMIR). With this information, IIROC further ensures that its regulatory focus is placed on higher risk firms.

The model identifies three risk types, 6 risk categories and 17 specific risks. Each specific risk is assessed and weighted to determine an individual firm risk score.

The model then calculates the risk control score by identifying 2 risk control categories and 3 specific risk controls. Each specific risk control is assessed and weighted. Risk control is the method the firm uses to mitigate or reduce its trading risk. The higher the risk control score, the higher the quality of overall risk control.

The resulting risk control score is discounted and 40% of the score is subtracted from the trading risk score to achieve a residual risk score for each film. The discount factor is applied consistently to all applicable Dealer Member risk control scores to better differentiate residual risk scores.

In summary, the formula for the TC Risk Assessment is as follows:

Residual Risk Score = Trading Risk Score - [40% of Risk Control Score]

Trading Risk Weightings

Each risk type is assigned a fixed weighting to differentiate the level of its importance in the model.

Schematic
Residual Risk Rating
Components