2021 INDUSTRY BUSINESS CONTINUITY PLANNING (BCP) TEST — FAQ

Test Elements and Participation

    There is a new element added to this year’s test. In past years, the test comprised of two components, the Crises Communication Centre (CCC) and Simulated Trading exercises. The 2021 industry BCP test will include a third component, namely an Incident Response Plan (IRP) exercise. Further details can be found here.

    National Instrument 21-101 Marketplace Operation (NI 21-101) requires all market participants enumerated in Part 12.4.1 to participate in all industry wide BCP tests as determined by IIROC or the securities regulatory authority in Québec:

    “A marketplace, recognized clearing agency, information processor, and participant dealer must participate in all industry-wide business continuity tests, as determined by a regulation services provider, regulator, or in Québec, the securities regulatory authority.”

    “Participant dealer” is defined in National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces as meaning:

    1. a marketplace participant that is an investment dealer, or
    2. in Québec, a foreign approved participant as defined in the Rules of the Montréal Exchange Inc., as amended from time to time.

    A listing of IIROC Dealer Members who meet the definition of “participant dealer” is available here (pdf).

    IIROC Dealer Members not subject to NI 21-101 may elect to participate on a voluntary basis.

    As with prior years, major service providers including the exchanges, ATSs, clearing agencies, routing services, and relevant regulators have also been invited to participate in the test. 

    All participant dealers are required to participate in the CCC and IRP exercises. 

    Participation in the Simulated Trading exercise is based upon trading thresholds as developed by IIROC’s Financial and Operations Advisory Section’s Contingency Planning Subcommittee, in consultation with IIROC staff and the CSA.  The established threshold is intended to ensure the minimum necessary firm participation for the maintenance of fair and orderly markets in the event of a significant business disruption impacting the Canadian markets.  Specifically, participant dealers with trading volumes above 1 billion net trades/year are required to participate in the Simulated Trading exercise. 

    For further clarity, participant dealers below 1 billion net trades/year are only required to participate in CCC and IRP testing (as noted above) and may elect to participate in the trading simulation.

    Exemptions from the above requirements must be obtained from the CSA.

    Dealer Members not subject to Part 12.4.1 of NI 21-101 may participate on a voluntary basis.

    The test will take place over the course of two days. The CCC and Simulated Trading components will take place on Saturday, October 23, 2021. The IRP exercise will take place on Tuesday, October 26, 2021.

    Incident Response Plan Exercise

      The IRP component is a simulated exercise based upon a market disruption incident. The purpose of the exercise is to assist participant firms to gain insights into:

      1. The adequacy of their IRPs under a simulated industry-wide market disruption event;
      2. The efficiency and effectiveness of the coordination and communication within and between organizations and regulators; and
      3. Opportunities to improve their IRPs.

      This new component will be developed in consultation with the CSA and a Working Group comprised of Participants of the test (Working Group).

      Crises Communication Centre (CCC) Exercise

        The CCC exercise aims to test participants ability to respond to a crisis communication. For the purpose of the test, participants will be required to identify their CCC contacts well in advance of the test. On test day, participants will then be required to respond to an IIROC communication.

        Simulation Trading Test

          The goal of the test is to validate the ability of Dealer Members participants’ ability to process transactions where most back-office and trading staff normally work. For the service providers, the goal is to validate the ability of the service provider to process transactions without access to their main data center. Another goal is to validate the ability of Dealer Members to process transactions to the back-up processing sites of the service providers.

          The trading scenario for October 23, 2021 will test IIROC’s Dealer Member participants’ ability to process transactions out of their production/primary data processing sites while the service providers will be testing out of their Disaster Recovery (DR) data processing sites. 

          The test will be successful to the extent that IIROC Dealer Member participants are able to connect from their production/primary data processing sites to their selected service providers’ DR data processing sites, and successfully process a set of pre-arranged transactions.

          The test will go beyond connectivity testing (to service providers’ DR sites) to processing a number of agreed transactions, to receiving trade confirmations. Trades will also be passed on to clearing agencies and service bureaus. Certain aspects of market dynamics such as order routing will also be tested. Test transactions will include equities, mutual funds, fixed income, GICs, CDS MM, EFT, futures and options. The scope will also include testing retail and institutional functionality.

          Yes. For the 2021 equities test (including ETFs), Dealer Members will decide how many trades they wish to process with a minimum of 5 and a maximum of 25 trades per participant. For each trade, Dealer Members will decide transaction volumes. 

          Equity trades are prescribed in the test scripts where test symbols and transaction protocols are defined. Test scripts will be available to participants in advance and are developed by the Working Group.

          Equity trades may be made on all exchanges and ATSs. Each ATS and exchange has a set of inter-listed test symbols that will be used by Smart Order Routing (SOR) systems to route trades to the ATS or exchange with the best price. Each ATS and selected exchanges have symbols that are unique. This will allow for trades to be directed to a specific ATS or exchange. 

          For mutual funds, fixed income, options and futures, Dealer Members will be required to process specific scripted transactions (one buy and one sell for the type of product being tested). Test symbols will be used for all test transactions. 

          The transactions will be defined in test scripts that will be distributed to participants once finalized by the Working Group. There will primarily be purchase and sale (or redemption) transactions. There will be no actual deliveries and no exchanges of cash. Transactions may also include certain back-office type transactions such as transfers and account openings.

          After careful consideration of the issue, the Working Group has decided not to test “cancel & correct” transactions on October 23, 2021.

          It is the responsibility of Dealer Members, who are participating in the trading test, to work with the service providers to determine how to establish connectivity to their alternate/DR site. Where a Dealer Member uses a third-party service provider to connect to another service provider, it will be the responsibility of the Dealer Member to coordinate the activities of the third-party service provider. 

          IIROC will not be involved in arranging pre-testing, but strongly encourage Dealer Members to pre-test where this is accommodated by the service providers. Dealer Members should contact the service providers directly about pre-testing once the test scripts have been developed and the requirements for connectivity are established. 

          There will, of course, be interaction between the service bureaus, exchanges and clearing agencies, to the extent that the service bureaus process transactions on behalf of Dealer Members (through their Order Match systems for example). 

          No. The test scenario calls for the service providers to test only out of their DR data processing sites, without any access to, or use of, primary facilities. Limited exceptions will be considered by the Working Group.

          A Dealer Member or a service provider may expand on the scheduled test as long as the additional test procedures do not impact the industry test in an adverse way and the additional tests are directly coordinated between the service providers and Dealer Members involved. 

          Our objective is to ensure that introducers participate effectively in the test. We appreciate that introducers can be quite different from one another. Some introducers rely heavily on their carrier in processing their business where all they have to do is to communicate their requests/orders to their carrier and let the carrier process their orders and clear their trades. At the other extreme, we have introducers who have their own access to the markets and who might trade under their own trading number with their carrier clearing their trades.

          The test objective is to simulate normal trading with the disruption envisioned by the test scenario.  Introducing brokers should test their ability to perform their trading functions as they would on a normal business day.

          Introducers are asked to invoke their own business continuity plans and connect to their carrier's site to communicate the pre-scripted trades being used for the test. Introducers should also get confirmation of their trades from the carrier or the relevant service providers.

          Introducers are expected to complete the test results and test feedback like any other Dealer Member or service provider test participant.

          A list of all participating service providers is made available to participants. Dealer Members can choose from the list any service provider they would like to test with. The Dealer Member should also contact the service provider to determine if there are any special considerations for the test. Participants will also be provided a list of all Dealer Members who have expressed an interest in testing with specific service providers.

          Miscellaneous

            No. All costs will be covered by the participants.

            Successful participation in the test will be one element of compliance with IIROC Rule 17.16. IIROC Dealer Members are required to test their business continuity plans at least annually. Such testing should include other types of significant disruptions to a Dealer Member and its ability to maintain critical business functions and ensure that they are able to resume service within an acceptable period of time in order to facilitate prompt client access to their assets and to conduct trades.

             

            Contact Des O’Callaghan at 647-385-2466 ([email protected]) or Elsa Renzella at 416-943-5877 ([email protected]).