Proposed Provisions Respecting Order Execution Only Service Eligibility and Adviser Identifiers

Date opened: July 26, 2018

Date closed: October 24, 2018

Status: Closed

Summary/details:

IIROC is requesting comment on proposed amendments (Proposed Amendments) to Dealer Member Rule 3200 Minimum Requirements for Dealer Members Seeking Approval Under 1300(T) to Offer an Order-Execution Only Service (DMR 3200) that would:

  • prohibit a Dealer Member that provides order execution only services (OES Dealer) from providing an order execution only service (OES) to a client that is acting and, registered or exempted from registration as a dealer (registered dealer)
  • expand the requirement for identifiers by requiring OES Dealers to assign unique identifiers to:
    • an entity that is registered or exempted from registration as an adviser in accordance with securities laws (registered adviser) and has been granted trading authority, direction or control over an OES account (control)
    • an entity  that is in the business of trading securities in a foreign jurisdiction in a manner analogous to an adviser (foreign adviser equivalent) and that has control over an OES account
  • require OES Dealers to ensure that the unique identifiers are included on all orders sent to a marketplace1  for an account over which the registered adviser or foreign adviser equivalent has control.  

IIROC believes that the use of OES may present risks similar to other methods of third-party electronic access.  Prohibiting OES Dealers from providing OES to a registered dealer would help ensure registered dealers:

  • use an appropriate channel to access marketplaces for their registration category
  • do not have the ability to use marketplace access channels where they are not subject to the full set of IIROC rules when conducting dealer-type activity on a marketplace.

Identifying registered advisers and foreign adviser equivalents with control over an OES account would:

  1. improve our surveillance capability and help us better detect unusual orders and trading patterns
  2.  be consistent with the current requirements for direct electronic access (DEA) and routing arrangements (RA), thereby ensuring that similar requirements exist regardless of the marketplace access channel used
  3. better address the risks of electronic trading. 

Impacts

The Proposed Amendments would prevent registered dealers from using OES to trade, however they would still have the following options:

  • trade through a Participant on an intermediated basis
  • become registered as an investment dealer and IIROC member and trade through an RA.

OES Dealers would be required to develop policies and procedures to:

  • ensure they do not provide registered dealers with OES access
  • identify registered advisers and foreign adviser equivalents with control over an OES account
  • assign unique identifiers to those identified registered advisers and foreign adviser equivalents
  • provide IIROC with the unique identifier and the identity of the corresponding registered adviser or foreign adviser equivalent
  • ensure the unique identifier is included on each order sent to a marketplace for each account over which a registered adviser or foreign adviser equivalent has control.

IIROC expects that the technological implications of the Proposed Amendments on Dealer Members are primarily limited to any development required by OES Dealers to establish the above processes.  Participants that execute for OES Dealers may need to modify their systems to accommodate the expanded use of the proposed identifiers.

The Dealer Member Rules are undergoing a plain language rewrite (PLR).2  Clean and blacklined copies of the Proposed Amendments to the current Dealer Member Rules (DMR) are provided in Appendix B.  Clean and blacklined copies of the proposed PLR sections are included as Appendix D.

If the Proposed Amendments are approved and implemented prior to the implementation of PLR, the changes to the DMR as outlined in Appendices A and B will come into effect.

If the Proposed Amendments are approved and implemented after the implementation of PLR, the changes to PLR as outlined in Appendices C and D will come into effect.

  • 1Marketplace refers to any marketplace where IIROC is the regulation services provider.
  • 2See IIROC Notice 18-0014 – Rules Notice – DMR – Request for Comments – Re-publication of Proposed IIROC Dealer Member Rules Language Rule Book (January 18, 2018).
Notices about this consultation: