Amendments Respecting Client Identifiers

19-0071
Type: Rules Notice> Approval/Implementation
Rule connection:
UMIR
Legacy DMR Rules
Distribute internally to:
Institutional
Senior Management
Trading Desk
Retail
Legal and Compliance

Contact:

Theodora Lam
Senior Policy Counsel, Market Regulation Policy
Telephone:
Email:

Executive Summary

On April 15, 2019, the applicable securities regulatory authorities approved amendments (Amendments) to the Universal Market Integrity Rules (UMIR) and the Dealer Member Rules (DMR) to include client identifiers and/or certain designations on:

  • each order for a listed security that is sent to a marketplace
  • each reportable trade in a debt security. 

On May 17, 2017, IIROC published for comment proposed changes regarding client identifiers in IIROC Notice 17-0109Proposed Provisions Respecting Client Identifiers. In response to comments received and further industry consultation, we re-published proposed rule changes for comment on June 28, 2018 in IIROC Notice 18-0122Publication of Proposed Provisions Respecting Client Identifiers (June 2018 Proposal). All relevant background, including the description and impact of the Amendments, is set out in these Notices.

We have made a few non-material changes to the June 2018 Proposal in response to comments received and further industry consultation. The changes to the June 2018 Proposal are described below.

Comments Received

We received eight comment letters in response to IIROC Notice 18-0122. Appendix D provides a summary of the public comments received and our responses.

Description of Non-Material Changes to June 2018 Proposal

  • Replacing the references to“equity security” in DMR 3600, proposed plain language rewrite of DMR (PLR) 3140 and proposed PLR 3241 with “listed security” as defined in DMR 3300.1 and proposed PLR 3119(1)(v) in order to capture all orders that could be entered on a marketplace, including listed debentures.
  • Moving the definition of “listed security” from the provisions regarding the best execution of client orders in proposed PLR 3119(1)(v) to the general definition section in proposed PLR 1201(2), as the definition of “listed security” applies to more than one section of PLR.
  • Amending the definitions of “bundled order” and “multiple client” order in DMR 3200, DMR 3600 and proposed PLR 1201(2) to align with the same definitions in UMIR 1.1.
  • Clarifying the requirement in DMR on originating Dealer Members who are not Participants to use an LEI as the identifier when sending an order in a listed security on a marketplace under subsection 2(b) of DMR 3600 (or proposed PLR 3140(1)(b)). This is to align with the requirement on Executing Participants to include an LEI for originating Dealer Members as:
    • a routing arrangement client under UMIR 6.2(1)(a)(iv)(1)(B), or
    • a client supervised as an institutional client by the executing Participant under UMIR 6.2(1)(a)(iv)(1)(D).

We are confirming the LEI requirement on originating Dealer Members in response to commenters’ request for a clarification of the roles between the originating and executing Dealer Members.

  • Confirming that Dealer Members do not need to ensure that their clients renew their LEIs on an annual basis. However Dealer Members that use an LEI as the identifier must annually renew their LEIs, including:
    • reporting Dealer Members for debt securities under Item 14 of section 2.4(c) of DMR 2800C (or subsection 7 of proposed PLR 7203) (see section 2.6 of DMR 2800C (or proposed PLR 7203(8))
    • originating Dealer Members that are not Participants for listed securities under DMR 3600(2)(b) (or proposed PLR 3140(1)(b)) (see section DMR 3600(4) (or proposed PLR 3140(3)).
  • Clarifying our expectations on reasonable steps with a deadline by which the Dealer Member must stop trading for a client that is required to use an LEI as a client identifier but has still not obtained one. This change is in response to commenters asking IIROC to specify how long Dealer Members would be able to trade for clients that do not have an LEI.
  • Removing the rule requirement to report allocations in debt securities that occur before the transaction reporting deadline in DMR 2800C or proposed PLR 7200. Rather than including this as a rule requirement, Dealer Members can continue to rely on the MTRS 2.0 UserGuide regarding the reporting of trade allocations.
  • Clarifying that the only parties that need to notify us with client names and the account numbers are clients that enter into a direct electronic access agreement that are not eligible to receive an LEI under UMIR 7.13(6)(a).

We will be working with an Implementation Committee (Committee) to facilitate the implementation of the Amendments.

Implementation

The Amendments come into force on the following days after the publication of this Notice:

Phase 1 – Debt Securities: 6 months

  • LEIs for institutional customers and account numbers for retail customers
  • Corrections for missing or erroneous client identifiers for trades only (not orders).

Phase 2 – Listed Securities: 18 months

  • LEIs for the following clients:
    • Direct Electronic Access (DEA) clients that are eligible to obtain an LEI and Routing Arrangement (RA) clients
    • identified order execution only clients1 that are eligible to obtain an LEI.
  • Account numbers for the following clients:
    • clients not supervised as institutional clients at the Dealer Member
    • identified order execution only clients that are ineligible to obtain an LEI, along with their names to be reported to IIROC
    • DEA clients that are ineligible to obtain an LEI, along with their names to be reported to IIROC.
  • Introduce the following designations:
    • DEA, RA and Order Execution Only (OEO) designations
    • Multiple Client (MC) designation
    • unique identifiers for clients of a foreign dealer equivalent that automatically generate an order on a predetermined basis.
  • Corrections for missing or erroneous client identifiers for trades only (not orders).

Phase 3 – Listed Securities: 24 months

  • LEIs for all other clients supervised as an institutional client at the Dealer Member.
  • Corrections for missing or erroneous client identifiers for trades only (not orders).

To assist Dealer Members in filing trade corrections under Phase 2, we will be updating the Regulatory Marker Correction System (RMCS) to accommodate bulk uploads. We will coordinate the timing of the RMCS update so that it will be ready by the time Phase 2 is implemented. 

Implementation Committee

The Committee would be comprised of up to 15 members.

Committee membership draws from the expertise of Dealer Members, vendors, marketplaces and buyside personnel with technical experience in the following areas in listed securities:

  • FIX protocol and order messaging
  • Encryption methods and techniques.

We encourage Dealer Members to reach out to their respective vendors regarding participation on the Committee in order to ensure smooth implementation of the Amendments.

Application and Appointment Process

Committee members are appointed by the Vice President, Market Policy and Trading Conduct Compliance, on the advice of IIROC Staff.

Please forward your interest or inquiries by May 20, 2019 to:

Attachments

Appendix A – Text of Amendments to UMIR, DMR and proposed PLR

Appendix B – Blackline of Amendments to UMIR, DMR and proposed PLR

Appendix C – Summary of comments received and IIROC’s responses

  • 1. An “identified order execution only client” is defined under UMIR 1.1 to mean a client using an order execution only service:
    (a) whose trading activity on marketplaces for which the Market Regulator is the regulation services provider exceeds a daily average of 500 orders per trading day in any calendar month,
    (b) that is not an individual and is registered as a dealer or adviser in accordance with applicable securities legislation, or
    (c) that is not an individual and is in the business of trading securities in a foreign jurisdiction in a manner analogous to a dealer or adviser.