Amendments Respecting Designations and Identifiers

17-0039
Type: Rules Notice> Approval/Implementation
Rule connection:
UMIR

Contact:

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

Executive Summary

On February 3, 2017, the applicable securities regulatory authorities approved amendments to UMIR 1.1 and 6.2 (the “Amendments”).  The Amendments will:

  • introduce a new order designation to identify orders that bundle together client, non-client and/or principal orders 
  • introduce a new order designation to identify derivative-related crosses
  • modify the existing bypass order marker from a public to a non-public marker for bypass orders that are not part of a designated trade. 

The Amendments were published for comment on June 9, 2016 in IIROC Rules Notice

16-0123 – Rules Notice – Request for Comments – UMIR – Proposed Provisions Respecting Designations and Identifiers.  All relevant background information, including the description and impact of the Amendments, is set out in IIROC Notice 16-0123.

Comments Received

We received four comment letters in response to IIROC Notice 16-0123. Attachment C provides a summary of the public comments received and our responses.  As a result of the comments, revisions to the proposed amendments were made, as set out in Attachment C and summarized below.

Description of Amendments and Non-Material Changes

Bundled Order Designation

No changes were made to the definition of the bundled order marker as a result of the comments received.  The bundled order designation is a mandatory marker and removes the need to use the most restrictive designation when bundling orders. 

We note that Participants and Access Persons must still file a Corrections Report where:

  • a portion of the bundled order is an insider or significant shareholder as defined in UMIR1, or
  • the bundled order contains sales from long and short positions and/or from an account that is eligible to use the short-marking exempt designation2

Participants and Access Persons are required to provide the “unbundled” allocation upon regulatory request. 

All other UMIR provisions continue to apply when executing a bundled order, including UMIR 5.3 Client Priority and UMIR 6.3 Exposure of Client Orders, where the client portion of the order is 50 standard trading units or less and $100,000 or less.

Derivative-Related Cross Designation

We have amended the definition of the derivative-related cross designation to remove references that indicate the trade is riskless or near riskless. The definition now only requires a prearranged trade resulting from an order entered on a marketplace by a Participant or Access Person for a particular security to be fully offset by a trade in a related security that is a derivative instrument.

The derivative-related cross designation may be used to identify a variety of transactions, including:

  • listed derivatives transactions, such as hedges against listed options or futures, Exchange for Physical (“EFPs”), and index/custom basket swaps
  • related security transactions including hedges against exchangeable or convertible debentures, OTC options, swaps and forwards.

Bypass Order Marker

No changes were made to the proposal to display the bypass order marker as a result of the comments received. The Amendments modify paragraph 6.2(6)(a) of UMIR to change the bypass order designation to a private designation when used for a bypass order that is not part of a designated trade3

Numbering convention in UMIR 6.2

For ease of reference, the numbering convention has been modified in UMIR 6.2, as detailed in Attachment B.

Attachments

Attachment A – Final amendments to UMIR 1.1 and 6.2

Attachment B – Text of UMIR to Reflect Amendments to UMIR 1.1 and 6.2

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

Implementation

Participants and marketplaces will be required to undergo system changes to support the new designations, which would be new values in existing FIX fields. As these new designations have no existing values in the standard FIX range, we will use custom enumerators above the standard FIX range:

  • Tag 581 (AccountType): 101 (Bundled)
  • Tag 549 (CrossType): 101 (Derivative Related Cross)

Participants may wish to contact third-party providers regarding the implementation of these changes.  Marketplaces will be required to certify the above changes with IIROC.

Marketplaces will also be required to undergo system changes to reflect the changes to the bypass order marker. Specifically, where a bypass order is not part of a designated trade, marketplaces must suppress the bypass order marker on public data fields. 

The Amendments come into force on September 14, 2017, being 210 days after the publication of this Notice.

  • 1. See IIROC Notice 15-0135 – Guidance Note – UMIR – Alternative Guidance on “Insider” Order Marking (June 24, 2015).
  • 2. See IIROC Notice 2005-025 – Guidance Note – UMIR – Bundling orders from a Long and Short Position (July 27, 2005) and IIROC Notice 12-0300 – Guidance Note – UMIR – Guidance on “Short Sale” and “Short-Marking Exempt” Order Designations (October 11, 2012).
  • 3. UMIR defines a “designated trade” to mean an intentional cross or a pre-arranged trade of a security that would be made at a price that: (a) would not be less than the lesser of: (i) 95% of the best bid price, and (ii) 10 trading increments less than the best bid price; and (b) would not be more than the greater of: (i) 105% of the best ask price, and (ii) 10 trading increments more than the best ask price.