Obtaining a Trading Exemption or Rule Interpretation 

15-0191
Type: Rules Notice> Technical
Rule connection:
UMIR
Distribute internally to:
Institutional
Legal and Compliance
Senior Management
Trading Desk

Contact:

Sanka Kasturiarachchi
Acting Policy Counsel, Market Regulation Policy
Telephone:
Email:

Executive Summary

This Rules Notice provides guidance on the process to be followed by a Participant or Access Person seeking to obtain from IIROC either: 

  • an exemption from a provision of the Universal Market Integrity Rules (“UMIR”); or
  • an interpretation of a provision of UMIR.

This Rules Notice repeals and replaces, effective August 28, the guidance provided in Market Integrity Notice 12-0029 – Guidance – Obtaining a Trading Exemption or Rule Interpretation (January 27, 2012) 

Background

Rule 11.1 of UMIR provides that the IIROC may exempt a particular transaction from the application of a provision of UMIR, provided that such exemption:

  • would not be contrary to the provisions of any applicable securities legislation and the regulation and rules thereunder;
  • would not be prejudicial to the public interest or to the maintenance of a fair and orderly market; and
  • is warranted after due consideration of the circumstances of the particular person or transaction.

In addition, one of the primary roles of the Market Regulation Policy Department is to assist in the administration of UMIR by providing Participants, Access Persons, and / or advisors acting on their behalf with interpretations of UMIR provisions in a responsive and timely manner. 

Seeking an Interpretation

A Participant, Access Person, or advisor acting on behalf of either may contact Market Regulation Policy by e-mail in order to seek an interpretation of one or more UMIR provisions (the e-mail address to be used for this purpose is set out at the end of this Notice).  If the interpretation sought relates to a particular transaction, Market Regulation Policy staff may require that details of the transaction (and related transactions) be provided (e.g. the name of the security, pricing and parties to the transaction).  Depending upon the complexity of the issues presented, Market Regulation Policy staff may seek additional information.1 

Market Regulation Policy staff may provide an interpretation over the telephone or, if more appropriate, in writing via e-mail.

General Application Procedure for Exemption Requests

Anyone seeking to obtain an exemption from a provision of UMIR should contact Market Regulation Policy staff by e-mail (the e-mail address to be used for this purpose is set out at the end of this Notice). At a minimum, Market Regulation Policy staff will require the following information:

  • the name of the Participant or Access Person and contact person;
  • the name of the security;
  • UMIR provision from which the exemption is sought;
  • the fact situation giving rise to the exemption request; and
  • the explanation as to why an exemption is necessary or desirable.

In some cases, Market Regulation staff may request additional information to assist in their decision.

Market Regulation Policy staff may deliver an exemption ruling over the telephone or by way of a short e-mail message.  Regardless of whether an exemption has been granted or denied, Market Regulation Policy staff will follow up with a more formal written ruling in a timely fashion. The formal ruling will include the following:

  • the date of the ruling;
  • a brief description of the fact situation;
  • the reason(s) for the decision to approve/deny the exemption request;
  • any terms or conditions to which the exemption is subject; and 
  • the name of the Market Regulation Policy staff member who made the ruling.

In those cases where an exemption is not required, Market Regulation Policy staff will deliver a clarification or interpretation of UMIR.  A Participant or Access Person may be referred to previously-issued guidance.2

Exemptions granted by Market Regulation Policy staff apply only in respect of the specific transaction discussed.  An exemption should never be considered to be a “blanket exemption” applicable to similar or other situations.3

Regulatory Exemption from Requirement for Trades to be on a Marketplace

One of the most common exemptions requested from Market Regulation Policy staff is approval for a Participant to act as principal or agent in respect of a trade which will be completed “off-marketplace” in accordance with Rule 6.4(2)(b).  IIROC is prepared to grant an exemption from this requirement if the execution of the trade on a marketplace would be:

  • disruptive to a fair and orderly market; or
  • impractical in order for the seller, purchaser or their agents to comply with applicable securities legislation.

Before seeking an exemption to complete a transaction by means other than the entry of orders on a marketplace, a Participant should determine whether the Participant will be undertaking the transaction as principal or agent.  If the Participant is merely performing an “administrative” function, an exemption under Rule 6.4 is not required.

The following is a summary of five of the most common exemptions granted to a Participant to permit the Participant to be involved in an “off-marketplace” trade.

Exempt Distribution from Control

Where a controlling shareholder of an issuer wishes to trade securities of that issuer, the shareholder may do so in accordance with National Instrument 45-102 (“NI 45-102”).  NI 45-102 provides an exemption from prospectus requirements for a distribution from control that satisfies certain conditions. 

Form 45-102F1, which the seller must file at least seven days before the first trade, must disclose whether the securities are to be sold privately or on a marketplace.  If the securities are to be sold privately, the transaction cannot be completed on a marketplace and a Participant will be granted an exemption to act as underwriter or agent when completing the distribution “off-marketplace”.  If the Form 45-102F1 discloses that the distribution will occur on a marketplace, Market Regulation Policy staff nonetheless may permit the sales by the controlling shareholder to be completed by a Participant, as underwriter or agent, “off-marketplace” if the completion of the distribution on a marketplace would be considered disruptive to a “fair and orderly market”.  In addition to the information listed above under “General Application Procedure”, Market Regulation Policy staff will require the name of the controlling shareholder and written confirmation that the transactions comply with the terms of the applicable securities legislation and NI 45-102.

Exempt Take-over Bid

As of February 1, 2008, the rules governing take-over bids across Canada have been harmonized.4  A take-over bid is defined as an offer to acquire the outstanding voting or equity securities of a class made to a person or company in a Canadian province or whose last address on the books of the target is in such province, when the securities subject to the offer, together with the securities of the same class that are already held by the offeror, constitute 20% or more of the outstanding securities of the class.5 Such an offer may be exempt from the formal take-over bid requirements if it complies with the conditions set out in the Part XX of the Securities Act (Ontario) and/or MI 62-104.

In those circumstances where compliance with these conditions requires that the purchases made by the offeror not take place on a marketplace,6 Market Regulation Policy staff will grant an exemption in order to permit the purchases to be completed by a Participant, as underwriter or agent, “off-marketplace”.

In addition to the information listed above under “General Application Procedure”, Market Regulation Policy staff will require the name of the offeror and written confirmation that the transaction complies with the terms of the applicable securities legislation. 

Trades by a Controlling Shareholder under a Normal Course Issuer Bid

Where an issuer wishes to complete a normal course issuer bid through the facilities of a marketplace, the issuer will often seek an exemption from the rules of the marketplace to permit it to purchase shares from its controlling shareholder under the bid.  This is done so that the interest of the controlling shareholder remains at the level it held prior to the commencement of the normal course issuer bid.

Typically, issuers intend that shares purchased by them from the controlling shareholder on a particular day will be at a price equal to the volume-weighted average price of purchases made by the issuer on the marketplace from shareholders other than the controlling shareholder on that day. This method usually requires that the purchases made by the issuer from the controlling shareholder must be completed by a Participant by means other than the entry of orders on the marketplace.

In these circumstances, Market Regulation Policy staff will grant an exemption in order to permit the purchases by the issuer from the controlling shareholder to be completed by a Participant “off-marketplace”. In addition to the information listed above under “General Application Procedure”, Market Regulation Policy staff will require written confirmation that the issuer has complied with the terms of the approval of the normal course issuer bid that may be established by the marketplace.  

Trades during a Statutory Resale Restriction

Often, shareholders whose shares are subject to a “hold period” under securities laws wish to dispose of their shares to an accredited investor who is qualified under those securities laws to hold the restricted shares.  As a non-qualified investor may not hold such shares, steps must be taken to ensure that the transaction may be completed without interference by such non- qualified investors.  As such, this transaction must be completed by a Participant by means other than the entry of orders on a marketplace.

In accordance with clause 6.4(2)(b) of UMIR, Market Regulation Policy staff will generally permit the sales by the shareholder to be completed by a Participant “off-marketplace” where the exemption is necessary in order to maintain a fair and orderly market. The exemption is always subject to the Participant complying with any additional requirements imposed by the listing exchange and reporting the details of the trade to a marketplace which publicly disseminates such details.

Certain Designated Trades as Principal

IIROC has previously issued guidance on the procedures for the execution by a Participant as principal of certain pre-arranged trades or intentional crosses that qualify as a “designated trade” under UMIR and which involve a distribution to clients of a significant block of shares.7

A Participant may seek an exemption in accordance with Rule 6.4(2)(b) of UMIR in order to complete a principal take-on trade “off-marketplace” with an intention to  distribute the securities to clients. Where a Participant is taking on a significant block at a discount to the prevailing market price with the intention of immediately attempting to distribute the securities, Market Regulation Policy staff will generally grant an exemption to allow the transaction to occur “off-marketplace”.8

Contact Information

To seek either a UMIR interpretation or to request an exemption, Market Regulation Policy staff may be contacted by e-mail at [email protected]. For all other general Market Regulation Policy inquiries, please call 416-646-7230 to speak with Market Regulation Policy staff.

  • 1. In some circumstances, one or more of the issues presented may go beyond IIROC’s jurisdiction, requiring that Market Regulation Policy staff confer with one or more provincial securities regulatory authorities.
  • 2. See Market Integrity Notice 2006-009 - Guidance – Trades to be on a Marketplace When Acting as Agent (March 24, 2006).  In particular, that notice sets out the indicators which a Participant should consider in determining whether the Participant is “acting as agent” in respect of a trade.
  • 3. IIROC may, with the approval of the applicable securities regulatory authority, exempt a marketplace or a class of transactions from the application of a provision of UMIR: UMIR 11.1(2).  In accordance with UMIR 11.1(3), the consent of the applicable securities regulatory authorities would be conditional on IIROC pursuing an appropriate amendment to UMIR to reflect the effect of the exemption.
  • 4. Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids ("MI 62-104") applies in in all jurisdictions except Ontario.  In Ontario, revisions to Part XX of the Securities Act (Ontario) and OSC Rule 62-504 Take-Over Bids and Issuer Bids were adopted having substantially the same provisions.  National Policy 62-203 Take-Over Bids and Issuer Bids was also adopted which contains explanations and discussions of the Part XX, OSC Rule 62-504 and MI 62-104.
  • 5. Section 89(1) of the Securities Act (Ontario) Revised Part XX; s. 1.1 of MI 62-104.
  • 6. For example, in order to benefit from the private agreement exemption under s. 101.3 of the Securities Act (Ontario), a bid may not be made generally available to holders of the class of securities that is the subject of the take-over bid.  See, also s. 4.6 of MI 62-104. 
  • 7. See Rules Notice 09-0224, Guidance – Procedures for Handling Certain Designated Trades as Principal (July 30, 2009).
  • 8. The “un-wind” trade is to be printed by the end of the day on which the take-on trade is executed.  Any securities that remain unallocated to clients at the end of the day become proprietary positions of the Dealers and any subsequent sales must be executed on a marketplace. It is the responsibility of the Participant to submit any market corrections that may be required.  The Participant is required to submit a report to IIROC post-distribution, in accordance with the guidance provided in Rules Notice 09-0224.