Obtaining a Trading Exemption or Rule Interpretation

22-0186
Type: Rules Notice> Technical
Rule connection:
UMIR
Distribute internally to:
Institutional
Legal and Compliance
Senior Management
Trading Desk

Contact:

Market Regulation Policy
Email:

Executive Summary

This Notice provides guidance, which is effective on March 1, 2023, 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.

Background

Rule 11.1 of UMIR provides that 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 to seek an interpretation of one or more UMIR provisions to [email protected].

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, timing 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 at [email protected]. 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, including but not limited to:
    • parties to the transaction
    • pricing and timing of the proposed transaction; and
  • an explanation as to why an exemption is necessary or desirable given the requirements set out in UMIR 11.1(1).

We have provided templates at Appendix A for certain exemption requests to help ensure the required information is provided to us. The use of these templates is not mandatory, however they are meant to serve as a useful tool when preparing an exemption request.

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

Market Regulation Policy staff may deliver an exemption ruling over the telephone or with 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;
  • 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 as necessary. Market Regulation Policy staff may also refer a Participant or Access Person to previously issued guidance.2

Exemptions granted by Market Regulation Policy staff apply to 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 for the seller, purchaser or their agents to comply with applicable securities legislation.

Before seeking an exemption to complete a transaction off-marketplace, a Participant should determine whether it 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.4

The following are examples of exemptions that may be granted by IIROC to a Participant or Access Person.

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 – see Template 2 in Appendix A for more information.

Exempt Take-over Bid

A take-over bid5 may be exempt from the formal take-over bid requirements if it complies with the conditions set out in Part XX of the Securities Act (Ontario) and/or NI 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 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 – see Template 3 in Appendix A for more information.

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 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.

Certain Designated Trades as Principal

Where a Participant seeks to act as principal with respect to a “designated trade”7 under UMIR that involves a distribution to clients of a significant block of shares, the Participant must first seek an exemption from IIROC pursuant to Market Integrity Notice 2006-009 - Guidance – Trades to be on a Marketplace When Acting as Agent (March 24, 2006) – see Template 1 in Appendix A for more information.

Contact Information

Please contact Market Regulation Policy staff by email at [email protected]:

  • to seek a UMIR interpretation, or
  • to request an exemption.

For all other general Market Regulation Policy inquiries, please contact Market Regulation Policy staff by email at [email protected].

Applicable Rules

This Guidance Note relates to the following provisions of UMIR and IIROC Rules:

  • UMIR 1.1
  • UMIR 6.4
  • UMIR 9.1
  • UMIR 10.11
  • UMIR 10.12
  • UMIR 11.1
  • IIROC Rule 3804

Previous Guidance Notes

This Guidance repeals and replaces the following Guidance as shown:

  • IIROC Notice 09-0224 – Guidance – Procedures for Handling Certain Designated Trades as Principal (July 30, 2009)
  • IIROC Notice 15-0191 – Guidance – Obtaining a Trading Exemption or Rule Interpretation (August 28, 2015)

Related Documents

This Guidance is related to the following Notices:

  • IIROC Notice 2022-0185 – Notice of Approval - Amendments Respecting the Codification of Certain UMIR Exemptions
  • Market Integrity Notice 2007-018 – Guidance – Specific Questions Related to Trading Listed Debt and Other Securities (September 7, 2007) with respect to Items #2, 3 and 4.

 


Appendix A – Templates for Certain UMIR Exemption Applications

Template 1 – Exemption for a Take-On Trade / Designated Trade

Information Required Applicant to Provide:
Name of the Participant and Contact Person  
UMIR provision from which the exemption is sought Exemption under UMIR 6.4(2)(b) for the first leg of the transaction to allow the Participant to take on a block of securities from the seller off-marketplace
Reason for exemption  
Name and symbol of security  
Listing Exchange  
Seller  
Indicate whether the seller is currently an insider of the issuer. If so, provide the seller’s percentage holding of the issuer before and after the proposed transaction.  
Number of securities  
Target date for proposed transaction  
Price at which the “take-on” trade will be executed (or the price range if the take-on price has not been determined) and discount to current market.  
Intended price of the “distribution” (or the highest price in a range of possible distribution prices if the price of the distribution has not been determined)  
Describe the “marketing efforts” undertaken by the Participant prior to the take-on trade  
Number of client accounts that have been solicited or which the Participant intends to solicit to purchase the securities  
Number and volume of orders from committed buyers prior to the proposed “take-on” trade  
Indicate whether any potential buyers are currently insiders or would become insiders after the proposed transaction. If so, provide the percentage ownership for each buyer before and after the proposed transaction.  
Confirm the following:  
  1. the price of the “take-on” trade varies from the intended price of the “distribution” (or the highest price in a range of possible distribution prices if the price of the distribution has not been finally determined) by an amount that is not more than the usual agency commission that would be charged by that Participant to that client for an order of the same size
 
  1. the Participant intends to “distribute” the block of shares to its clients and does not already hold client orders for a significant proportion of the block
 
  1. the Participant will print the entire block of securities at the distribution price on the marketplace
 
  1. to the extent that the distribution price is more than the greater of 5% or 10 trading increments lower than the prevailing market price at the time the distribution trades are to be executed, the Participant will move the market in accordance with the requirements set out in UMIR 2.1 of UMIR to within 5% or 10 trading increments of the distribution price before executing the designated trade
 
  1. after the unwinding trade has been printed on a marketplace, the Participant will immediately distribute the shares by means of journal entry to clients by the end of the trading day.8 Depending on when the unwinding trade would be printed on a marketplace, Market Policy staff reserves the ability to extend distribution time where necessary on a per transaction basis.
 
  1. If a Participant has not allocated all the securities that were subject of the unwinding trade to clients by the time period specified above, the Participant will take the unallocated securities into its inventory account and file with IIROC a “Regulatory Marker Correction Form” setting out, among other things, the number of securities marked as a trade to a client which have been taken into inventory
 
  1. With respect to any unallocated securities taken into inventory, the Participant will complete any future sales “on-marketplace” as a principal trade that is subject to all applicable provisions of UMIR and IIROC Rules
 
  1. After the “unwinding” trade has been fully allocated to clients or taken into inventory by the Participant, the Participant will submit written confirmation to IIROC at [email protected] setting out:
    • the number of client accounts that received an allocation in the distribution;
    • the largest percentage allocation to a single account; and
    • the number of client accounts that were solicited to purchase securities covered by the unwinding trade
 

 

Template 2 – Exempt Distribution from Control

Information Required Applicant to Provide:
Name of the Participant and Contact Person  
UMIR provision from which the exemption is sought UMIR 6.4(2)(b)
Reason for exemption Exempt Distribution from Control to be completed pursuant to NI 45-102
Name and symbol of security  
Listing Exchange  
Number of securities  
Price  
Target Date of Proposed Transaction  
Name of Controlling Shareholder  
Confirm the following:  
  1. Form 45-102F1 filed with the applicable securities commission indicated that the securities are to be sold privately
 
  1. the Proposed Transaction complies with all applicable securities legislation, including NI 45-102
 

 

Template 3 – Exempt Take-over Bid

Information Required Applicant to Provide:
Name of the Participant and Contact Person  
UMIR provision from which the exemption is sought UMIR 6.4(2)(b)
Reason for exemption Exempt Take-over Bid to be completed pursuant to NI 62-104
Name and symbol of security  
Listing Exchange  
Number of securities  
Price  
Target Date of Proposed Transaction  
Number of Sellers9  
Name of Each Seller  
Name of Buyer  
Percentage ownership of the issuer for Buyer before and after the Proposed Transaction  
Confirm that the Proposed Transaction complies with all applicable securities legislation, including NI 62-104  
  • 1In 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.
  • 2See 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.
  • 3IIROC 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.
  • 4See Market Integrity Notice 2006-009 - Guidance – Trades to be on a Marketplace When Acting as Agent (March 24, 2006).
  • 5See section 89 of the Securities Act (Ontario) and section 1.1 of NI 62-104.
  • 6For example, in order to benefit from the private agreement exemption under section 4.2 of NI 62-104, a bid may not be made generally available to holders of the class of securities that is the subject of the take-over bid.
  • 7UMIR 1.1 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.
  • 8For this purpose, IIROC considers the end of the “trading day” to be the close of trading on the last of the marketplaces on which the security trades and which provides pre-trade transparency.
  • 9Paragraphs (a) and (b) of subsection 4.2(1) of NI 62-104 provides that “(a) take-over bid is exempt from Part 2 if all of the following conditions are satisfied:
    (a) purchases are made from not more than 5 persons in the aggregate, including persons located outside the local jurisdiction;
    (b) the bid is not made generally to security holders of the class of securities that is the subject of the bid, so long as there are more than 5 security holders of the class.

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