Investment Counsel Association of Canada

1

• Investment Counsel Association of Canada
• Compliance Officers Network
• Trade-through Protection, Best Execution and
  Access to Marketplaces
• Toronto Wednesday, June 6, 2007

2

• An Overview of Proposals
• James E. Twiss
• Chief Policy Counsel,
• Market Regulation Services Inc.

3
Trading in Multiple Marketplaces

• Differences between marketplaces
• market structure
• marketplace hours of operation
• order transparency
• trade transparency
• access
• automation of order entry and trade execution

4
Joint Notice

• Joint Canadian Securities Administrators/Market
  Regulation Services Inc. Notice on Trade-Through
  Protection, Best Execution and Access to
  Marketplaces
• Public comment period till July 19, 2007

5
Trade - Through / Best Price

• Proposal for discussion on trade-through
  protection
• No specific amendments on trade-through
  protection suggested for either the National
  Instruments or UMIR
• Existing UMIR proposal on trade-through will be
  withdrawn when CSA and RS propose actual
  amendments

6
Trade - Through / Best Price

• Summary of proposal
• Outlines obligation on marketplaces in terms of
  maintaining policies and procedures to reasonably
  prevent trade-throughs
• Retains current exemptions from UMIR and
• Includes appropriate additional exceptions to
  balance promotion of innovation with integration
  of markets

7
Trade-Through / Best Price

• Until rules on trade-through protection have
  been implemented, dealers must comply with the
  Best Price Obligations under UMIR
• Recent amendments deleted access to marketplace
  as a factor in line with CSA requirements

8
Best Price

• Participant obligated to use reasonable efforts
  
• Obligation to deal with better-priced orders on
  another marketplace that
• disseminates order data in real-time and
  electronically through one or more information
  vendors
• permits dealers to trade in the capacity as
  agent
• provides fully-automated electronic order entry
  and
• provides fully-automated order matching and trade
  execution

9
Impact on Direct Market Access

• Pure Trading will have Direct Market Access
  requirements comparable to those of TSX
• Participant has best price obligation if DMA
  client trades at inferior price
• Any order router must recognize the marketplaces
  to which DMA client has access

10
Best Execution

• Broaden CSA requirements from price alone to
  price, speed, certainty and overall cost of the
  transaction
• Add new CSA reporting requirements for dealers
  and marketplaces to facilitate measurement

11
Best Execution

• Uniform language between UMIR and National
  Instruments
• Require Participants to adopt policies and
  procedures to obtain best execution
• Key elements (price, speed of execution,
  certainty of execution and overall cost of the
  transaction)

12
Best Execution

• Factors to be considered under UMIR recently
  changed to include
• Client instruction of timeliness
• Foreign markets (particularly if principal
  market outside Canada)
• Possible liquidity on dark markets if
• Displayed volume not adequate AND
• Demonstrated reasonable likelihood of liquidity
  for the specific security

13
Access to Marketplaces

• Currently, different CSA requirements applicable
  to non-dealer participants depending on how they
  are accessing a marketplace (i.e., through a
  dealer or on an ATS)
• Proposed additional CSA requirements regarding
  dealer-sponsored access
• Requirements to comply with regulatory
  requirements
• New obligations on exchanges, QTRSs, ATSs and
  participating organizations to monitor trading
• Restriction on who can obtain dealer-sponsored
  access

14
Access to Marketplaces

• Person with dealer-sponsored access would
  become an Access Person under UMIR in addition
  to subscribers to an alternative trading system
• Limited to institutional customers
• Excludes discount brokerage service accounts

15
Access to Marketplaces

• Mandatory agreement between regulation services
  provider and Access Person
• Training requirement for Access Persons
• Orders entered by an Access Person must contain a
  unique identifier visible to RS but not included
  in the public display

16
Trade-through Protection, Best Execution and
Access to Marketplaces

• Questions ?