The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are hosting a forum on March 23 at the Design Exchange in Toronto to discuss Consultation Paper 23-404, "Dark Pools, Dark Orders, and Other Developments in Market Structure in Canada", published in September 2009. Interested parties can register on the IIROC website.
IIROC yesterday repealed an earlier notice that provided guidance on "locked" and "crossed" markets in the context of a dealer's obligations under the Universal Market Integrity Rules (UMIR). The repeal of the guidance results from recent amendments to NI 23-101 Trading Rules and its Companion Policy, which contain provisions regarding locked and crossed markets.
On February 5, the Investment Industry Regulatory Organization of Canada (IIROC) published for comment its draft rules notice, "Requirements and Best Practices for distribution of non-arm's length investment products", which addresses the regulatory concerns raised by the distribution by a Dealer Member to its clients of investment products issued by the Member itself, an issuer, or a selling securityholder with which a Member does not deal at arm's length or is otherwise connected. The draft notice sets out IIROC staff's expectations regarding distributions by Dealer Members of non-arms length investment products and provides guidance to assist Dealer Members in meeting their regulatory obligations to their clients. The draft notice also includes a new requirement that Dealer Members must notify IIROC in advance of the initial distribution of non-arms length investment products. In publishing the draft requirements, IIROC cited concerns regarding potential conflicts of interest, product due diligence and client suitability.
Yesterday, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) announced the launch of a comprehensive review of financial market infrastructure standards, including payment systems, securities settlement systems and central counterparties. The review, which will be led by CPSS members (consisting of central banks, including the Bank of Canada), members of the IOSCO Technical Committee (which includes the OSC and AMF), the IMF and World Bank, is part of an initiative "to reduce the risks that arise from interconnectedness in the financial system."
CDS Clearing and Depository Services Inc. (CDS) recently published proposed amendments to its rules regarding the processes for issuing, transferring and maintaining custody of money market securities in CDSX. Specifically, the amendments (i) clarify the process by which securities become eligible for CDSX; (ii) provide for an exception allowing CDS to release confidential information concerning a participant where the information concerns material risk events; (iii) create a single, uniform qualification for all participants acting as issuer agents; and (iv) create new internal control standards for participant issuer agents.
CDS is accepting comments on the proposed amendments for 30 calendar days following the January 29th publication of the proposals.
Amendments to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline and consequential amendments to related MFDA rules and policies are scheduled to come into effect on February 1, 2010. The amendments are intended to provide "additional guidance with respect to the standards that Members should have in place regarding complaint handling and supervisory investigations" as well as consistency with the new registration regime and IIROC complaint handling requirements. The amended Policy No. 3 considers such issues as the assessment and handling of complaints, settlement agreements, supervisory investigations, internal discipline and record retention.
The Investment Industry Regulatory Organization of Canada (IIROC) today announced that securities regulators have approved amendments to the Universal Market Integrity Rules (UMIR) respecting trading during certain securities transactions. Rule 7.7 of the UMIR governs the activities of dealers, issuers and others in connection with a distribution of securities, securities exchange take-over bid, issuer bid or amalgamation, arrangement, capital reorganization or similar transaction. Rule 7.7, paralleled OSC Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions prior to approval of these amendments. While some provisions of Rule 7.7 will now differ from OSC Rule 48-501, both rules will remain substantively similar and it is intended they will be applied in a consistent manner. Among other things, the amendments:
The amendments are effective as of today, January 8, 2010.
Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) announced changes to the Complaints and Settlement Reporting System (ComSet) in order to ensure "more accurate tracking and management of client complaints." Specifically, IIROC is making changes to the details of client information reported by its members on the ComSet system in order to enhance the accuracy of information reported.
On December 23, the Mutual Fund Dealers Association of Canada (MFDA) published proposed consequential amendments to its rules intended to ensure consistency with the new registration regime under National Instrument 31-103 Registration Requirements and Exemptions. Specifically, the amendments would impact the rules respecting proficiency requirements, referral arrangements, standards of supervision, client reporting and record retention. Meanwhile, MDFA Policy No. 6 Information Reporting Requirements would also be amended.
Comments on the proposals are being accepted until March 23, 2010.
Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the first quarter of 2010 as 1,050 points, 2,100 points and 3,150 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite Index. The TSX trigger levels are: Level 1 (10%) - 1,150 points; Level 2 (20%) - 2,300 points and Level 3 (30%) - 3,450 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
On December 22, 2009, the Investment Industry Regulatory Organization of Canada (IIROC) published guidance for members on maintaining an adequate branch supervisory program. The notice follows a review by IIROC of the branch supervision processes of various IIROC members in early 2009. The published notice identifies common concerns with members' branch audit programs and outlines a number of best practices in response to each concern.
On August 19, the Investment Industry Regulatory Organization of Canada (IIROC) published a rules notice respecting the anticipated implementation of its client complaint handling rule proposals. On December 22, IIROC announced the approval of these rules by the applicable securities regulatory authorities, with minor changes. The amendments are intended to establish an effective framework for the client complaint process by setting out standards and timelines for firms to acknowledge, investigate and respond to client complaints regarding alleged misconduct relating to the handling of client accounts.
Specifically, firms have five business days under the new standards to acknowledge receipt of a complaint and must investigate and respond to the client within 90 days. Responses must be presented in a fair and clear manner, and the notice provides further details respecting the required contents of a firm's response. Where a firm is unable to meet the 90 day timeframe, it will be expected to explain the reason for the delay to the client and IIROC. Further a Designated Complaints Officer must be appointed to manage the complaint handling process and to act as a liaison with IIROC.
The new standards take effect on February 1, 2010.
Citing investor need for "access to a straightforward, expeditious dispute resolution system", on Wednesday the Investment Industry Organization of Canada (IIROC) issued a request for comments regarding the review of its arbitration program. IIROC's program review began in the fall of 2008 and the immediate notice considers the results attained.
The notice acknowledges the declining use of the program (only eight cases have been initiated this year) and discusses improvements to the program as well as IIROC's proposal to increase the award limit. Specifically, IIROC has taken steps to consolidate the program's infrastructure, standardize reporting to IIROC and compile statistical information about the program. IIROC also seeks to increase the award limit under the arbitration program to $350,000 and seeks public comment on this proposal as well as suggestions to improve the effectiveness and utilization of the program.
Comments are being accepted until March 16, 2010.
On December 1, Susan Wolburgh Jenah, President and CEO of the Investment Industry Regulatory Organization of Canada (IIROC) spoke at the Compliance Legal Section's annual compliance conference in Toronto. Ms. Jenah discussed the initiatives undertaken by IIROC over the past year, including improving the quality and timeliness of IIROC guidance with a focus on new and complex products and also provided hints of things to expect over the course of the next year.
Specifically, Ms. Jenah discussed a number of initiatives currently being developed by IIROC, including:
The last three items were the subject of published proposals over the last year and, according to Ms. Jenah, are in various stages of development and consultation.
The Mutual Fund Dealers Association of Canada (MFDA) yesterday released a bulletin regarding the upcoming transition to IFRS. The bulletin follows up on an earlier request for comment published by the MFDA in June 2009 that considered whether to require all MFDA Members to submit financial reporting to the MFDA based on IFRS or whether to limit the requirement only to those Members that would likely be considered "publicly accountable enterprises".
Despite concern that a universal requirement would increase costs for those Members that would not otherwise be required to convert to IFRS, the MFDA has decided to adopt the new standard for all Members. According to the MFDA, this approach will not have a significant impact on Members and ensures "that consistent, fair and cost-effective regulatory oversight of the membership continues." Further, the MFDA intends to publish proposed changes to reporting requirements and appropriate departures from IFRS (such as where the regulatory benefit from requiring IFRS compliance would be minimal) sometime in the future.
The Investment Industry Regulatory Organization of Canada (IIROC) is hosting a compliance-focused conference on December 1 in Toronto. The conference, targeted to employees of compliance, legal and related departments of IIROC member firms, will be considering issues respecting best execution and trade through, the client relationship model and current legal trends. Online registration is available here.
On November 10, the Investment Industry Regulatory Organization of Canada (IIROC) provided an update on its testing of Dealer Members' business continuity plans. While the tests are conducted on a voluntary basis, IIROC also stated that it "strongly urges" all members to participate in such tests as they "represent a valuable opportunity for Dealer Members to supplement their respective mandatory, in house annual tests which are required under IIROC regulation."
The Ontario Securities Commission has now approved amendments filed by CDS Clearing and Depository Services regarding the additional collateral requirements for participants of the New York Link service. As described in our previous post, the additional requirements take effect on November 1.
In light of concerns regarding the H1N1 Flu, the Investment Industry Regulatory Organization of Canada (IIROC) is reminding its members of their obligations under IIROC Rule 17.16 to have adequate business continuity plans in effect. Specifically, IIROC is recommending that members ensure that such plans are "up-to-date and cover business disruptive scenarios, including potential pandemic scenarios."
The Investment Industry Regulatory Organization of Canada (IIROC) has published a market regulation policy update for October 2009. The policy update briefly reviews the status of new rules yet to be implemented (reporting of extended failed trades and trade variations and cancellations), those currently under development (trade-through protection and market stabilization) and considers recent issues such as dark pools and short sales. The update also states that IIROC is currently analyzing the use of circuit breakers by stock exchanges around the world and that a proposal for further study has been prepared. According to IIROC, the research thus far "is inconclusive as to the effectiveness of circuit breakers on a global scale."
Yesterday (October 21), the Investment Industry Regulatory Organization of Canada released a notice responding to "recurring questions" received by its staff regarding the new approval categories for "Executives" and "Supervisors" under the new registration regime. Specifically, the notice describes those individuals that must be approved under one of the above noted categories, as well as considering the proficiency requirements for Supervisors.
IIROC is expected to release its annual webcast regarding enforcement issues this afternoon at 4:00 p.m. EDT. The webcast will be available on-demand anytime after its release. A French version of an earlier webcast regarding conflicts of interest will also be released.
On October 2, the Investment Industry Regulatory Organization of Canada (IIROC) published draft guidance respecting its members' know-your-client and suitability obligations. The draft guidance does not seek to amend relevant requirements, but rather "sets out IIROC's interpretation, expectations and suggested best practices" respecting meeting current obligations. The note discusses issues such as new account application requirements, know-your-client information and product suitability.
Considering the "significance of the subject matter", IIROC is accepting comments on the draft guidance until December 16, 2009.
On October 1, the Investment Industry Regulatory Organization of Canada (IIROC) published a guidance note relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the fourth quarter of 2009 as 950 points, 1,950 points and 2,900 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite. The TSX trigger levels are: Level 1 (10%) - 1,150 points; Level 2 (20%) - 2,250 points and Level 3 (30%) - 3,400 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) today announced the publication of Joint Consultation Paper 23-404, entitled "Dark Pools, Dark Orders, and Other Developments in Market Structure in Canada". The paper discusses the evolution of the Canadian market and specifically considers the emergence of multiple marketplaces. The lack of transparency associated with some alternative trading systems is noted and specific questions are raised regarding dark pools, dark orders, market pegged orders and smart order routers.
Written submissions on the issues set out in the consultation paper are being accepted until December 29, 2009. The CSA and IIROC also stated that they intend to convene a roundtable to discuss the issues and the submissions received.
Earlier this month, the Mutual Fund Dealers Association of Canada published a bulletin advising its Members of expected changes to its rules and Member practices due to the implementation of National Instrument 31-103 Registration Requirements and Exemptions. The bulletin specifically considers changes to proficiency requirements and categories of registration, new client mobility provisions, the harmonization of requirements for referral arrangements and changes to the frequency and content of account statements. A second bulletin, published a few days after the first, clarified record-keeping requirements for branch managers.
As previously announced by CDS Clearing and Depository Services (CDS), effective November 1, 2009, CDS sponsored participants of the New York Link service will be subject to expanded collateral requirements. On August 14, CDS proposed amendments that would require New York Link service participants to pledge additional collateral to CDS and require both New York Link and DTC Direct Link participants to post collateral to support newly created participant funds for each of these services. CDS has now published additional changes to the proposed amendments published on August 14.
The additional changes include: (i) the removal of U.S. dollar cash as an acceptable form of collateral for the participant funds for New York Link and DTC Direct Link; (ii) an adjustment of the collateral requirement deadlines for the National Securities Clearing Corporation (NSCC) participant fund for New York Link participants; (iii) the adjustment of the deadline for participants to request the withdrawal of excess cash collateral from the NSCC participant fund held by the NSCC for New York Link; (iv) changes to holiday processing for the NSCC participant fund for New York Link; (v) information on how participants can pledge collateral to the New York Link and DTC Direct Link participant funds managed by CDS; and (vi) service suspension.
Comments on the proposed amendments are being accepted by CDS for 30 days following the publication of the above notice in the OSC Bulletin.
The Investment Industry Regulatory Organization of Canada (IIROC) announced yesterday the approval of amendments to its Dealer Member Rules related to the implementation of registration reform. Proposed amendments were originally published for comment on September 26, 2008 and an amended proposal was published on July 17, 2009. The final version of the amendments, having incorporated the suggestions of the securities regulators, have now been approved by the regulators. The amendments will, among other things, reduce the number of approval categories from 46 to 11, merge supervisory categories and implement a principles-based approach to supervision. Most of the amendments will be effective on September 28, 2009 in conjunction with National Instrument 31-103 Registration Requirements and Exemptions.
On September 2, the Mutual Fund Dealers Association of Canada (MFDA) announced the publication of a reference guide "to assist Members in the development of adequate written policies and procedures", as required by MFDA Rule 2.10. The MFDA states that the policies and procedures of Members should, at a minimum, include the topics described in the guide. The required topics are presented in the form of a reference chart, with references provided to specific rules, notices and policies.
On August 28, the Ontario Court of Appeal released its decision in Taub v. Investment Dealers Association of Canada, a case respecting the jurisdiction of the Investment Dealers Association, (now merged with Regulation Services to form the Investment Industry Regulatory Organization of Canada (IIROC)), to discipline former members. The IDA's rules and bylaws, by which members agreed to be governed, specified that the IDA had jurisdiction over former members for the purposes of discipline for five years after one's membership ended. In this case, the IDA brought disciplinary procedures against Taub a year after he ceased being a member of the association. Taub challenged the IDA's jurisdiction over former members, but was unsuccessful before the association's hearing panel in this regard. On review, the Ontario Securities Commission agreed that the IDA had jurisdiction over Taub. The Divisional Court, however, overturned the findings of the IDA panel and the OSC. In doing so, the Divisional Court found that section 21.1(3) of Ontario's Securities Act made no provision for the regulation of former members which, therefore, limited the reach of the IDA's jurisdiction to current members.
In the immediate appeal, the Ontario Court of Appeal found that the OSC's reasons were clear and understandable and that they justified the result reached by the Commission. The Court of Appeal disagreed that the language of s. 21.1(3) limited the jurisdiction of the IDA and ultimately set aside the decision of the Divisional Court.
The Investment Industry Regulatory Organization of Canada announced on Tuesday that it had approved the addition of Rule 41 to its Dealer Member Rules. Rule 41 outlines the obligations of IIROC and its Dealer Members to the Canadian Investor Protection Fund (CIPF), including the payment of CIPF assessments and compliance with actions that the CIPF requests be taken. The CIPF, created in 1969, protects investors by ensuring the return of customers' securities, cash and other property in the case of the bankruptcy of an IIROC Dealer Member.
The Investment Industry Regulatory Organization of Canada (IIROC) published a notice yesterday with respect to the best execution and best price obligations of Participants under the Universal Market Integrity Rules (UMIR). The notice is not intended to change previous guidance on "best execution" and "best price" obigations, but "simply reminds Participants of their obligations given that securities listed on the TSXV now trade on other marketplaces."
Rule 5.1 of UMIR states that Participants "shall diligently pursue the execution of each client order on the most advantageous terms for the client as expeditiously as practicable under prevailing market conditions" and the notice makes clear that, in doing so, Participants are expected to consider trade and order information from all marketplaces that trade the same securities. With respect to Rule 5.2, IIROC states that Participants must review its policies and procedures "on an ongoing basis to reflect changes to the trading environment and market structure (which would include the fact that securities listed on TSXV now trade on multiple marketplaces)."
The notice notes that while over 98% of trades and volume in TSXV-listed securities are made through the TSXV, an increase in trading activity on alternative trading systems "indicates that trading opportunities in TSXV-listed securities are increasingly available" on such alternate systems.
On Wednesday, the Investment Industry Regulatory Organization of Canada released a rules notice respecting the anticipated implementation of its client complaint handling rule proposals. IIROC first proposed amendments to its Dealer Member Rules to establish a framework for complaint handling in February 2009, and the proposals just released incorporate what IIROC has described as "minor" changes in response to public comments received. The complaint handling process requires Dealer Members to appoint a designated complaints officer and establish written complaint-handling procedures, while also setting out the general process and timelines for responding to complaints.
IIROC has submitted its proposals to the Canadian Securities Administrators (CSA) for final approval and the proposals will become effective 30 days after CSA approval and the issuance of an IIROC rules notice. Thus, IIROC advises Dealer Members to start preparing for implementation. A black-line copy reflecting changes to its earlier proposal was also provided.
As previously announced by CDS Clearing and Depository Services (CDS) effective November 1, 2009, CDS sponsored participants of the New York Link Service will be subject to expanded collateral requirements. CDS is proposing amendments that will require New York Link service participants to pledge additional collateral to CDS and require both New York Link and DTC Direct Link participants to post collateral to support newly created participant funds for each of these services. The amendments also clarify the process by which New York Link and DTC Direct Link participants can comply with the new collateral and funding requirements.
As CDS is subject to DTC's firm deadline of November 1, 2009, the proposed amendments have been published for a 30-day comment period.
The Ontario Securities Commission has approved amendments to TSX Rule 4-403 of the Toronto Stock Exchange Rule Book and Policies. The amendments, originally published for comment on March 27, 2009, update the order marking requirements of the rule and introduce a requirement for participating organizations to mark orders entered for the account of an issuer pursuant to a normal course issuer bid.
On August 4, the Investment Industry Regulatory Organization of Canada published a notice providing additional guidance regarding amendments to its Dealer Member Rules related to the implementation of the registration reform project. The notice covers: (i) the approval of Ultimate Designated Persons and Chief Compliance Officers; (ii) the approval category of "Supervisor" and timelines for meeting the new approval requirements; (iii) new record-keeping requirements for Dealer Members; (iv) changes to business types; (v) automatic transfers; and (vi) approval notices. The amendments to IIROC's Dealer Member Rules were published on July 17.
The Investment Industry Regulatory Organization of Canada (IIROC) today published a guidance note respecting the procedures for executing designated trades under the Universal Market Integrity Rules (UMIR) by a Participant as principal that involve a distribution to clients of a significant block of stock of a listed security. The notice provides guidance in the form of questions and answers respecting the procedures for executing such trades.
The Investment Industry Regulatory Organization of Canada today released its first Annual Consolidated Compliance Report for the 2008/2009 examination cycle. The report present's compliance deficiencies found during IIROC's examination of almost 200 member firms. The examinations were completed by IIROC's compliance examination groups and the findings of each group are discussed in the report. The general deficiencies encountered by all compliance examination programs are also discussed, being: inadequate supervision of some business activities, inadequate internal control procedures and testing documentation and inaccurate or incomplete books and records. The report also identifies deficiencies that will be the focus of the current year's examination program.
The U.S. Securities and Exchange Commission yesterday announced that it is taking further steps in an attempt to curtail abusive "naked" short selling in equity securities and improve transparency respecting short sales generally. To that end, the SEC is making permanent, with some limited modifications, its interim final rule of October 2008 requiring broker-dealers to promptly purchase or borrow securities to deliver on a short sale. Further, the SEC stated that it is working with self-regulatory organizations to make short sale volume and transaction data available on SRO websites. The SEC's consideration of proposals on short sale price tests and circuit breaker restrictions also continues.
The Investment Industry Regulatory Organization of Canada (IIROC) and the U.S. Financial Industry Regulatory Authority (FINRA) today announced a cooperation agreement whose objective is to "enhance the effectiveness of both organizations through the exchange of information and other cross-border assistance." The news release describing the arrangement further stated that "[i]n addition to information sharing on compliance and enforcement related matters, IIROC and FINRA plan to work together on issues related to firm oversight and examinations."
As part of the Investment Industry Regulatory Organization of Canada (IIROC) staff analysis on the adoption of IFRS in Canada, a survey of dealers was undertaken in early 2009 "to gauge the dealer membership's awareness and understanding of IFRS and to determine the impact of the implementation of IFRS compared to current regulatory reporting of the dealer member's business." Today, IIROC published a rules notice releasing the results of the survey as well as IIROC staff's recommendation that IFRS be adopted by all dealer members. Exemptions from specific accounting standards, however, are recommended, including exemptions from: (i) certain specific note disclosure requirements; (ii) the production of comparative financial data for the first IFRS financial statements; and (iii) the valuation of receivables and payables. Comments on the notice are being accepted by IIROC until September 14, 2009.
The International Accounting Standards Board (IASB) yesterday announced that it has issued a final version of its International Financial Reporting Standard (IFRS) for small and medium-sized entities (SMEs). SMEs are described as entities that publish general purpose financial statements for external users such as owners that are not involved in managing the business, creditors and credit rating agencies, but that do not have public accountability. According to the IASB, the IFRS for SMEs will "provide improved comparability for users of accounts; enhance the overall confidence in the accounts of SMEs; and reduce the significant costs of maintaining standards on a national basis." The IFRS for SMEs simplifies many of the principles of full standards and is a result of a number of years of working group development, round-table meetings and field-tests of a draft IFRS.
While the Canadian Accounting Standards Board (AcSB) has stated that the standard for SMEs will not be adopted in 2011 along with IFRS for publicly accountable companies, it is conceivable that the new standard will become a requirement at some point in the future.
On July 2, the Investment Industry Regulatory Organization of Canada (IIROC) published a guidance note relating to securities trading halts in coordination with the application of 'circuit breakers' on U.S. markets. In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds have been announced for the third quarter of 2009 as 850 points, 1700 points and 2600 points respectively.
It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite. The TSX trigger levels are: Level 1 (10%) - 1,050 points; Level 2 (20%) - 2,050 points and Level 3 (30%) - 3,100 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur.
On June 26, the Mutual Fund Dealers Association of Canada (MFDA) published MFDA Bulletin #0385-P, proposing amendments to section 35 (No Actions Against the Corporation) of its By-law No. 1. According to the MFDA, the proposed amendments are intended to (i) extend the existing protection found in section 35 of By-law No. 1 to the MFDA Investor Protection Corporation (MFDA IPC); and (ii) provide for, within MFDA By-laws, the "terms of the relationship between the MFDA and MFDA IPC and existing MFDA and Member obligations to the MFDA IPC."
The MFDA is accepting comments on the proposal until September 24, 2009.
The Investment Industry Regulatory Organization of Canada (IIROC) today released a notice setting out IIROC Registration Staff's "approach when conducting suitability reviews for individuals seeking IIROC approval and/or registration". The notice describes the three fundamental criteria IIROC Registration Staff use to evaluate whether an individual is "fit and proper" for approval, being integrity, financial solvency and competence. The notice also discusses the additional filings for disclosures that may affect an individual's suitability as well as a number of best hiring practices for sponsoring firms.
The Investment Industry Regulatory Organization of Canada (IIROC) today released a guidance note setting out how it would transition current Approved Persons from existing categories to the proposed new categories under the upcoming registration regime to be implemented under proposed National Instrument 31-103 Registration Requirements, expected to come into force on September 28, 2009. The notice supplements the information published in CSA Staff Notice 31-311 on June 12.
The current category structure, consisting of 46 categories will be replaced with a regime containing 11 categories that will focus solely on the function of the Approved Person. The type of customer, product and whether the individual engages in portfolio management will be tracked separately.
Continue Reading...On June 11, IIROC published a notice concerning the sales practice obligations of Dealer Members with respect to leveraged and inverse exchange traded funds (ETFs). The notice discusses the application of various Dealer Member Rules, such as those respecting suitability, communications with the public, supervision and training, to the sales of leveraged and inverse ETFs. The U.S. Financial Industry Regulatory Authority, meanwhile, published a similar notice on the same topic.
On June 11, the Investment Industry Regulatory Organization of Canada published a guidance notice for dealer members with respect to the "importance of being diligent in assessing and maintaining adequate credit risk policies and procedures" in light of recent financial market challenges. The notice discusses the nature of credit risk and the importance of managing exposure to such risk through a formal process that is independent of sales office functions.
IIROC states that credit risk practice should at a mimumum include active oversight of the board or owner/manager, credit policies established by management, review procedures for retail accounts and institutional credit worthiness reviews. With respect to specific best practices, the notice includes guidance with respect to margin, cash and international accounts and security concentrations in customer accounts.
Citing the "dramatic decline in stock prices and market capitalizations of many listed companies", the U.S. Securities and Exchange Commission recently published temporary changes filed by the New York Stock Exchange (NYSE) in its listing thresholds for certain listed companies. These changes went into effect on May 12, 2009, the date of filing by the NYSE, and will remain in force until October 31, 2009. Prior to these temporary amendments, the rules considered companies that qualified to list under the Earnings Test, Assets and Equity Test or the "Initial Listing Standard for Companies Transferring from NYSE Arca" standard of the NYSE's Listed Company Manual to be below compliance standards if their average global market cap over a consecutive 30 trading-day period was less than $75 million and, at the same time, total stockholders' equity was less than $75 million. These temporary changes have lowered the thresholds for these companies to $50 million. Although the changes are in effect, the SEC is inviting comments until June 25, 2009 as it has 60 days from the date of filing to abrogate the rule change.
On May 25, 2009, the Investment Industry Regulatory Organization of Canada (IIROC) announced that it has established a whistleblower service to allow individuals to report, online or by phone, "potential systemic wrongdoing, potential securities frauds or unethical behaviour by individuals or firms in the investment industry." IIROC's news release states that it will "immediately assess and ensure that prompt and appropriate follow-up action on reported issues or behaviour is taken."
The service is in effect as of May 25.
The Mutual Fund Dealers Association of Canada recently published proposed amendments to its rules with respect to client accounts, client communications and client reporting. The proposed amendments were originally published in 2008, but have been revised in response to comments received and to minimize differences between the Client Relationship Model of the MFDA and IIROC. Comments are being accepted by the MFDA prior to July 23, 2009.
IIROC recently published for comment proposed amendments (Proposed Amendments) to Dealer Member Rule 100.2(f). The Proposed Amendments are to those amendments proposed by IIROC under the Equity Margin Project (the Main Proposal), which are currently being reviewed by the securities commissions. The Proposed Amendments are intended to simplify a number of processes for IIROC staff and Dealer Members regarding the implementation and ongoing support of the Equity Margin Project's new methodology for margining equity securities. Comments on the Proposed Amendments will be accepted by IIROC until June 30, 2009.
IIROC has recently published a notice proposing rules and amendments in order to address various regulatory objectives under the Client Relationship Model Project, specifically: relationship disclosure, management and disclosure of conflicts of interest, account suitability and account performance reporting. Proposed rule changes were initially published in February 2008 by the IDA and the current proposals incorporate feedback received through the comment process as well as through subsequent consultations held with industry associations, the MFDA and provincial securities regulators. Comments are invited for a period of 90 days from the date of publication of the notice.
On April 24, 2009, the Investment Industry Regulatory Organization of Canada released a notice of proposed amendments that would revise the definition of “securities related activities” in the Dealer Member Rules to refer to all investment products and also repeal the definition of “securities related business”. The primary objective of the changes is to “clearly articulate that IIROC registered representative recommended transactions for any investment product…must be conducted within and recorded on the books of an IIROC Dealer Member.” Further, the changes are intended to "harmonize the requirements for agent and employee salespersons to conduct certain activities within an IIROC Dealer Member and to record such activities on the books of the IIROC Dealer Member." Comments on the proposed amendments will be accepted by IIROC until June 23, 2009.
IIROC has published notice that regulatory authorities have approved amendments to the Universal Market Integrity Rules respecting the "best price" obligation. Among other things, the amendments, which became effective on May 16, 2008 when they were published, set out certain order handling methods, the use of which will satisfy the "reasonable efforts" requirements of the "best price" obligation. IIROC also published a notice providing guidance on specific questions related to compliance with the "best price" obligation.
The Investment Industry Regulatory Organization of Canada today published proposed amendments to the Dealer Member Rules with respect to fair and reasonable pricing of over-the-counter traded securities (including fixed income securities) and trade confirmation disclosure requirements. The fair pricing proposal would cover OTC transactions for retail and institutional clients and require that Dealer Members “make a reasonable effort to obtain a price for the customer that is fair and reasonable in relation to prevailing market conditions.” The proposed rule also considers issues respecting mark-ups and mark-downs in the case of principal transactions and commissions or service charges in the case of agency transactions. A draft Guidance Note on the OTC proposal was also published.
The proposed amendments would also require disclosure of the yield to maturity for fixed income securities on trade confirmations as well as a remuneration statement on all OTC transactions for retail clients “where the amount of the mark-up or mark-down, commissions and other service charges” has not been disclosed.
IIROC is accepting comments on the proposals until July 16, 2009.
On March 23, 2009, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice providing guidance on the introduction and supervision of new financial products. Citing the gatekeeper role played by dealer members, the notice provides sample criteria for identifying products that may require review, as well as a list of best practices for product due diligence.
On March 2, 2009, the SEC provided notice of proposed changes to the NASD Rules as filed by the Financial Industry Regulatory Authority (FINRA). FINRA (a consolidation of the National Association of Securities Dealers and the member regulation, enforcement and arbitration functions of the New York Stock Exchange) is responsible for regulating securities firms doing business in the U.S. and prescribes the training and competence standards of securities representatives. The proposed changes to the NASD Rules would create a new limited representative registration category for investment banking professionals. In lieu of the current General Securities Registered Representative (Series 7) exam, those whose activities are limited to investment banking would take a more targeted qualification exam, while those already holding Series 7 registration would be "grandfathered" and not need to take the new exam.
Last year, the Performance Reporting Board of the Chartered Accountants of Canada published guidance and recommendations for preparing and reporting non-GAAP financial measures. The document provides standardized definitions for EBITDA and Free Cash Flow and recommendations for utilizing those two specific measures. Particularly relevant in the current environment is the definition of Standardized EBITDA, which excludes "amounts included in net income or net loss for: ... (iii) amortization and impairment charges for capital assets."
The Investment Industry Regulatory Organization of Canada recently published a strategic plan, dated December 2008, which sets out IIROC's broad goals and strategies. Goals include driving a culture of compliance among those subject to IIROC's jurisdiction and delivering effective, efficient and expert regulation.
The Technical Committee of the International Organization of Securities Commissions (IOSCO) recently published a consultation report with respect to policies on direct electronic access (DEA) to markets. The report reviews risks and concerns associated with DEA arrangements and proposes guidance with respect to pre-conditions for DEA, information flow and adequate systems and controls. Comments on the report may be submitted to the IOSCO until May 20, 2009.
On September 30, 2008, the Investment Industry Regulatory Organization of Canada (IIROC) issued Notice 2008-0113 regarding the adoption of International Financial Reporting Standards (IFRS). Notice 2008-0113 stated that IIROC would require progress reports on the adoption of IFRS from dealer members by April 1, 2009.
On February 23, 2009, however, IIROC released a notice stating that in lieu of a progress report, dealer members will be required to complete a survey, which will be sent to the CFOs of each dealer member. The purpose of the survey will be to "assist dealer members in their self-assessment of the impact to adopt IFRS" and IIROC intends to use the results to "identify implementation issues and next steps".
The Investment Industry Regulatory Organization of Canada (IIROC) has published proposed amendments to its Dealer Member Rules with respect to the handling of client complaints. The proposed rules seek to establish "an effective framework" for the client complaint process by setting out timelines and standards to which Dealer Members must adhere. The text of the proposed amendments may be found here and comments on the proposals may be submitted to IIROC until March 16, 2009.
In a bulletin published February 12, the Mutual Fund Dealers Association of Canada (the MFDA) announced that it was establishing a task force to review issues respecting its governance, which emanated from its annual general meeting of members held in December 2008. The issues to be reviewed include the process for nominating board members, the process for making and amending by-laws and rules, the failure to pass a by-law respecting the definition of "Public Director" and the terms of office for directors, and the failure to elect three proposed Public Directors. The MFDA stated that it is determined to fully review the governance issues and conduct a "robust" consultation process.
On February 4, the Investment Industry Regulatory Organization of Canada (IIROC) released two studies related to short sales. The first study, "Recent Trends in Trading Activity, Short Sales and Failed Trades", reviewed trading trends during the period of May 1, 2007 to September 30, 2008 with a particular focus on short selling and failed trades. The study found that despite the fact that the average number of daily trades increased "significantly" during the study period, "there was no significant change" with respect to short sales.
The second study released was the "Study on the Impact of the Prohibition on the Short Sale of Inter-Listed Financial Sector Issuers". The purpose of this study was to review the impact of recent restrictions by the OSC in September and October of 2008 (see below) to curb short selling in the face of increased market volatility. Notably, the study found that the OSC Orders "did not appear to have had any appreciable effect on the price of securities" of either the securities of restricted or non-restricted financial issuers. The Orders, however, had "a significant impact on market quality" for the trading of restricted financial securities, as the Orders reduced the liquidity available in the restricted financials and increased the spread between the ask price and closing bid.
Continue Reading...IIROC recently published a notice providing an update to its Rule Book Project. The objective of the Project is to "produce a clear, streamlined re-statement of the former IDA rules and make substantive reforms to certain important rules." IIROC further states that the Project is a necessary pre-condition to the production of a consolidated IIROC Rule Book that will consist of the Dealer Member Rules and UMIR. IIROC estimates completing the endeavour by February 2010.
In response to the CSA's proposed amendments to NI 23-101 Trading Rules, released earlier this month, IIROC has now published for comment proposed amendments to the Universal Market Integrity Rules that would correspond to the changes to NI 23-101. IIROC's proposed amendments would include repealing the rule and policies respecting the "best price" obligation concurrent with the implementation of trade-through protection. With the publication of the proposed amendments, IIROC also withdrew from further consideration interim provisions on trade-through obligations, previously published by Market Regulation Services (a predecessor to IIROC). Until the amendments implementing trade-through protection are made to NI 23-101 and UMIR, however, Participants remain subject to the "best price" obligation under Rule 5.2 of UMIR.
In addition to its ABCP study, IIROC has also published for comment a draft guidance note entitled "Best practices for product due diligence". Specifically, IIROC is requesting comment on the relevant criteria in determining whether a product should be subject to a due diligence review, factors to be considered in conducting product due diligence and the structures and procedures necessary for an effective review.
On October 17, the Investment Industry Regulatory Organization of Canada (IIROC) announced the publication of a study concerning the manufacture and distribution of third-party asset-backed commercial paper in Canada. The study reviews the events leading up to the "liquidity crisis" of August 2007 in the ABCP market and includes recommendations concerning product due diligence, product transparency, conflicts of interest and credit ratings.
On October 15, 2008, IIROC published a notice regarding the approval of amendments to the Universal Market Integrity Rules respecting short sales and failed trades. The amendments are based on an earlier notice, published in September 2007, and are intended to address potential abusive short selling and failed trade activity. These amendments will require reporting of failed trades after 10 trading days, limit the ability to cancel or vary executed trades, and allow IIROC to designate certain securities as ineligible for short sales entirely. They are also expected to involve the imposition of hard “pre-borrow” requirements in the case of persons who have executed failed trades, which will be subject to a request for comments. IIROC also announced that it is deferring adopting the removal of current short sale price restrictions and the removal of current requirements to file bi-monthly aggregate short position reports.
In response to last week's OSC Extension Order with regards to the prohibition on the short sale of certain TSX-listed financial companies, IIROC has published guidance on the handling of short sales.
The MFDA is publishing for comment proposed amendments to Rule 2.6 Borrowing for Securities Purchases. The proposed amendments would require leverage risk disclosure only when an Approved Person makes a recommendation to invest using borrowed funds or becomes aware of a client borrowing for investment. The proposed amendments would also exempt RRSP loans from the disclosure requirements of Rule 2.6. In conjunction with the proposed amendments, MFDA staff will be revising the prescribed risk disclosure language in MR-0006 to provide a brief explanation of key risks and relevant considerations in plain language. The comment period expires November 3, 2008.
IIROC has published notice of proposed changes to its registration related rules to make them consistent with the objectives of the CSA’s Registration Reform Project proposals.
IIROC’s proposal to overhaul its rules encompasses significant amendments to the existing rules, and while designed primarily to implement the approach and objectives of the Registration Reform Project in the IIROC Dealer Member Rules, also includes proposed rule changes of a housekeeping nature and those directed at improving the clarity of the rules in general.
These rule amendments are expected to be made effective on the same date as proposed National Instrument 31-103 and related changes to securities laws required to implement the CSA’s Registration Reform Project. The proposal is open for a 30-day comment period.
On September 22, the OSC issued an amended Temporary Order with respect to the restrictions on short sales in order to address technical and operational matters originating from their original Temporary Order and to support similar issues addressed by the SEC.
Further, IIROC has released a Restated Reminder Respecting Obligations in the Conduct of Short Sales in order to review the obligations of Participants and Access Persons in the handling of short sales. Of interest, the reminder also states that as part of its market activity monitoring, IIROC intends to increase surveillance of short selling activity, in particular of issuers in the financial sector not covered by the OSC's Temporary Order.
On August 12, 2008, the Minister of Finance approved amendments to NI 21-101 and NI 23-101, which are set to come into force on September 12, 2008. As described in our earlier post, the CSA initially approved amendments to NI 21-101 Marketplace Operation (NI 21-101) and NI 23-101 Trading Rules (NI 23-101) in June 2008 to deal mostly with the best execution obligation of dealers and advisers. An unofficial consolidation of the amendments can be found here.
On August 26, 2008, the OSC approved amendments to the TSX Rules. The amendments remove from the TSX Rules the fixed opening and closing times of the TSX's trading sessions and instead authorize the Board of Directors of TSX Inc. to determine the opening and closing times. Certain minor changes to the amendments were made following their publication for comment on September 7, 2007 and the amendments take effect on September 12, 2008.
On August 29, the CSA published a Joint Notice and Request for Comment regarding an application by the MFDA to extend the suspension of MFDA Rule 2.4.1 to December 31, 2010.
MFDA Rule 2.4.1 requires MFDA Members to pay any remuneration for business conducted by MFDA Approved Persons on the Members' behalf directly to and in the name of the Approved Persons.
The MFDA is requesting that the securities regulatory authority in each of British Columbia, Ontario, Saskatchewan, and Nova Scotia extend the suspension of Rule 2.4.1 to December 31, 2010 to give it time to develop proposed amendments that would allow Approved Persons to direct remuneration in respect of business they conduct on behalf of MFDA Members to non-registered corporations, subject to certain conditions.
Suspension of MFDA Rule 2.4.1 currently expires on December 31, 2008.
The OSC consented to the MFDA’s continued participation in the Co-operative Agreement with the AMF, pursuant to which the AMF, the Chambre de la sécurité financière and the MFDA co-ordinate their various regulatory functions with respect to MFDA Members and their Approved Persons operating in Québec.
The TSX has adopted and the OSC has approved various amendments to the TSX Company Manual. The Amendments, effective as of June 16, 2008, are of a housekeeping nature and including the following:
The CSA have approved amendments to NI 21-101 Marketplace Operation (NI 21-101) and and NI 23-101 Trading Rules (NI 23-101) to deal mostly with the best execution obligation of dealers and advisers.
The Amendments, now scheduled to come into force on September 12, 2008, were initially published for comment along with other proposed amendments on April 20, 2007 with the Joint Notice on Trade-Through, Best Execution and Access to Marketplaces (originally published in conjunction with RS, now IIROC. The CSA have now decided to separate these three topics and deal with each separately on separate timetables.
The current amendments deal with best execution along with some other minor changes, including changes related to the electronic audit trail provisions. Amendments dealing with trade-through protection and rules related to access to marketplaces are proposed to be dealt with under separate requests for comment in the coming months.
The OSC and a number of other Canadian securities regulatory authorities or regulators have published this notice of approval of the Investment Industry Regulatory Organization of Canada (IIROC). IIROC is a result of the combination of the regulatory activities of the Investment Dealers Association of Canada (IDA) and Market Regulation Service Inc. (RS).
The notice of approval is comprised of IIROC’s official Recognition Order, a memorandum of understanding with respect to the regulatory oversight program for rule review and approval, IIROC’s new By-law No. 1 and Transition Rule No. 1 and certain consequential amendments to related documents.
Continue Reading...Ramandeep Grewal and Simon Romano
On October 12, 2007, the TSX issued a request for comments to determine whether it should revisit its practice of exempting listed issuers from the requirement to obtain security holder approval for share exchange acquisitions of other public entities. The request for comments includes a summary of some of the material considerations for or against such a proposal and a comparison to similar requirements in other jurisdictions.
The TSX Manual currently requires shareholder approval for acquisitions where the number of securities issued or issuable as consideration exceeds 25% of the issued and outstanding securities of a listed offeror. Prior to January 1, 2005, the TSX generally applied its historical practice of exempting listed issuers from this requirement for acquisitions of other public entities. Amendments that were effective on that date expressly added this exemption as Section 611(d) of the TSX Manual. In response to concerns raised by some market participants, the TSX has decided to review whether it is appropriate to continue to make this exemption available to its listed issuers.
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