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Posted on September 2, 2010
On August 27, the Investment Industry Regulatory Organization of Canada (IIROC) published proposed amendments to Form 1, used to monitor the financial solvency of dealer members. The proposals would include amendments to the "market value" definition in Form 1 to adopt the mandated IFRS valuation approach, except where value cannot be reliably measured in which case IIROC has proposed an alternative approach. While IIROC's proposals are intended to harmonize the standards used in financial reporting with IFRS as much as possible, a number of departures from IFRS are proposed. These include reporting of client and broker trading balances on a net basis, treating preferred shares as regulatory capital and presenting the financial statements on non-consolidated basis. IIROC is accepting comments on its proposals for 60 days from the date of publication of the notice.
IIROC Notice 10-0230 - Amendments to Form 1 to adopt IFRS for regulatory reporting purposes
Attachment A - Amendments to Form 1
Attachment B - Black-line Form 1
Posted on August 31, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) announced yesterday the launch of IIROC AdvisorReport, described as a "resource to help investors learn the background of advisors who are currently approved to work at IIROC-regulated firms." AdvisorReport will allow investors to access, online, information on, among other things, a current registrant's educational background, employment history with IIROC member firms since 2003 and disciplinary history. AdvisorReport replaces IIROC's Member Firm/Registrant Info Service launched in 2003. According to IIROC, AdvisorReport provides improvements over the previous service, as it is easier to use, faster and provides more information in one place.
IIROC News Release
IIROC Notice 10-0232
Backgrounder: IIROC AdvisorReport
Posted on August 25, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) yesterday released a summary of public comments relating to its review of the IIROC arbitration program in response to a notice published in December 2009. Following its review, IIROC also has now released a request for comments on, among other things, proposals to increase the award limit under the program to $500,000 and to amend the procedural rules to permit claimants, at the commencement of a proceeding, to eliminate the arbitrator's discretion to award costs against a party. According to IIROC, the higher award limit
is appropriate and reflects a balance between providing greater access to recourse that is expeditious and cost-effective, and ensuring adherence to principles of natural justice and legal process.
The comment period on the proposals ends on October 8, 2010.
See: IIROC's News Release, IIROC Notice 10-0227 and Appendix A to the Notice, reviewing comments submitted in response to the previous notice.
Posted on August 13, 2010
Comments are being accepted on the proposed amendments to Rule 3.1.1 and Form 1 until October 12, 2010.
Posted on July 19, 2010
Earlier this month, the Canadian Securities Administrators released its Oversight Review Report of the Mutual Fund Dealers Association of Canada. The report followed an oversight review of the MFDA's regulatory functions by staff at various provincial securities regulators to (i) assess whether the MFDA is in compliance with the relevant terms and conditions of its recognition orders; (ii) determine whether the MFDA's regulatory processes are efficient, effective, consistent and fair; and (iii) evaluate whether the MFDA has adequate staffing, resources and training to perform its regulatory functions effectively and efficiently.
Ultimately, while the review found that the MFDA was generally compliant with the relevant terms and conditions of its recognition orders, it did include a number of recommendations, including with respect to the Financial Compliance group at head office. Recommendations concerned internal benchmarks used by the Financial Compliance group, the review of financial questionnaire and reports and the financial compliance examination process. The report includes the MFDA's responses to the report's concerns and the expected follow-up where appropriate.
Posted on July 16, 2010
The OSC has approved amendments to MFDA rules respecting client accounts, client communications and client reporting. The original proposals, which we noted in our post of May 2009 and will, among other things, require that investors are provided with certain information at the time of account opening, clarify the duty of MFDA Members and approved persons to assess the suitability of investments in client accounts when various triggering events occur and clarify Members' supervisory requirements regarding client communications that disclose a rate of return.
Posted on July 6, 2010
On July 2, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 10-0191 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 2010 as 1,000 points, 2,050 points and 3,050 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%) - 2,350 points and Level 3 (30%) - 3,500 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.
Posted on June 25, 2010
The Mutual Fund Dealers Association of Canada (MFDA) proposed amendments today that would remove the existing obligations in MFDA Rule 3.3.2 to hold client cash for investment in mutual funds separately from client cash for other investments. According to the MFDA, however, the protection of client assets would not be impacted as existing requirements to segregate client cash held in trust from Member property would be maintained. The amendments are being proposed in anticipation of similar changes to National Instrument 81-102 Mutual Funds.
Meanwhile, amendments were also proposed to MFDA Rule 2.4.4 regarding transaction fees or charges and Rule 5.1 respecting the requirement for records, in order to require MFDA members to inform investors of transaction fees or charges prior to the acceptance of their order.
Comments are being accepted on the proposed amendments to Rule 3.3.2 until September 24 and until September 23 with respect to the proposed amendments to Rules 2.4.4 and 5.1.
Posted on June 24, 2010
On June 17, 2010, the Mutual Fund Dealers Association of Canada (MFDA) published Bulletin #0437, requesting comments on recommendations made by the Board of Directors of the MFDA Investor Protection Corporation (IPC) to increase the size of the IPC fund.
The IPC fund, which is intended to protect clients of MFDA Members in the case of Member insolvency, is expected to reach its initial $30 million target by the end of this calendar year and the IPC board has recommended accumulating a further $20 million over the next five years.
Posted on June 18, 2010
We have now updated our post on the regulators' G20 plans to include an announcement by the MFDA.
Posted on June 16, 2010
The U.S. Securities Industry and Financial Markets Association (SIFMA) recently released the results of a study intended to "assist regulators and policymakers in preparing for expanded systemic risk oversight" and enhance the ability of regulators to respond to future systemic risk events. The study was based on interviews with a number of organizations, including regulators, securities broker-dealers, insurers and hedge funds.
Posted on June 10, 2010
According to IIROC's Recognition Order, IIROC must review its corporate governance structure within two years of the date of recognition and periodically thereafter. Pursuant to this requirement, IIROC recently completed such a review and published a report assessing the success in meeting its governance principles and making recommendations to "further develop" its governance structure. The report, prepared by IIROC's Corporate Governance Committee has been adopted by its board of directors.
The Recognition Order provides that IIROC's governance structure and arrangements must ensure: (i) effective oversight of the entity; (ii) fair, meaningful and diverse representation on the board and any committees of the board, including a reasonable proportion of independent directors; (iii) a proper balance among the interests of the different persons or companies subject to regulation by IIROC; and (iv) that each director or officer is a fit and proper person. The report ultimately concluded that the present governance structure and arrangements ensure that each principle is being met.
That being said, the report recognized that "governance is a dynamic process" that must "evolve and change as circumstances and requirements change". Thus the report includes a number of recommendations, including increasing the maximum size of the board of directors, establishing the position of Vice-Chair, providing a principles-based exception to the definition of independence for board members, providing for a one-year cooling-off period before an individual connected with a dealer, marketplace or IIROC could be considered independent and enhancing the information provided to members in connection with director voting.
Posted on June 8, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) announced today that it is hosting a "Tips for Traders Toronto" education session on June 16 at the Design Exchange to consider recent market events and associated compliance issues. President and CEO of IIROC Susan Wolburgh Jenah will be making the opening remarks.
Posted on June 4, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) today published proposed amendments to its Dealer Member Rules that would address the fairness of pricing and transparency of OTC market transactions. Initial proposals on the subject were previously published for comment in April 2009 and IIROC has revised its proposals in light of comments received.
Specifically, IIROC's proposals would: (i) require dealers to fairly and reasonably price securities traded in OTC markets, with an exception for primary market transactions and OTC derivatives set out in the rule; (ii) require dealers to disclose yield to maturity on trade confirmations for fixed-income securities and notations for callable and variable rate securities; and (iii) require dealers to include on trade confirmations sent to retail clients in respect of OTC transactions a statement indicating that they have earned remuneration on those transactions unless the amount of any mark-up or mark-down, commissions and other service charges is disclosed on the confirmation. A draft guidance note, describing the scope of the proposed rule, fair pricing considerations and documentation requirements, has also been published by IIROC.
The proposals are open for a 30-day comment period.
Posted on May 31, 2010
Citing the lack of a central database containing comprehensive and readily accessible data regarding orders and executions, the U.S. Securities and Exchange Commission proposed a new rule on May 26 that would require SROs to establish a consolidated audit trail system. Under the new system, exchanges and FINRA, as well as their members, would be required to provide certain information to the central repository regarding each quote and order in a National Market System (NMS) security.
Such a consolidated system would be intended to: (i) provide regulators direct and timely access to uniform consolidated order and execution information for all orders in NMS securities from all participants across all markets; (ii) enable SROs to better fulfill their regulatory responsibilities to oversee their markets and members; and (iii) enable the SEC to better carry out its oversight of the NMS for securities.
The SEC is accepting public comments on the proposal for 60 days after its publication in the Federal Register.
Posted on May 28, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) today proposed a new rule intended to "clearly articulate that any personal financial dealing with clients, subject to limited exemptions, is considered inappropriate conduct, a conflict of interest and a violation of the general business conduct standards." Prohibited conduct would include receiving direct or indirect benefits or other considerations from clients (other than through a Dealer Member), entering into private settlement agreements with clients, lending money or borrowing money from clients, and having any control or authority over the financial affairs of clients. Amendments to the current Rule 18.14 were also proposed in order to clarify that outside business activities require disclosure to, and approval by, Dealer Members.
Comments on the proposals are being accepted by IIROC for 90 days from today's publication.
Posted on May 28, 2010
The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) today provided an update on their review of market structure issues such as dark pools. The update provides an overview of the views expressed at a consultation forum recently held by the two organizations to discuss Consultation Paper 23-404 Dark Pools, Dark Orders, and Other Developments in Market Structure in Canada. Some of the themes that emerged during the forum included the practice of broker preferencing at the marketplace level and internalization of order flow, the practice of dark pools sending Indications of Interest to attract order flow and the use of market pegged orders. The notice also provides a summary of comments received with respect to the Consultation Paper and states that the CSA and IIROC continue to consider market structure issues and welcome further comments.
Posted on May 27, 2010
The U.S. Financial Industry Regulatory Authority (FINRA) released a Regulatory Notice on May 26 requesting comments on proposed rule amendments intended to enhance the oversight of broker-dealers' back office operations. The proposed amendments would create a registration category for operations professionals engaged in, or supervising, activities relating to sales and trading support and the handling of customer assets. A new qualification exam for operations professionals would be established as well as continuing education requirements. Comments on FINRA's proposal are being accepted until July 12, 2010.
Posted on May 21, 2010
CDS Clearing and Depository Services (CDS) has proposed amendments to its procedures to allow qualified CDS participants to issue and maintain security positions in CDSX in an uncertificated format. According to CDS, the amendments would provide "another option for issuers to issue their securities and is a further step supporting the Canadian capital markets' move towards a dematerialized environment." CDS is accepting comments on its proposed amendments for the next 30 calendar days.
Posted on May 18, 2010
Last Friday, the Canadian Securities Administrators (CSA) announced that it was conducting, along with the Investment Industry Regulatory Organization of Canada (IIROC), a "comprehensive analysis" of the events of May 6th with respect to market volatility in the U.S. and Canada. Specifically, the CSA and IIROC state that they will engage in "active dialogue" with other regulators, marketplaces and market participants to consider market volatility issues. Further, they intend to examine electronic trading issues and the appropriateness of the existing circuit breaker policies. For more information on the response of regulators to the events of earlier this month, see our post of May 11.
Posted on May 14, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) has announced that effective June 14, its Dealer Members will be able to download an online report listing the post licensing requirements and corresponding due dates of its relevant employees. Post licensing requirements are set out in IIROC's Dealer Member Rules and include certain courses and examinations. With the creation of online reporting, IIROC will no longer be providing email notifications listing such requirements.
Posted on May 14, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) released an update to the annotated Universal Market Integrity Rules (UMIR) yesterday that incorporates changes to the rules, guidance issued and disciplinary decisions made since June 1, 2008. The annotated rules are current as of April 1, 2010.
Posted on May 13, 2010
The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) released two reports yesterday regarding OTC derivatives. The first, Guidance on the application of the 2004 CPSS-IOSCO Recommendations for Central Counterparties to OTC derivatives CCPs, provides guidance to central counterparties clearing OTC derivatives in applying the Technical Committee's 2004 recommendations. Considerations for trade repositories in OTC derivatives markets, meanwhile, provides a set of considerations for trade repositories in OTC derivatives markets and relevant authorities.
Posted on May 12, 2010
The Technical Committee of the International Organization of Securities Commissions (IOSCO) recently released a consultation report addressing recent regulatory initiatives that impact credit rating agencies. Specifically, the report is intended to evaluate whether, and if so how, international initiatives implement the four IOSCO principles regarding credit rating agencies, being: (i) quality and integrity in the rating process; (ii) independence and conflicts of interest; (iii) transparency and timeliness of ratings disclosure; and (iv) confidential information.
IOSCO is accepting public comments on the report until August 6, 2010.
Posted on May 11, 2010
As regulators continue to investigate last Thursday's extreme market volatility, the Investment Industry Regulatory Organization of Canada (IIROC) has announced that it has re-priced or cancelled various trades occurring during the market slide. Various U.S. markets have also announced that they would cancel trades (see for example announcements from NYSE Arca and NASDAQ). Meanwhile, the Securities and Exchange Commission (SEC) announced yesterday that it has met with the leaders of the Financial Industry Regulatory Authority, NASDAQ, BATS, Direct Edge, ISE and the CBOE, and that all parties have agreed on a structural framework for strengthening circuit breakers and handling erroneous trades.
Today, the SEC and Commodity Futures Trading Commission announced the formation of a joint committee to address "emerging regulatory issues", with the first item on the committee's agenda being a review of last Thursday's market events. Meanwhile, SEC Chairman Mary Schapiro testified before the Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises this afternoon to summarize the events of May 6, provide an overview of the current market structure and discuss various regulatory tools to be considered "in determining how best to maintain fair and orderly financial markets and to prevent severe market disruptions in the future."
Posted on May 7, 2010
It was announced on May 4 that the U.S. Financial Industry Regulatory Authority (FINRA) would be assuming the market surveillance and enforcement functions currently conducted by NYSE Regulation. Under the agreement, which is subject to review by the Securities and Exchange Commission, FINRA would assume the regulatory functions for NYSE Euronext's U.S. equities and options markets, being the NYSE, NYSE Arca and NYSE Amex.
Posted on April 30, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) published a notice on April 28 providing guidance related to UMIR obligations to mark orders to purchase or sell securities for insiders or significant shareholders. The notice anticipates the upcoming implementation on April 30 of the new insider reporting regime and provides answers to frequently asked questions regarding the UMIR obligations. Questions considered include, among others: (i) whether every order for an insider of a particular security must contain a marker; (ii) when a participant can rely on "know your client" information to establish whether a marker is required; and (iii) whether a marked order can be bundled together with orders for those that are not reporting insiders.
Posted on April 30, 2010
On April 28, the Investment Industry Regulatory Organization of Canada (IIROC) recommended a new dealer regulation fee model that would incorporate a "rate by revenue tier" approach, while reducing the level of fee disparity among dealer members. Fees for smaller members would be increased and fee disparity for the largest firms would be reduced. Rates would also be published and made available to dealer members annually. According to IIROC, the new model would help achieve "a fair fee model". Comments are being accepted on the new model until June 28.
Posted on April 23, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) today published proposed amendments to UMIR respecting market maker, odd lot and other marketplace trading obligations. Specifically, the proposals would replace the definition of "Market Maker Obligations" with a definition of "Marketplace Trading Obligations" in order to provide marketplaces with more flexibility in structuring their market making systems.
Market maker obligations are obligations imposed by the rules of a recognized exchange or recognized quotation and trade reporting system (QTRS) on a person to guarantee (i) a two-sided market for a particular security on a continuous or reasonably continuous basis; and (ii) the execution of orders for the purchase or sale of a particular security which are less than a minimum number of units of the security as designated by the marketplace. The new definition, however, would allow exchanges and QTRSs to structure their market maker systems to provide one or both of the above functions and allow marketplaces to provide for an odd-lot arrangement by contract. The proposed amendments would also make consequential amendments to conform the language used in various UMIR provisions to the new definition.
Comments on the proposals are being accepted by IIROC until June 24, 2010.
Posted on April 23, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) recently released its Strategic Plan for 2010-2012. The plan describes IIROC's vision and values and sets out the challenges it faces in fulfilling its mandate. Specifically, the plan discusses the following goals:
- Promoting a culture of compliance and high standards among those subject to IIROC's jurisdiction. This will include a reorganization of IIROC's rules to enhance comprehension, providing compliance examination findings and recommendations to members and undertaking periodic industry-wide compliance audits.
- Delivering effective, efficient and expert regulation. Projects that IIROC will undertake in pursuit of this goal include the implementation of a risk-based methodology for registration and completing its framework approach to IFRS.
- Maintaining market integrity by actively monitoring market structure developments and market-related events. IIROC states that it will reduce timelines to complete enforcement investigations and bring proceedings, clarify roles and relationships in order to strengthen the client/adviser relationship and continue to develop its policies respecting OTC and debt markets.
- Ensuring that it discharges its responsibilities in a cost-effective manner, which will include the implementation of an equitable Dealer and Marketplace Member fee model.
- Maintaining a confident and well-trained staff.
Posted on April 22, 2010
Earlier this week, the Investment Industry Regulatory Organization of Canada (IIROC) announced that CSI Global Education, the exclusive course provider to IIROC for entrance level proficiency requirements, will now begin releasing exam pass rates for IIROC licensing courses. CSI will provide pass rate data annually to member firms for those "key" CSI regulatory courses required by IIROC.
Posted on April 22, 2010
Pursuant to changes to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline that took effect on February 1, the MFDA recently published a notice intended to provide for guidance in interpreting the requirements of the revised policy.
Posted on April 22, 2010
The Mutual Fund Dealers Association of Canada (MFDA) recently published a Leverage Supervision Guide to assist its members in meeting their suitability requirements pursuant to MFDA Rule 2.2.1(c).
Pursuant to MFDA Rule 2.2.1(c), MFDA members and approved persons must use due diligence to "ensure that each order accepted or recommendation made for any account of a client is suitable for the client and in keeping with the client's investment objectives". Suitability guidelines were released in April 2008 by the MFDA and the recently-published Guide is intended to provide further guidance and recommended best practices on developing leverage policies and procedures, analyzing practices, maintaining appropriate documentation and supervision of leverage recommendations.
On April 6, meanwhile, the MFDA published revised leverage risk disclosure, which its members must start providing to clients as of July 1.
Posted on April 21, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) announced on April 19 that it has decided to cancel the industry business continuity planning test scheduled for June 26, 2010. The voluntary test, in which IIROC encourages all Dealer Members to participate, has been rescheduled to September 10, 2011
Posted on April 9, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) today published proposed amendments to its Dealer Member Rules intended "to promote compliant trade matching practices, as well as to eliminate the sending of duplicative trade related correspondence to clients." Specifically, amendments to Rule 800.49 would: (i) extend the trade reporting requirement; (ii) define a "non-exchange trade"; (iii) provide guidance to allow Dealer Members to classify trades as being either compliant or non-compliant with reporting requirements; and (iv) establish an acceptable monthly compliant trade percentage threshold. Rule 200.1(h) is also subject to change, as an exemption to the trade confirmation requirement would be added in cases where certain conditions were met.
Posted on April 6, 2010
On April 1, 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 second quarter of 2010 as 1,050 points, 2,150 points and 3,200 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%) - 1,200 points; Level 2 (20%) - 2,400 points and Level 3 (30%) - 3,600 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.
Posted on April 1, 2010
On March 26, the Investment Industry Organization of Canada (IIROC) published proposed guidance respecting “locked” and “crossed” markets. The proposed guidance would replace previous guidance that was recently repealed in light of amendments to National Instrument 23-101 Trading Rules. Specifically, IIROC’s proposed guidance would provide assistance in complying with the relevant provisions of NI 23-101 and its Companion Policy, as well as with the “best price” and “best execution” obligations under UMIR.
Posted on March 29, 2010
On March 22, the Mutual Fund Dealers Association of Canada (MFDA) released a bulletin in which it discussed the "significant financial compliance deficiencies" identified during on-site examinations of its member firms. Specifically, the bulletin identified the following serious deficiencies: (i) incorrect margin rate applied to securities owned; (ii) securities not held at acceptable securities locations; (iii) incomplete reporting on Form 1; (iv) trust bank accounts not reconciled to back office system; and (v) nominee name client assets not reconciled to third party information on a monthly basis. According to the MFDA, such deficiencies are often "a result of a firm not adequately managing or considering the capital implications of significant changes in their business".
Meanwhile, an MFDA bulletin released on the same day reviewed common deficiencies identified during MFDA staff's review of auditor working paper files. Financial audits of MFDA members occur in accordance with Rule 3.5.1(b) and the MFDA intended the bulletin "to enhance awareness and understanding of the special audit requirements for external auditors".
Posted on March 26, 2010
The Ontario Securities Commission (OSC) announced today that it has approved amendments to MFDA Rule 2.4.1 to allow Approved Persons of MFDA Member firms to have remuneration from the Member paid directly to an unregistered corporation, subject to certain conditions. The final version of the amendments include changes made since their initially publication for comment in June 2009.
Posted on March 26, 2010
Earlier today, the Investment Industry Regulatory Organization of Canada (IIROC) released proposed amendments to its rules respecting business conduct and client accounts. Specifically, proposed Rule 3100 - Business Conduct would consolidate various current rules relating to business conduct and impose on Dealer Members a duty to use due diligence to ensure orders and recommendation are within the bounds of good business practice. Meanwhile, proposed Rule 3200 - Client Accounts would also consolidate various rules and impose responsibilities on Dealer Members with respect to, among other things, client identification, account information, discretionary trading and conflicts of interest. A table of concordance was also released by IIROC, which is accepting comments on the proposals for 90 days.
Posted on March 26, 2010
On March 10, 2010, the Investment Industry Regulatory Organization of Canada (IIROC) published a guidance note outlining its expectations with respect to Dealer Members reporting changes to their business models. According to IIROC, it is "essential" that it be made aware of "significant changes" to a member's business model as such reporting will enable more efficient and effective regulatory supervision. While a "significant change" depends on the circumstances of each case, the note provides some examples of changes that are expected to be reported. Further, IIROC expects the notifications to be thorough and detailed so as to allow it to "fully understand and assess" the changes to the business model.
Posted on March 5, 2010
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.
Posted on February 11, 2010
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.
Posted on February 8, 2010
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.
Posted on February 3, 2010
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."
Posted on February 1, 2010
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.
Posted on January 28, 2010
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.
Posted on January 8, 2010
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:
- modify the exemption governing bids or purchases of certain securities during restricted periods by permitting such bids at the best independent bid price at the time of order entry rather than at the last independent sale price;
- replace the requirement that a mutual fund be designated by the market regulator prior to qualifying as an exempt exchange-traded fund with a provision that any mutual fund with units that are listed or quoted security in continuous distribution in accordance with legislation would qualify unless the regulator has designated the mutual fund to be a security excluded from the definition of "Exempt Exchange-traded Fund";
- clarify the definition and interpretation of "restricted period";
- clarify the types of private placements that may become subject to restrictions under Rule 7.7 of UMIR;
- clarify that in determining the "best ask price" or "best bid price", reference is made only to orders contained in a consolidated market display for a marketplace that is then open for trading; and
- make further consequential and editorial amendments.
The amendments are effective as of today, January 8, 2010.
Posted on 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.
Posted on January 7, 2010
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.
Posted on January 5, 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.
Posted on December 23, 2009
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.
Posted on December 22, 2009
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.
Posted on December 18, 2009
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.
Posted on December 17, 2009
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.
Posted on November 27, 2009
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.
Posted on November 20, 2009
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.
Posted on November 13, 2009
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."
Posted on October 30, 2009
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.
Posted on October 26, 2009
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."
Posted on October 26, 2009
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."
Posted on October 22, 2009
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.
Posted on October 14, 2009
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.
Posted on October 5, 2009
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.
Posted on October 2, 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.
Posted on September 30, 2009
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.
Posted on September 28, 2009
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.
Posted on September 22, 2009
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.
Posted on September 17, 2009
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.
Posted on September 15, 2009
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.
Posted on September 2, 2009
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.
Posted on August 28, 2009
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.
Posted on August 28, 2009
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.
Posted on August 20, 2009
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.
Posted on August 14, 2009
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.
Posted on August 14, 2009
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.
Posted on August 5, 2009
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.
Posted on July 31, 2009
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.
Posted on July 31, 2009
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.
Posted on July 28, 2009
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.
Posted on July 27, 2009
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."
Posted on July 14, 2009
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.
Posted on July 10, 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.
Posted on July 7, 2009
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.
Posted on June 30, 2009
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.
Posted on June 26, 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.
Posted on June 24, 2009
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.
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Posted on June 12, 2009
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.
Posted on June 12, 2009
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.
Posted on June 11, 2009
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.
Posted on May 27, 2009
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.
Posted on May 8, 2009
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.
Posted on May 1, 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.
Posted on April 27, 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.
Posted on April 27, 2009
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.
Posted on April 17, 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.
Posted on April 17, 2009
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.
Posted on March 24, 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.
Posted on March 19, 2009
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.
Posted on March 10, 2009
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."
Posted on March 9, 2009
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.
Posted on March 3, 2009
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.
Posted on February 24, 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".
Posted on February 17, 2009
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.
Posted on February 13, 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.
Posted on February 5, 2009
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.
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Posted on February 2, 2009
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.
Posted on January 21, 2009
The Dealer Member reporting obligations are described in IIROC Member Regulation Notices MR0102 and MR0458.
Posted on October 28, 2008
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.
Posted on October 17, 2008
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.
Posted on October 17, 2008
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.
Posted on October 16, 2008
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.
Posted on October 7, 2008
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.
Posted on October 3, 2008
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.
Posted on September 26, 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.
Posted on September 23, 2008
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.
Posted on September 8, 2008
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.
Posted on September 8, 2008
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.
Posted on August 29, 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.
Posted on July 21, 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.
Posted on June 24, 2008
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:
- Amendments to correct references to the Securities Act in Part III and Part VI of the Manual, required as a result of changes to the OSA.
- Changes to Appendix H: Form 11 -- Notice of Private Placement, to clarify that blanket shareholder approvals are not permitted.
- Changes to Appendix H: Form 12 - Notice of Intention to Make a Normal Course Issuer Bid
- Appendix A -- Original Listing Application is being replaced with a streamlined application, but no substantive changes have been made.
Posted on June 24, 2008
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.
Posted on June 2, 2008
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.
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Posted on November 19, 2007
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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