The Investment Industry Regulatory Organization of Canada (IIROC) has released its finalized Guidance on Marketplace Thresholds. As discussed in our 2014 post on the draft version, the Guidance is intended to promote stable markets by controlling short-term price volatility and catching erroneous orders before they can be completed.
The primary effect of the Guidance, which is to take effect on August 25, 2016, is to limit the amount by which the price to be paid in a trade in a security may vary from (a) the price paid in the most recent trade in that same security on that day (defined as the “national last sale price”) and (b) the national last sale price as it stood at the most recent one-minute interval (defined as the “one minute reference price”). The threshold level depends largely on the price of the security and generally ranges between 10% and 20%, with the exception of securities trading between $1 and $5 (30%), between 50 cents and $1 (50%) and below 50 cents (300%). Notwithstanding these limits, securities subject to Single Security Circuit Breakers (SSCBs) are subject to a 10% limit in all cases, as are Exchange-Traded Funds (ETFs). Exchange-listed debt is subject to a 20% limit in all cases.
Each marketplace governed by IIROC must adopt the thresholds, which incorporate nuances and exceptions beyond those indicated in the abbreviated summary that we have just provided. IIROC notes that enforcement actions may still be taken with respect to trades that fall within the thresholds, where appropriate. Finally, while IIROC has decided that it is impractical to attempt to implement volume controls as part of the Marketplace Thresholds, the Guidance notes that under NI 23-103 a market may introduce volume controls as part of its risk management and supervisory authority.