The Investment Industry Regulatory Organization of Canada yesterday released proposed guidance designed to establish a framework for Canadian marketplaces to adopt appropriate marketplace thresholds. Such controls are intended to control short-term, unexplained price volatility and promote fair and orderly markets.
IIROC initially proposed a set of principles in May 2012 as it considered formal proposals to establish marketplace price and volume thresholds. The proposed guidance is ultimately based on three principles, namely that: (i) marketplace thresholds should operate to generally preclude the execution of orders at prices that would otherwise, on execution, require regulatory intervention by IIROC on the triggering of a single-stock circuit breaker or the application of the unreasonable trade policy; (ii) the volatility control mechanism used by a marketplace should have the least amount of impact that is practical on the market-wide operation of the price discovery mechanism and access to "tradable" liquidity; and (iii) the introduction or amendment of marketplace thresholds by a marketplace should, to the greatest extent possible, not impose a regulatory burden on other marketplaces or stakeholders.
According to IIROC, the proposed guidance is intended to be principles-based, allow each marketplace flexibility in the structure and application of its marketplace threshold, and ensure that marketplace thresholds can be implemented with minimal impact on stakeholders.
Comments are being accepted on the proposed guidance until July 3, 2014. According to IIROC the final guidance will become effective at least 180 days following the publication of a final notice. For more information, see IIROC Notice 14-0089.