On July 29, the Investment Industry Regulatory Organization of Canada published proposed amendments to the Universal Market Integrity Rules that address the regulation of dark liquidity on Canadian markets.

The release of IIROC's proposals represents the next step in the effort by the Canadian Securities Administrators and IIROC to adopt regulations to address issues surrounding dark pools and dark orders. The proposed amendments released last week follow various previous steps taken by regulators to consider the issues, including a joint CSA/IIROC consultation paper released in 2009, a consultation forum held in March 2010 and a CSA/IIROC position paper published in November 2010.

Among other things, the proposed amendments would (i) introduce or amend, as the case may be, definitions of "better price", "dark order" and "last sale price"; (ii) allow IIROC to designate a minimum size for orders that are not displayed in a consolidated market display; (iii) allow IIROC to designate a minimum size of an "iceberg" order that must be displayed in a consolidated market display; (iv) provide that orders entered on a marketplace must trade with visible orders on that marketplace at the same price before trading with dark orders at the same price on that marketplace; and (v) require, subject to certain exceptions, an order entered on a marketplace that trades with an order that has not been displayed in a consolidated market display to either receive a better price or be for more than 50 standard trading units, or have a value of more than $100,000.

Comments on the proposals are being accepted until October 27, 2011. For more information, see IIROC Notice 11-0225.

For a discussion of the regulatory framework for dark liquidity, see IIROC Notice 11-0226 / Staff Notice 23-311, which was also published last week and contains a summary of public comments in response to the CSA/IIROC position paper of November 2010. Also see our post on the proposed amendments to NI 21-101 Marketplace Operations, which were published in March.