On December 18, the Canadian Securities Administrators (CSA) proposed a Trading Fee Rebate Pilot Study to examine the effects of prohibiting rebate payments by Canadian marketplaces (Pilot Study). Currently, Canadian equity marketplaces typically charge a fee to one party of the trade and pay a rebate to the other party. CSA staff are concerned that the payment of rebates may create hard-to-manage conflicts of interest affecting dealer routing decisions, contribute to the segmentation of order flow, and/or increase intermediation on actively traded securities (where liquidity is least needed). The design and future operation of the Pilot Study are likely to be of interest primarily to Investment Industry Regulatory Organization of Canada (IIROC) dealer members, since they have direct access to exchanges, but also may be of interest to portfolio managers who use direct electronic access.
During the proposed Pilot Study, Canadian marketplaces (including exchanges and alternative trading systems) will be temporarily prohibited from paying trading fee rebates to dealers for executing orders for a sample set of equity securities, including both highly liquid and actively traded, medium liquidity securities. The Pilot Study is expected to run at the same time as a similar study being conducted in the United States by the SEC. The comment period closes on February 1, 2019.