The Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) published a joint position paper today that considers, and provides the regulators' views on, the issues associated with dark pools and dark orders. According to IIROC and the CSA, their views are intended to provide "more clarity" around how dark orders should be treated and facilitate "investor understanding and choice" regarding the execution of orders.

The paper follows a year of consultations on the subject and sets out the position of the position of the regulators on a number of issues, namely:

  • that only orders meeting a minimum size threshold be exempt from pre-trade transparency requirements;
  • that, while, two dark orders meeting the minimum size exemption should be able to execute at the national best bid or best offer, meaningful price improvements should be required in all other circumstances;
  • that visible (lit) orders should execute before dark orders at the same price on the same marketplace, except where two dark orders meeting the minimum size exemption can be executed at that price; and
  • that meaningful price improvement should be considered as one trading increment as defined under UMIR. For securities with a difference between the best bid price and the best ask price of one trading increment, one-half increment will be considered to be meaningful price improvement.

Comments are being accepted on the position paper until January 10, 2011. Once comments have been considered, the CSA and IIROC intend to propose rule changes as required.