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The Globe and Mail

Canadian regulators to put new 'dark order' trade rules in place this fall

Frank Gunn/The Canadian Press/Frank Gunn/The Canadian Press

Securities regulators say new policies covering so-called dark trades, or orders entered without pre-trade transparency, will go into effect in October.

The new rules were adopted in March by the Canadian Securities Administrators after widespread consultation that began in 2009.

The CSA and the Investment Industry Regulatory Organization of Canada jointly announced Friday that the new rules will go into effect on Oct. 10.

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The regulators say the new rules will enable institutional traders to continue to execute large orders with minimal market impact, while ensuring that investors with smaller orders receive meaningful price improvement when they trade.

"This new regulatory framework strikes an appropriate balance that will allow for continued innovation while maintaining fair and efficient capital markets," said Bill Rice, CSA chairman as well as chairman and CEO of the Alberta Securities Commission.

IIROC president and CEO Susan Wolburgh Jenah said the new rules "are intended to ensure Canadian equity markets continue to evolve in a fair and competitive manner that strengthens market integrity and investor protection."

"The new rule framework recognizes the increasing use of dark liquidity and balances displayed and dark liquidity for healthy price discovery," she said.

The IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.

The new framework involves several elements. Among them:

  • Visible orders will have execution priority over dark orders on the same marketplace at the same price.
  • In order to trade with a dark order, smaller orders must receive a minimum level of price improvement, which is defined as one trading increment or half a trading increment for securities with a bid-ask spread of one trading increment.
  • The IIROC has the ability to designate a minimum size for dark orders, although it isn’t doing so at this time.

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