23-101 - Trading Rules [NI Proposed - Lapsed]

NATIONAL INSTRUMENT 23-101
TRADING RULES

PART 1 DEFINITIONS AND INTERPRETATIONS

1.1 Definitions - In this Instrument

1A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms used in more than one national instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined in the statute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, will have the meaning in that jurisdiction given to it in that statute, unless the context otherwise requires. National Instrument 14-101 also provides that a provision or a reference within a provision in a national instrument that specifically refers by name to one or more jurisdictions, other than the local jurisdiction, shall not have any effect in the local jurisdiction, unless otherwise stated in the National Instrument.

"approved agent" means a person or company

(a) that is recognized by the securities regulatory authority to,

(i) in the case of a recognized exchange or recognized quotation and trade reporting system, perform the functions referred to in section 10.1, or

(ii) in the case of a marketplace or a dealer executing trades that are not executed on a marketplace, perform the functions referred to in section 10.2; and

(b) that has entered into an agreement referred to in section 10.3;

"consolidated market display" means the consolidated feed produced by the data consolidator pursuant to section 7.5 of NI 21-101;

"customer limit order" means an order to buy or sell a security at a specified price that is not for the account of either a broker or dealer;

"foreign non-reporting issuer" means an issuer

(a) that is not incorporated under the laws of Canada or a jurisdiction,

(b) that is not a reporting issuer in any jurisdiction or a reporting issuer equivalent in Manitoba and New Brunswick, and

(c) that has issued securities that trade on a marketplace in Canada;

"market maker" means any dealer that holds itself out as being willing to buy and sell a security for its own account on a regular or continuous basis;

"NI 21-101" means National Instrument 21-101 Marketplace Operation;

"principal transaction" means a transaction executed through the facilities of a marketplace in which a marketplace participant, as principal,

(a) purchases securities from its customer, or

(b) sells securities to its customer; and

"short sale" means a sale of a security that the seller does not beneficially own.

1.2 Interpretation - NI 21-101 - Terms defined or interpreted in NI 21-101 and used in this Instrument have the respective meanings ascribed to them in NI 21-101.

1.3 Interpretation - For the purpose of the definition of short sale in section 1.1, a seller is considered

(a) to beneficially own a security if the seller has legal authority to sell the security; and

(b) not to beneficially own a security if the seller has borrowed the security.

PART 2 MANIPULATION AND FRAUD

2.1 Price Manipulation, Deceptive Trading and Fraud

(1) A person or company shall not, directly or indirectly, engage in, or participate in any transaction or series of transactions, or method of trading relating to a trade in or acquisition of a security, if the person or company knows, or ought reasonably to know, that the transaction or series of transactions, or method of trading

(a) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a security; or

(b) perpetrates a fraud on any person or company.

(2) Despite subsection (1), in Alberta, British Columbia, Quebec and Saskatchewan, the provisions of the Securities Act (Alberta), the Securities Act (British Columbia), the Securities Act (Quebec) and The Securities Act, 1988 (Saskatchewan), respectively, relating to manipulation and fraud apply.

2.2 Attempted Manipulation - A person or company shall not, directly or indirectly, engage in or participate in any transaction or series of transactions, or method of trading relating to a trade in or acquisition of a security, in an attempt to

(a) create a misleading appearance of trading activity in, or an artificial price for, a security; or

(b) perpetrate a fraud on any person or company.

PART 3 SHORT SELLING

3.1 Short Selling

(1) A person or company shall not make a short sale of a security through the facilities of a marketplace below the price at which the last sale of a board lot was displayed by the data consolidator.

(2) Subsection (1) does not apply to the sale of a security if

(a) the seller has purchased or has entered into an unconditional contract, binding on both parties, to purchase the security, but has not yet received it;

(b) the seller beneficially owns a security that is convertible into or exchangeable for a security and has tendered the security for conversion or exchange or has issued irrevocable instructions to convert or exchange the security;

(c) the seller has an option to purchase or acquire the security and has exercised the option; or

(d) the seller is making a sale of the security for an arbitrage account, if the seller knows or has reasonable grounds to believe that an offer enabling the seller to cover the sale is then available to the seller and the seller accepts the offer immediately.

(3) Subsection (1) does not apply to the trading of debt securities.

PART 4 FRONT RUNNING AND INSIDER TRADING

4.1 Front Running

(1) A person or company shall not purchase or sell as principal or agent on a marketplace securities of a particular class or a derivative of those securities with knowledge of an order for the purchase or sale of securities of that class or a derivative of those securities, or knowledge of a potential purchase or sale of securities of that class or a derivative of those securities, if that information has not been generally disclosed.

(2) A person or company shall not inform, other than in the necessary course of business, another person or company of an order for the purchase or sale of securities or of the potential purchase or sale of securities on a marketplace, if that information has not been generally disclosed.

4.2 Insider Trading of Securities of Foreign Non-Reporting Issuer

(1) A person or company in a special relationship with a foreign non-reporting issuer shall not purchase or sell on a marketplace in Canada securities of that issuer with the knowledge of a material fact or material change with respect to that issuer that has not been generally disclosed.

(2) A person or company in a special relationship with a foreign non-reporting issuer shall not inform, other than in the necessary course of business, another person or company of a material fact or material change with respect to that issuer before the material fact or material change has been generally disclosed.

(3) A person or company that proposes to make a take-over bid for securities of a foreign non-reporting issuer, or to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with a foreign non-reporting issuer or to acquire a substantial portion of its assets shall not inform another person or company of a material fact or material change with respect to that issuer before the material fact or material change has been generally disclosed, except where the information is given in the necessary course of business to effect the take-over bid, business combination or acquisition.

(4) For the purposes of this section, a person or company in a special relationship with a foreign non-reporting issuer means

(a) a person or company that is an insider, affiliated entity or associate of,

(i) that issuer,

(ii) a person or company that is proposing to make a take-over bid for the securities of that issuer, or

(iii) a person or company that is proposing to become a party to a reorganization, amalgamation, merger or arrangement or similar business combination with that issuer or to acquire a substantial portion of its assets;

(b) a person or company that is engaging in or proposes to engage in any business or professional activity with or on behalf of that issuer or with or on behalf of a person or company described in subparagraph (a)(ii) or (iii);

(c) a person who is a director, officer or employee of that issuer or of a person or company described in subparagraph (a)(ii) or (iii) or paragraph (b);

(d) a person or company that learned of the material fact or material change with respect to that issuer while the person or company was a person or company described in paragraph (a), (b) or (c); and

(e) a person or company that learns of a material fact or a material change with respect to that issuer from any other person or company described in this subsection, including a person or company described in this paragraph, and knows or ought reasonably to have known that the other person or company is a person or company in such a relationship.

(5) For the purposes of subsection (1), a security of the foreign non-reporting issuer includes

(a) a put, call, option or other right or obligation to purchase or sell securities of the issuer; or

(b) a security, the market price of which varies materially with the market price of the securities of the issuer.

4.3 Defences

(1) A person or company does not contravene section 4.1 or 4.2

(a) if the person or company reasonably believed that the information in the case of section 4.1, or the material fact or material change in the case of section 4.2, had been generally disclosed; or

(b) if the person or company reasonably believed that the other party to the purchase or sale of the securities or the person or company informed of the information in the case of section 4.1, or the material fact or material change in the case of section 4.2, as the case may be, had knowledge of the information or the material fact or material change.

(2) A person or company does not contravene subsection 4.1(1) or 4.2(1)

(a) if the purchase or sale was entered into as agent of another person or company under a specific unsolicited order from that other person or company to purchase or sell;

(b) if the purchase or sale was made under participation in an automatic dividend reinvestment plan, share purchase plan or other similar automatic plan that was entered into by the person or company before the acquisition of knowledge of the material fact or material change;

(c) if the purchase or sale was made to fulfil a legally binding obligation entered into by the person or company before the acquisition of knowledge of the information in the case of section 4.1, or the material fact or material change, in the case of section 4.2; or

(d) if

(i) no director, officer, partner, employee or agent of the person or company who made or participated in making the decision to purchase or sell the securities had actual knowledge of the information in the case of section 4.1, or the material fact or material change, in the case of section 4.2, and

(ii) no advice was given with respect to the purchase or sale of the securities to the director, officer, partner, employee or agent of the person or company who made or participated in making the decision to purchase or sell the securities by a director, partner, officer, employee or agent of the person or company who had actual knowledge of the information in the case of section 4.1, or the material fact or material change, in the case of section 4.2.

(3) A person or company does not contravene sections 4.1 and 4.2 if the person or company purchases or sells securities of a foreign non-reporting issuer as agent or trustee for a person or company who does not contravene section 4.1 or 4.2 by reason of paragraph (2)(b) or (c) of this section.

PART 5 BEST EXECUTION

5.1 Best Execution

(1) A dealer acting as agent for a customer shall make reasonable efforts to ensure that the customer receives the best execution price on a purchase or sale of securities by the customer.

(2) Without limiting the generality of subsection (1), a dealer acting as agent for a customer shall not execute a transaction on a marketplace that could be filled at a better price on another marketplace or with a market maker displayed in the consolidated market display.

(3) In order to satisfy the requirement in subsection (1), a dealer shall make reasonable efforts to use facilities providing information regarding orders and a means to execute orders.

PART 6 DISPLAY REQUIREMENTS FOR MARKETPLACE PARTICIPANTS AND MARKET MAKERS

6.1 Marketplace Participants - Pre-trade Transparency - Each marketplace participant shall immediately provide to a marketplace in which it is a marketplace participant the ask price, bid price and size of all orders received from customers for securities, unless

(a) in the case of equity securities or preferred securities, the order has a total value in excess of $100,000; or

(b) in the case of options, the order is for over 100 contracts.

6.2 Market Maker Display Requirements for Non-Exchange Traded Securities - Equity Securities and Preferred Securities

(1) Pre-trade Transparency - Unless the order has been submitted to a marketplace, each market maker for equity securities or preferred securities, that are non-exchange-traded securities shall provide to the data consolidator, in the format required by the data consolidator, for every order that has a total value of $100,000 or less

(a) the ask price, bid price and size of all of the market maker’s orders; and

(b) the ask price, bid price and size of any of the market maker’s customer limit orders that would improve the ask or bid price of the market maker’s orders.

(2) Post-trade Transparency - Unless the trade has been executed on a marketplace, each market maker for equity securities or preferred securities, that are non-exchange-traded securities shall provide to the data consolidator, in the format required by the data consolidator, accurate and timely information regarding all trades of equity securities or preferred securities, including details as to the type, issuer, series and class of security, the volume, the price and the time of the trade.

(3) Reporting Procedure - Subsection (2) does not apply to a market maker with respect to a purchase of securities by the market maker from or through another market maker.

(4) Consolidated Feed - The data consolidator shall produce a consolidated feed showing the information on the consolidated market display and the information provided to the data consolidator by each market maker under subsections (1) and (2).

6.3 Market Maker Display Requirements for Non-Exchange-Traded Securities - Debt Securities

(1) Pre-trade Transparency - Unless the order has been submitted to a marketplace, each market maker for debt securities shall provide to an information processor, in the format required by the information processor

(a) the ask price, bid price and size of all of the market maker’s orders; and

(b) the ask price, bid price and size of any of the market maker’s customer limit orders that would improve the ask or bid price of the market maker’s orders.

(2) Post-trade Transparency - Unless the trade has been executed on a marketplace, each market maker for debt securities shall provide to an information processor, in the format required by the information processor, accurate and timely information regarding all trades of debt securities, including details as to the type, issuer, series and class of the security and the volume, the price and the time of the trade.

(3) Reporting Procedure - Subsection (2) does not apply to a market maker with respect to a purchase of securities by the market maker from or through another market maker.

(4) Consolidated Feed - The information processor shall produce a consolidated feed showing the information provided to the information processor under sections 8.1 and 8.2 of NI 21-101 and the information provided to the information processor by each market maker under subsections (1) and (2).

PART 7 PRINCIPAL TRADING

7.1 Principal Trading

(1) A marketplace participant that receives an order having a total value of $100,000 or less to buy or sell a security traded on a marketplace shall not execute a principal transaction for that security unless the marketplace participant buys at a higher price or sells at a lower price than the best bid or best offer displayed in the consolidated market.

(2) Subsection (1) does not apply to the trading of debt securities.

PART 8 REGULATORY HALTS

8.1 Regulatory Halts - If a securities regulatory authority, a recognized exchange or a recognized quotation and trade reporting system makes a decision to prohibit trading in a particular security, no marketplace shall permit trading in that security during the period in which the prohibition is in effect.

PART 9 TRADING HOURS

9.1 Trading Hours - Each marketplace shall set requirements in respect of the hours of trading to be observed by marketplace participants.

PART 10 MONITORING AND ENFORCEMENT

10.1 Monitoring and Enforcement by a Recognized Exchange or a Recognized Quotation and Trade Reporting System

(1) Each recognized exchange and each recognized quotation and trade reporting system shall set requirements that

(a) prohibit marketplace participants from engaging in any of the conduct prohibited under this Instrument; and

(b) require marketplace participants to act in accordance with subsections 5.1(1) and (3) and section 6.1.

(2) Each recognized exchange and each recognized quotation and trade reporting system shall monitor and enforce compliance with the requirements set under subsection (1) either

(a) directly if it has been approved to do so by a Canadian securities regulatory authority; or

(b) through an approved agent.

10.2 Monitoring and Enforcement by an Approved Agent for ATSs and Trades Not Executed on a Marketplace

(1) An approved agent shall set requirements for a marketplace or a dealer executing trades that have not been executed on a marketplace

(a) that prohibit the marketplace or the dealer from engaging in any of the conduct prohibited under the Instrument; and

(b) to enter into an agreement with the marketplace or the dealer which states that the marketplace or the dealer shall

(i) act in accordance with subsections 5.1(1) and (3) and Part 6 of this Instrument;

(ii) comply with the requirements adopted by the approved agent to enable the approved agent to carry out its obligations under this Instrument; and

(iii) provide to the approved agent the information set out in Part 11 of this Instrument.

(2) An approved agent shall monitor and enforce compliance with the requirements set out in this subsection.

10.3 Coordination of Monitoring and Enforcement - Each recognized exchange, recognized quotation and trade reporting system and approved agent shall enter into agreements with other recognized exchanges, recognized quotation and trade reporting systems and approved agents to coordinate the performance of the requirements in this Part.

PART 11 AUDIT TRAIL REQUIREMENTS

11.1 Application of this Part - This Part does not apply to a dealer that is an ATS.

11.2 Audit Trail Requirements for Orders Regarding Equity Securities, Preferred Securities and Options

(1) Recording Requirements for Receipt or Origination of an Order - Each dealer shall record immediately following the receipt or origination of an order for equity securities, preferred securities or options, specific information relating to that order including,

(a) the order identifier;

(b) the type, issuer, class, series and symbol of the security;

(c) the number of shares or contracts to which the order applies;

(d) the exercise price, if applicable;

(e) whether the order is a buy or sell order;

(f) whether the order is a short sale order, if applicable;

(g) whether the order is a market order or limit order or other special type of order;

(h) the date and time the order is originated or received by the dealer;

(i) the type of account for which the order is submitted (retail, wholesale, employee, proprietary);

(j) the client account number;

(k) the date on which the order expires, and if the time the order expires is less than one day, the time when the order expires; and

(l) the currency of the order.

(2) Recording Requirements for Transmission of an Order - Each dealer shall record immediately following the transmission of an order for equity securities, preferred securities or options to a dealer or marketplace specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.1(1)(a);

(b) the dealer identifier assigned to the dealer transmitting the order and the dealer identifier assigned to the dealer or marketplace to which the order is transmitted;

(c) the number of shares or contracts and price ;

(d) the date and time the order is transmitted;

(e) the type of account for which the order is submitted (retail, wholesale, employee, proprietary);

(f) the client account number; and

(g) the currency of the order.

(3) Recording Requirements for Modification or Cancellation of an Order - Each dealer shall record immediately following the modification or cancellation of an order for equity securities, preferred securities or options specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.1(1)(a);

(b) the date the order was first originated or received;

(c) the date and time the modification or cancellation was originated or received;

(d) whether the order was cancelled or modified on the instructions of the client or the dealer; and

(e) in the case of modification, any of the information in subsection 11.1(1) which has been changed.

(4) Recording Requirements for Execution of an Order - Each dealer shall record immediately following the execution of an order for equity securities, preferred securities or options specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.1(1)(a);

(b) the date and time the order was first originated or received;

(c) whether the order was fully or partially executed;

(d) the identifier assigned to the dealer or marketplace where the order is executed;

(e) the date and time of the execution of the order;

(f) the number of shares or contracts; and

(g) the price at which the order was executed.

(5) Transmittal of Order Information to a Marketplace - For orders executed on a marketplace, each dealer shall transmit in electronic form within 90 seconds after execution of an order the order information set out in subsections (1) to (4) of this section to the approved agent of the marketplace, in the format required by the approved agent.

(6) Transmittal of Order Information to an Approved Agent for Orders not Executed on a Marketplace - For orders not executed through a marketplace, each dealer shall transmit in electronic form within 90 seconds after execution of an order the order information set out in subsections (1) to (4) of this section to an approved agent, in the format required by the approved agent.

11.3 Audit Trail Requirements for Orders Regarding Debt Securities

(1) Recording Requirements for Receipt or Origination of an Order - Each dealer shall record immediately following the receipt or origination of an order for debt securities specific information relating to that order including,

(a) the order identifier;

(b) the dealer identifier;

(c) the type, issuer, class, series and symbol of the security;

(d) the face amount or unit price of the order;

(e) whether the order is a buy, sell or cross;

(f) the date and time the order is originated or received by the dealer;

(g) the type of account for which the order is submitted (retail, wholesale, employee, proprietary);

(h) the client account number; and

(i) the currency of the order.

(2) Recording Requirements for Transmission of an Order - Each dealer shall record immediately following the transmission of an order for debt securities to a dealer or marketplace specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.2(1)(a);

(b) the dealer identifier assigned to the dealer transmitting the order and the dealer identifier assigned to the dealer or marketplace to which the order is transmitted;

(c) the face amount or unit price of the order;

(d) the date and time the order is transmitted;

(e) the type of account for which the order is submitted (retail, wholesale, employee, proprietary);

(f) the client account number; and

(g) the currency of the order.

(3) Recording Requirements for Modification or Cancellation of an Order - Each dealer shall record immediately following the modification or cancellation of an order for debt securities specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.2(1)(a);

(b) the date the order was first originated or received;

(c) the date and time the modification or cancellation was originated or received;

(d) whether the order was cancelled or modified on the instructions of the client or the dealer; and

(e) in the case of modification, any of the information in subsection 11.2(1) which has been changed.

(4) Recording Requirements for Execution of an Order - Each dealer shall record immediately following the execution of an order for debt securities specific information relating to that order including,

(a) the order identifier referred to in paragraph 11.2(1)(a)

(b) the date and time the order was first originated or received;

(c) whether the order was fully or partially executed;

(d) the identifier assigned to the dealer or marketplace on which the order is executed;

(e) the date and time of the execution of the order; and

(f) the face amount or unit price of the order.

(5) Transmittal of Order Information to a Marketplace - For orders executed on a marketplace, each dealer shall transmit in electronic form within 90 seconds after execution of an order the order information set out in subsections (1) to (4) of this section to the approved agent of the marketplace, in the format required by the approved agent.

(6) Transmittal of Order Information to an Approved Agent for Orders not Executed on a Marketplace - For orders not executed through a marketplace, each dealer shall transmit in electronic form within 90 seconds after execution of an order the order information set out in subsections (1) to (4) of this section to an approved agent, in the format required by the approved agent.

11.4 Synchronization of Clocks - Each dealer shall synchronize the clocks used for recording the time and date of any event that must be recorded pursuant to this Part to the clock used by

(a) the marketplace where the order is executed, if the marketplace is an exchange,

(b) the approved agent of the ATS, if the order is executed on an ATS, or

(c) an approved agent, if the order is not executed through a marketplace,

and the dealer shall maintain the synchronization of such clocks in conformity with procedures established by the marketplace or the approved agent.

PART 12 EXEMPTION

12.1 Exemption

(1) The regulator or the securities regulatory authority may grant an exemption from this Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.

(2) Despite subsection (1), in Ontario, only the regulator may grant such an exemption.