Securities Law

23-403 - Market Structure Developments and Trade-Through Obligations [CSA Discussion Paper]

Published Date: 2005-07-22
Effective Date: 2005-07-22

Concurrently Published:

Chapter 1 - Notice of Request for Comments

CSA Discussion Paper 23-403
Market Structure Developments and Trade-Through Obligations 


The Canadian Securities Administrators (CSA) are publishing for comment in Chapter 6 of this Bulletin CSA Discussion Paper 23-403 Market Structure Developments and Trade-Through Obligations. The purpose of the discussion paper is to discuss evolving market developments and the consequential implications for our market, in particular the obligation to avoid trade-throughs.

The comment period will end on October 20, 2005. We note that we will be holding a public forum on October 14, 2005. Parties that would like to participate in the forum are invited to indicate in their comment letter to Discussion paper 23-403 that they wish to appear. These comment letters must be filed by September 19, 2005.

We will take the feedback received through the consultation process into account in our assessment of what, if any, steps are appropriate.

RS Request for Comments - UMIR Amendments Regarding Trade-Through Obligations

On June 3, 2005, the Recognizing Regulators[1] of Market Regulation Services Inc. (RS) published RS’s proposed amendments to the Universal Market Integrity Rules regarding trade-throughs.[2] A notice by the Recognizing Regulators postponing the end of the RS comment period was published with the RS proposal. We note here that the comment period for both the RS proposal and Discussion Paper 23-403 ends on October 20, 2005.

[1] British Columbia Securities Commission, the Alberta Securities Commission, the Manitoba Securities Commission, the Ontario Securities Commission and the Autorité des marchés financiers.

[2] Published at (2005), 28 OSCB 5064.


CSA Discussion Paper 23-403
Market Structure Developments and Trade-Through Obligations

Table of Contents

I.          Introduction

II.        The Current Structure of the Canadian Market
A.  Current Structure for Exchange-Traded Securities
B.  Current Rules in Canada Relating to Trading Through

1.   National Instrument 23-101 Trading Rules
2.   Universal Market Integrity Rules - Part 5

C.  Recent Developments and Changes

1.   Introduction of ATSs in Canada that trade Canadian listed securities
2.   Proposed UMIR amendments

(a)    Off-Marketplace Trades
(b)    Trade-through Proposal

3.   U.S. developments and international considerations

(a)    U.S. developments
(b)    International considerations

4.   Derivatives markets

III.       Role and Scope of a Trade-Through Obligation
A.  Nature of any Trade-Through Obligation

1.   Balancing investor confidence and competition and innovation
2.   Trade-through as an obligation to the client
3.   Trade-through as an obligation to the market

B.  On Whom Should a Trade-Through Obligation be Imposed?

1.   Should the obligation be on the marketplace participant?
2.   Should the obligation be on the marketplace?

C.  Meeting a Trade-Through Obligation

1.   Satisfying the trade-through obligation before or simultaneously with execution

(a)    How the obligation is determined
(b)    Impact on access requirements
(c)    Depth-of-book or best bid/ask
(d)    Sweep orders

2.   Trade-through obligation for marketplaces with limited pre-trade transparency or other unusual execution characteristics

(a)    Depth-of-book or best bid/ask?

IV.       Exemptions from a Trade-Through Obligation
A.  Exemptions Related to the Determination of Price or Special Terms
B.  Block Trade Exemptions
C.  Exemption for Non-Visible Parts of an Order
D.  Issues Considered by the SEC

1.   Fast markets vs. slow markets
2.   General ability to opt out

V.        Implications of a Trade-Through Obligation
A.  Operational Issues
B.  Trading Increments
C.  Consequential Issues Related to Multiple Marketplaces Trading the Same Securities

1.   Best Execution
2.   Locked or crossed markets
3.   Method of trade allocation: difference between price priority and price-time priority
4.   Last sale price

VI.       Evaluating the Impact on Markets
A.  SEC Study on Rates and Impact of Trade-Through
B.  Status of Trade-Through Data in Canada

VII.     Conclusions

VIII.    Comment Process
A.  Specific Comments Requested
B.  Comments
C.  Public Forum
D.  Questions