Canadian Markets Gird for IIROC Risk Mandate

Terry Flanagan

Ahead of a March 1 deadline, Canada’s financial markets participants are implementing stringent pre-trade risk controls that to aim meet regulatory requirements with little to no impact on day-to-day business operations.

Canadian alternative trading venue Omega ATS has launched a pre-trade risk system for Canadian marketplace participants. The system combines the Orbixa Dill risk-monitoring software with the Omega ATS platform to provide a turnkey system that is compatible with most order management systems and automated trading engines.

“Pre-trade risk controls will help to bolster investor confidence that was lost after the 2010 ‘flash crash’ and subsequent events such as Knight and Facebook,” said Sean Debotte, director of business development at Omega ATS. “One of the major things we’re focused on is market-wide circuit breakers.”

The regulatory framework, called National Instrument 23-103, will require market participants who enter orders electronically to maintain policies, procedures and controls to manage the risks associated with electronic trading.

NI 23-103, which is to go into effect on March 1, imposes requirements on marketplaces for availability of order and trade information, marketplace controls relating to electronic trading, marketplace thresholds and erroneous trades.

The Omega service includes multi-level kill switch capabilities, fat-finger limits, user permissions, symbol by symbol permissions, and capital or credit limit controls.

“Our technology provider [Orbixa] is focused heavily on connectivity and offering a low latency solution that will meet the criteria under NI 23-103,” said Debotte.

In January, the Investment Industry Regulatory Organization of Canada (IIROC), the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada, published its circuit breakers for the first quarter of 2013, which are set in co-ordination with those in U.S. markets, according to law firm Stikeman Elliott.

In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month’s average closing value. The NYSE thresholds for the first quarter of 2013 are 1,300 points, 2,650 points and 3,950 points, respectively.

On February 7, the IIROC released a notice to participants and access persons trading on Canadian marketplaces of their requirement to notify IIROC by March 1, of who and how they will manage their pre-trade risk requirements under the new electronic trading rules.

TMX Group, Canada’s top exchange operator, is implementing a new service, TMX Pre-Trade Risk Management Solution, which provides provide clients with connectivity and technology needed for high-performance pre-trade risk-filtered access to all Canadian equity marketplaces.

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