12.31.2013
By Terry Flanagan

IIROC Expands Circuit Breaker Program

The Investment Industry Regulatory Organization of Canada (IIROC) has published for comment proposed guidance to expand the single-stock circuit breaker program (SSCBs) to further mitigate market volatility.

The proposed guidance would expand the list of securities subject to SSCBs to include all securities that are considered “actively traded”; extend the times when SSCBs are active to include the entire regular trading day; and allow more than one SSCB to trigger for a particular security during the same trading day.

“We are committed to maintaining fair and orderly markets and the expansion of
single-stock circuit breakers, together with other complementary measures, enhances market integrity and fosters investor confidence,” said Susan Wolburgh Jenah, IIROC’s president and CEO.

Under the proposal, IIROC would produce a report, available on its website, listing all securities subject to SSCBs which would be updated monthly once the guidance is finalized.

The introduction and expansion of SSCBs is part of a series of IIROC reforms
implemented since the May 6, 2010 “Flash Crash”. They include controls at the participant level introduced through the electronic trading rules (March 2013) and pending implementation of third-party marketplace access rules (March 2014); n upcoming proposal for the introduction of marketplace thresholds; IIROC’s February 2013 update to market-wide circuit breakers; and IIROC’s August 2012 clarification of its policies and procedures on erroneous and unreasonable trades.

The proposed guidance, when finalized, would replace prior guidance published
February 2012 in which IIROC introduced SSCBs on an “initial implementation phase” basis. The proposal is out for comment until March 10, 2014.

IIROC has also outlined its key examination and surveillance priorities for 2013- 2014. In its Annual Consolidated Compliance Report.

Each year, IIROC issues a comprehensive report highlighting key findings from examination and surveillance programs, results from surveys and targeted reviews from the previous year and areas of focus for the upcoming year, to help IIROC-regulated firms improve their compliance systems and controls related to financial operations, business conduct and trading conduct. This year’s report also includes current trends and issues identified in registration, and reinforces requirements to help dealers meet their regulatory requirements.

“This report underscores our commitment to transparency and is an important resource that members can draw upon to strengthen oversight and compliance,” said Rosemary Chan, IIROC’s senior vice president, member compliance, general counsel and corporate secretary.

“We are committed to maintaining a competitive landscape for firms of diverse sizes and business models and the report reinforces the importance of strong day-to-day compliance, supervision and risk management practices of IIROC-regulated firms across Canada,” said Wendy Rudd, IIROC’s senior vice president, market regulation and policy.

IIROC takes a risk-based approach which focuses on areas that have the greatest potential impact on investor protection and works closely with the industry to ensure firms devote appropriate attention and resources to these areas.

IIROC’s compliance program reflects changes in market structure, business risk, investment products, demographics, and identified corporate priorities. Over the next year, IIROC’s exam teams will focus on helping firms identify, manage and mitigate potential risk. Upcoming areas of focus include implementation of the Client Relationship Model, suitability and “know your client” obligations, outsourcing arrangements, and electronic trading rule requirements.

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