NOTICE 2014-001 - Notice Of OSC Approval Of Amendments To Rule 12 – Access By Eligible Clients
In accordance with the Process for the Review and Approval of Rules and the Information Contained in Form 21-101F1 and the Exhibits thereto (Exchange Protocol) for recognized exchanges, the Ontario Securities Commission (OSC) has approved amendments to the Rules of CNSX Markets Inc. (CNSX Rules) which are attached below.
As of January 6, 2013 CNSX Markets Inc. (the Exchange) operates as the Canadian Securities Exchange, or CSE.
The Proposed Amendments are being treated as housekeeping amendments, required as a result of the amendments to National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces (NI 23-103) that were previously published for comment on October 25, 2012 at (2012) 35 OSCB 9627. The amendments to NI 23-103 come into effect March 1, 2014. The list of eligible clients, requirements and conditions for access, and Dealer responsibilities will be deleted from Rule 12 Access by Eligible Clients (the Rule). The Rule will be renamed “Access by DEA Clients” and will include the definition of DEA client (as defined in NI 23-103) and the requirement for a Dealer to inform the Exchange if a Trader ID will be used for DEA activity.
The CSA have finalized amendments to NI 23-103 that relate to the offer and use of direct electronic access (DEA) which will come into effect on March 1, 2014. These amendments do not set out an "eligible client list" that imposes specific financial standards upon DEA clients as found in the current DEA rules and policies at the marketplace level. Rather the amendments allow a dealer providing DEA to have flexibility to determine the specific levels of the minimum standards of DEA clients in order to accommodate its business model and appetite for risk. This approach is in keeping with global standards related to DEA. The Amendments are also consistent with the requirement in section 4.7 of NI 23-103 that sets out the parameters under which entities that trade for the account of another person of company may receive DEA from a participant dealer.
CNSX Markets will revoke the rules related to DEA upon implementation of the amendments to NI 23-103 on March 1, 2014.
In general, the Amendments will repeal the definitions and requirements of the Rule to reflect the implementation of the new requirements for Direct Electronic Access in NI 23-103.
Rule 12 will be renamed Access by DEA Clients.
Rule 12-101 which defined and described “eligible client” will be repealed.
Rule 12-102 Conditions for Providing Direct Access to Eligible Clients will be renumbered and renamed “12-101 Conditions for Providing Direct Access to DEA Clients”, and will include the definition:
"DEA Client” means a client that is granted direct electronic access by a Dealer in accordance with National Instrument 23-103 – Electronic Trading and Direct Electronic Access to Marketplaces.”
The requirement that a CNSX Dealer must notify the Exchange if a Trader ID is used for a DEA client, will be retained as 12-101(2)(a) All other conditions of 12-102 will be repealed.
Rule 12-103 Responsibility of CNSX Dealers for Eligible Client Access will be repealed, except the requirement for the CNSX Dealer to be responsible for compliance with CNSX Requirements with respect to order entry and execution, which will be renumbered as 12-101(2)(b) .
DEA related amendments to NI 23-103 will become effective March 1, 2014. CNSX will repeal the specific provisions for providing DEA included in CNSX Rules.
The change will ensure consistency across all marketplaces for DEA requirements.
There is no anticipated increase or decrease in systemic risk, unless the amendments are not adopted by all marketplaces.
The change is not expected to have any adverse impact on fair access or the maintenance of fair and orderly markets.
OSC Staff have determined that a request for comment for these proposed amendments is not necessary as the proposed amendments are in line with approved amendments to NI 23-103 which have already been subject to public comment and will be effective March 1, 2014.
The change will not require any technological changes by Listed Companies, CNSX or service vendors.
No alternatives were considered.
All other marketplaces operating in Canada are required to adopt similar amendments.
Questions or comments about this notice or the amendments to Rule 12 may be directed to:
Mark FaulknerVice President, Listings & Regulation416.367.7341 or Mark.Faulkner@thecse.com
(1) In this Rule,
“DEA Client” means a client that is granted direct electronic access by a Dealer in accordance with National Instrument 23-103 – Electronic Trading and Direct Electronic Access to Marketplaces.
(2) A CNSX Dealer may permit orders received electronically from a DEA Client to be transmitted to the CNSX Trading System through the infrastructure of the Dealer or by sponsoring such orders transmitted through a third-party system acceptable to the CNSX Dealer, provided that the CNSX Dealer shall:
a) identify to the Exchange whether accounts are for DEA Clients and disclose the unique identifier for each DEA Client; andb) be responsible for compliance with CNSX Requirements with respect to the entry and execution of orders transmitted by such clients.