Canada regulators tighten trading rules

By Jennifer Kwan

TORONTO (Reuters) - Rule changes announced on Friday will put the onus on Canadian stock trading venues to guarantee the best possible prices for investors buying and selling shares in the country's increasingly fragmented marketplace.

The key change is to create an "order protection rule", which means each marketplace must have policies and procedures in place to prevent so-called trade-throughs, essentially where a trade is executed at an inferior price, said the Canadian Securities Administrators (CSA).

The CSA is the umbrella organization for the country's 13 provincial and territorial securities watchdogs.

"It's just more efficient to put the onus on marketplaces rather than on 200 different dealers trying to ascertain where the best price is," said Susan Copland, a director at the Investment Industry Association of Canada (IIAC), which represents about 200 investment dealers.

Currently, investment dealers are required to ensure best prices. As alternative trading systems (ATSs) emerged in Canada in the past several years, dealers had to build or lease costly technology to work with more and more markets and, in some cases, making it difficult to comply.

Under the rule changes, a trading venue would be required to send an order away to a rival offering a better price, using technology known as a "smart order router."

The move to put the onus on trading venues mimics a rule in the United States known as Regulation NMS. However, in Canada, the rule would involve finding best prices through the "full depth of book," which essentially makes it more time consuming and costly to comply, the IIAC has said.

Another concern is that the CSA did not enact caps on trading fees, which dealers say have risen, in part, because trading is now done on multiple marketplaces, said Copland.