The Investment Industry Regulatory Organization of Canada (IIROC) has issued final guidance on the management and execution of stop loss orders to protect market integrity.
The guidance addresses concerns about the ongoing incidence of trades resulting from the automated execution of stop loss orders, requiring regulatory intervention by IIROC.
Read: 5 more regulatory proposals to follow
“When multiple stop loss orders are triggered and executed without regard for their impact, investor confidence is unnecessarily compromised,” said Wendy Rudd, IIROC’s senior vice-president, Market Regulation and Policy. “This guidance confirms that dealers are responsible for the appropriate execution of their clients’ orders, and for the maintenance of fair and orderly markets. Regulatory intervention by IIROC should be required only in exceptional circumstances.”
The final guidance provides specific direction to dealers on the use and management of stop loss orders in relation to their obligations under UMIR electronic trading rule amendments (“ETR”), which took effect March 1, 2013.
IIROC intends to continue monitoring the impact of stop loss orders on fair and orderly markets and will assess whether additional regulatory steps are required.
Also read: