Electronic Trading Rules Presentation to CLS Education Committee May 15, 2013

Electronic Trading Rules Published December 7, Notices and Became effective March 1, 2013 Automated controls must be tested and implemented by May 31, 2013 Align with the CSA’s National Instrument NI recognizes the role of both participants and marketplaces in managing trading risks UMIR expands on pre-existing supervisory requirements to specifically include risk management and supervisory controls including both pre and post trade

Requirements Participants and Access Persons must: Create, adopt, document and maintain a system of risk management and supervisory controls, policies and procedures Effectively supervise trading activities and be accountable for the risks associated with electronic access to marketplaces Have an appropriate level of understanding of any automated order system used including those used by clients Ensure that every automated order system used by them or any client is tested at least annually

Controls, Policies and Procedures Automated controls to prevent entry of an order that exceeds: – Pre-determined credit or capital thresholds – Pre-determined credit or other limits assigned by the Participant to its client – Predetermined limits on the value or volume of unexecuted orders Prevention of the entry of an order that is not in compliance with UMIR and securities law Provision of immediate order and trade information to compliance staff Regular post-trade monitoring for compliance with UMIR and securities law

Authorization of Controls Authorization for an investment dealer to perform on its own behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure Where appropriate and on a reasonable basis Unless the investment dealer is also a Participant, authorization is prohibited where the investment dealer is trading on a proprietary basis (directly or indirectly) Must be formally authorized through a written agreement

Automated Order Systems Applies to Participant’s and client’s AOS Understand the AOS to manage associated risks AOS must be tested before initial use and annually Document that testing has occurred Consider AOS when applying automated controls Ability to immediately override or disable any AOS to prevent orders generated by the AOS from being entered

Reporting Requirements Notify IIROC if you: –use a third party for risk management and supervisory controls, policies and procedures –authorize an investment dealer to set or adjust its supervisory controls Use the EMX secure system Provide name of entity and contact information

Related Guidance Manipulative and Deceptive Trading Practices – Notice Proposed Guidance on the Management of Stop Loss Orders – Notice