The Ontario Securities Commission (OSC) published today Staff Notice 23-702, an update on the OSC's ongoing review of the risks associated with electronic trading, including a review of National Instrument 23-103 Electronic Trading.
NI 23-103 came into effect on March 1, 2013 , establishing the regulatory framework that oversees and manages risks associated with the use of electronic trading in Canadian marketplaces.
The OSC undertook the review to ensure the current regulatory framework continues to be effective and robust. The review included an analysis of the tools and controls on electronic trading in Canada , as well as an assessment as to whether there are any deficiencies in NI 23-103.
"The current pace of market evolution requires us to continuously examine and evaluate the policies that safeguard the marketplace and market participants from the risks associated with electronic trading," said Howard Wetston, Q.C., Chair and CEO of the OSC. "Although the risks of technological failure or human error can never be completely eliminated, we strive to ensure we have robust mechanisms in place to manage risks associated with electronic trading and to foster capital market efficiency and protect investors."
As part of the OSC's review process, an independent consultant was retained to conduct a third-party assessment of the risks posed by electronic trading. This involved an interview process with market participants to gather information regarding electronic trading practices, procedures and controls, risks posed by electronic trading, sufficiency of the current regulatory framework and how to best mitigate electronic trading risks. The assessment concluded that no deficiencies exist in NI 23-103 and that NI 23-103 provides a good framework from which industry can work. The report includes observations and recommendations, which OSC Staff are reviewing to determine next steps.
The consultant's recommendations, along with other inputs, will be considered in the context of how to enhance the broader regulatory framework for marketplaces. Any new requirements relating to electronic trading would be proposed and dealt with through the normal comment processes.
The OSC will continue to work with the Canadian Securities Administrators and Investment Industry Regulatory Organization of Canada to identify and address electronic trading risks through policy development and through consultations with market participants, investors and international regulators, in particular, the International Organization of Securities Commissions (IOSCO).