Rules Notice Technical UMIR Please distribute internally to: Institutional Legal and Compliance Operations Trading Desk Contact: Kevin McCoy Director, Market Regulation Policy Telephone: 416.943.4659 Fax: 416.646.7265 e-mail: kmccoy@iiroc.ca 13-0014 January 14, 2013 Implementation Date for Reporting Trade-for-Trade Extended Failed Trades Summary On April 15, 2013, the requirement will be implemented for a Participant or Access Persons to file with IIROC a report of an Extended Failed Trade ( EFTR ) in respect of a trade executed on a marketplace that was to settle through the trade-for-trade facility of CDS Clearing and Depository Services Inc. ( CDS ) but that has not been resolved within ten days following the settlement date. Background To assist IIROC in gathering information to evaluate whether trading activity that resulted in a failed trade has been conducted in compliance with UMIR and other regulatory requirements, Rule 7.10 of UMIR requires that each Participant or Access Person report to IIROC if a trade that was executed on a marketplace has failed to settle on the settlement date and remains
unresolved ten days following the settlement date ( Extended Failed Trade ). 1 On June 1, 2011, 2 the requirement to file an EFTR report became effective with respect to a trade in a listed security executed on a marketplace that was to settle through the continuous net settlement facilities ( CNS ) of CDS. For a Participant, this meant the obligation to file an EFTR was limited to Extended Failed Trades in a Cash Account or a Long Margin Account. With respect to trades which settle outside of the CNS facility of CDS, (i.e. a trade-for-trade settlement) IIROC delayed the implementation until such a time as necessary programming was completed to allow IIROC to automatically process information received directly from CDS relating to extended failed trades in the trade-for-trade settlement facility of CDS. That programming and systems development is complete and, in accordance with the implementation procedure set out in IIROC Notice 11-0080, this Rules Notice is providing at least ninety days notice of the implementation on April 15, 2013 of the requirement to file an EFTR for a trade settling through the trade-for-trade settlement facility. Questions and Answers The following are frequently asked questions relating to the obligations of a Participant or Access Person in respect to Extended Failed Trades reported through the Trade-for-Trade EFTR facility and IIROC s response to each question: 1. How does a Participant or Access Person obtain access to the trade-for-trade EFTR system to respond to an event? The administrator role for the trade-for-trade EFTR system is the same user role as the existing EFTR reporting system. If a firm has already set up a firm administrator for the current EFTR reporting facility there is no need to contact IIROC for any additional access. If a firm has not previously set up a firm administrator for the existing EFTR reporting system, they must do so by contacting IIROC at eftrs@iiroc.ca and providing the name of the individual they wish to designate as such. As with the existing EFTR Reporting System, the firm administrator is responsible for establishing and maintaining all user roles within their firm. The trade-for-trade EFTR facility introduces a new user role called firm responder. An individual set up as a firm responder may: view non-cured Extended Failed Trades and all trade details; 1 2 See IIROC Notice 08-0143 Rules Notice Notice of Approval UMIR Provisions Respecting Short Sales and Failed Trades (October 15, 2008). See IIROC Notice 11-0080 Rules Notice Guidance Note UMIR - Implementation Date for the Reporting of Extended Failed Trades (February 25, 2011). Trades 2
update non-cured trade-for-trade Extended Failed Trades; and search and view reports. 2. How is a trade-for-trade EFTR event initialized? IIROC receives a daily file from CDS which contains information on failed trades. IIROC imports this data directly into the trade-for-trade facility and automatically initiates an EFTR report as required. This differs from the existing EFTR facility used for reporting Extended Failed Trades respecting trades settling through the CNS facility of CDS which requires the firm to manually initiate a report. 3. What triggers a trade-for-trade event? A trade-for-trade report is automatically initiated when the data received from CDS indicates that there is an outstanding settlement respecting a listed security that has been outstanding for ten days past the contracted settlement date of the trade ( date of reporting requirement ). The event is initiated when a Participant or Access Person is identified in the CDS data and the business role of the Participant or Access Person is indicated as buyer. This business role generally means that the Participant or Access Person s client has failed to deliver securities to the Participant or Access Person to effect settlement. 4. How is a Participant or Access Person advised that a trade-for-trade event has been created? Once a trade-for-trade EFTR has been created, an e-mail is sent to the firm responder of the Participant or Access Person identified in the EFTR. The e-mail notification of the report will contain details of the Extended Failed Trade including: the IIROC reference number; the name of the Participant or Access Person; the date of event initiation; the trading symbol of the security; and the CUSIP number. Once logged into the EFTR system, more complete information regarding the Extended Failed Trade is available, including: Trades 3
the CDS Transaction ID; the identification of the Participant or Access Person on the other side of the trade; the date of reporting requirement; the volume of the trade that failed to settle ( Quantity Failed ); and the date the EFTR record was last updated. 5. What obligations does a Participant or Access Person have when responding to an event? Once the event has been initiated and the Participant or Access Person has been notified, the firm responder must log into the EFTR facility and update the record. The record must be updated to include: the name of the client; the account number of the client; the reason that the trade has not settled; and whether the trade was for client or inventory. 6. Does the Participant or Access Person need to update the event once settlement has occurred? No. Once the fail is no longer outstanding and the firm has updated the record to include all required information the EFTR trade-for-trade system will automatically cure the fail. However, if the firm has not updated the record with all required information the status of the report will be changed to incomplete. The report will not cure and will remain incomplete until such a time that the firm accesses the report and updates the record to include all required information. 7. Are there any follow-up alerts sent to the Participant or Access Person if a failed trade remains unsettled? Yes. In addition to the initial email that is sent once a report has been created, additional notifications may be sent to the firm over the life-cycle of an Extended Failed Trade. Notifications are sent when a settlement remains outstanding on both the 6 th and 11 th day following the date of the reporting requirement. Notifications are also sent when an event is incomplete, meaning that the settlement has occurred and is no longer outstanding, Trades 4
but the firm responder has not updated the record to include all required information. Once settlement has occurred and the firm responder has updated the record with all required information, the status will automatically be set to cured, and no further notifications will be sent. 8. Is there a user guide available? Yes. After logging on to the EFTR system, the user guide may be accessed by clicking on Help located at the top of the main screen. Trades 5