Trading Securities in Canada

Trading Notes

• Placing orders correctly and efficiently ensures client satisfaction and loyalty.
• Registered Representatives (RRs) are gatekeepers who must not facilitate breaches of securities laws or regulations.
• Failing as a gatekeeper can lead to penalties, financial loss, reputational damage, and job termination.

How Securities Are Traded

• Essential trade components include the standard trading unit, settlement period, and minimum quotation spread.
• The standard trading unit quantity is defined by the Universal Market Integrity Rules (UMIR).
• The Canadian Investment Regulatory Organization (CIRO) rules specify trading units for debt and unlisted securities.
• Orders not in multiples of standard trading units are odd lots.
• Odd lots may have less favorable pricing due to difficulty in filling orders.
• Trade settlement involves transferring securities to the buyer's account and cash to the seller's account.
• Settlement period is the time between a securities transaction and ownership transfer, varying by security type.
• In 2024, North American markets shortened the standard settlement cycle to T+1.
• The bid price is the highest price a buyer pays when selling securities at market value.
• The ask price (or offer price) is the lowest price a seller accepts when buying a security at market value.
• Minimum quotation spread is the acceptable range between bid and ask prices, determined by exchanges.

Order Placement Mechanics

• RRs must ensure compliance with firm procedures and industry rules when submitting orders.
• Client confirmation is required for accuracy with non-discretionary accounts.
• An order ticket is needed for each purchase and sale instruction, per provincial, exchange, and CIRO rules.
• The order ticket should include:
  • Client's name or account number
  • Security quantity and description
  • Price notation (limit, market, on-stop)
  • Order type (PRO, N-C, EMP)
  • Short sale or discretionary order notation
• Clarity and accuracy are crucial to avoid errors while completing order forms.
• Order details to repeat back to the client
  • Buy or sell and security description
• Trading losses caused from errors are usually charged to the person who made them when they are corrected.

Types of Orders

• Order types categorize based on:
  • Duration
  • Price restrictions
  • Special instructions
  • Other changes or client as PRO designation

Order Duration

• A day order expires at the end of the trading day if unexecuted.
• A good till cancelled (GTC) order works until executed or cancelled, expiring after 90 days on the TSX.
• A good till date (GTD) order is valid until a specific expiry date.

Order Pricing

• A market order is the buying or selling securities at the prevailing market price.
• A limit order buys or sells at a specified or better price; a limit buy is at the limit price or lower and a limit sell is at the limit or higher.
• An on-stop sell or stop-loss order triggers when the stock price drops to a price below the existing market price.
• An on-stop buy order triggers when the stock price moves up certain price.

Special instructions

• An all-or-none order (AON) requires that the full amount be bought or sold, no partial fills.
• A fill-or-kill order (FOK) is filled as much as possible immediately; the balance is then cancelled.
• A switch order is the sale of one security and use of proceeds to buy another, where the second order has its execution after the first has been executed.
• A contingent order takes effect only after a primary order is filled to execute second order terms.
• A delayed delivery order delays securities delivery beyond the usual settlement to a specified date.
• A short sale order sells a borrowed stock, anticipating a price decrease.
• A cancel or change former order (CFO) cancels/amends a previous order.
• A professional order, also called employee or non-client order, is for employee accounts.

Fixed Income Trading

• Bonds trade on over-the-counter markets, mainly through quote-driven systems.
• GOC T-bills and other GOC direct guarantees maturing in less than one year trade at $250,000 par value.
• GOC direct guarantees with one to three-year trade at $100,000 par value.
• GOC direct guarantees longer than three years trade at $100,000 par value.
• Provincial bonds and guarantees trade at $25,000 par value.
• All other bonds trade at $25,000 par value.
• Bonds with stock warrants trade at $5,000 par.
• Unlisted Common and preferred stock will follow $500 shares if market price is below $1 or 100 shares if market prices is above $1.
• CIRO rules: fair dealing, fair pricing/valuation, complying and monitoring

Sales and Trading Rules

• RRs must study provincial rules, stay informed of changes, and follow KYC and KYP guidelines.

Client Priority

• Client orders take priority over PRO, EMP, or N-C orders.
• UMIR Rule 5.3 prohibits participants from favoring principal/N-C orders over essentially the same client orders.

Best Execution

• Diligently pursuing client order execution on advantageous terms, as quickly as possible under market conditions.
• Members need written policies/procedures for best execution. Factors include
  • price
  • execution speed
  • certainty
  • total transaction cost
• Also consider
  • last sale/previous trades prices/volumes
  • security market direction
  • posted bid/offer size
  • spread size
  • security liquidity

Gatekeeper Responsibilities

• RRs and Investment Representatives (IRs) are gatekeepers, obligated not to facilitate securities law breaches.
• Red flags indicate impropriety and necessitate inquiries; report to supervisors.

Prohibited Activities

• No one is allowed to take advantage of a client’s order by trading ahead of it
• Trading on non-specific information such as rumors does not constitute frontrunning.
• Insider trading, using non-public information, is illegal.
• Refrain from these actvities if there RR is aware of pending trades: -Principal and not-client is a no no
  • Soliciting and letting others know.

Churning

• Charging a lot in fees just to move the stock.

Kyle’s story

• Keep watch.

Unqualified and outside

• Be sure of local/ jurisdictions

Misleading trade

• Can’t make statements to sway things.

Manipulation

• Can’t say it, can’t look shady.