IIROC announces rule changes on fair pricing for fixed-income and other OTC securities

TORONTO, Sept. 1, 2011 /CNW/ - The Investment Industry Regulatory Organization of Canada has received regulatory approval for the enactment of a rule that addresses fair pricing of fixed-income and other securities traded over-the-counter (OTC).

The OTC Securities Fair Pricing Rule and changes to Trade Confirmation Requirements set out clear standards for IIROC-regulated firms to have policies and supervisory procedures in place to ensure they offer fair and reasonable prices, as well as clear disclosure to their clients.

"Fixed-income is a large and important market for retail investors," said Susan Wolburgh Jenah, IIROC's Chief Executive Officer and President.

"The standards are designed to give individual retail and institutional investors more confidence that the price they pay for bonds and other fixed-income securities is a fair price."

The OTC fair pricing rule will take effect on October 3, 2011; and the confirmation disclosure requirements will take effect on September 4, 2012. Highlights of the rule include requirements for IIROC-regulated firms to:

  • Fairly and reasonably price fixed-income and other securities traded in OTC markets;
  • Disclose yield to maturity on trade confirmations for fixed-income securities and include notations for callable and variable rate securities, where applicable;
  • Include a statement on trade confirmations to clients indicating that they earned remuneration on transactions, unless otherwise disclosed.

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The rule represents a key advance in enhancing IIROC's ability to conduct regulatory oversight and to enforce industry compliance against a set of common standards.

OTC markets differ significantly in structure and operation from markets for listed securities. These differences have tended to result in less transparency, particularly for retail investors as they enjoy less access to pricing and yield information for fixed-income securities than they do with listed markets. In addition, many retail investors are unable to take advantage of options available to institutional investors to determine if pricing is fair, such as contacting multiple bond desks and using electronic quote systems.

Retail investor participation in the fixed-income market is significant. Recent statistics showed that approximately a quarter of retail client assets entrusted with investment dealers in Canada is invested in fixed-income securities, according to the Investment Industry Association of Canada. Statistics from CDS Clearing and Depository Services Inc. reveal the value on deposit in the Canadian debt market stands at more than $2.1 trillion, compared to $1.6 trillion in the equity market.

Other OTC securities covered by the rule include Contracts for Differences (CFDs) and foreign exchange contracts. The rule does not apply to primary market transactions or certain OTC derivatives.

For more information, including dealer firm compliance responsibilities and related amendments to existing dealer rules, see the related Notice.

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IIROC is the national self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Created in 2008 through the consolidation of the Investment Dealers Association of Canada and Market Regulation Services Inc., IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while maintaining efficient and competitive capital markets.

IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian equity marketplaces.

SOURCE Investment Industry Regulatory Organization of Canada (IIROC) - General News

For further information:

David Thomas
Director, Public Affairs
                    Lucy Becker
Vice President, Public Affairs



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