CANADA: Proposed Amendments to the TSX Rule Book in Connection with Introduction of the TSX International Board

Tuesday January 3 2017

TSX has proposed amendments to the TSX Rule Book in connection with its planned introduction of the `TSX International Board`, a separate board of TSX that will post for trading certain US-listed equity securities in Canadian dollars. Related changes to trading functionality to accommodate trading of US-listed securities are also being proposed.

TSX is planning to introduce a separate board of TSX (the “TSX International Board”) that will post for trading certain US-listed securities in Canadian dollars (“CAD”). Initially, TSX will likely post for trading securities included in the S&P 500 index, which TSX believes represents a universe of symbols likely to be the most traded by Canadian investors.

These will be enabled for trading on a phased basis, starting with approximately 30-50 symbols. Other liquid US-listed securities may also be enabled for trading based on customer demand.

The posting of US-listed securities for trading on the TSX International Board is intended to:

• increase the accessibility of these securities to Canadian investors; and
• introduce additional client trading opportunities and general efficiencies for Participating Organizations.

TSX is proposing changes to the TSX Rule Book (the “Proposed Amendments”) and to certain TSX marketplace functionality (collectively, the “Proposed Changes”) to accommodate trading of US-listed securities on the TSX International Board. Such US-listed securities will not be listed by TSX, but will only be posted for trading similar to how a Canadian ATS posts TSX-listed securities for trading today. Further, the US-listed securities that are posted for trading on the TSX International Board will also always exclude those that are or become inter-listed on an exchange in Canada.

The following outlines the key features of the TSX International Board:

Access

• No new or separate eligibility criteria. No new agreements to sign.
• No new connections required to access trading in US-listed securities as all trading will be conducted on the existing TSX trading infrastructure, and more specifically, on the same trading platform.
• TSX Participating Organizations (and their clients) will automatically have access to trading in US-listed securities as long as they have acknowledged receipt of certain disclosure required to be made under s. 5.9 of National Instrument 21- 101 Marketplace Operation (“NI 21-101”). If acknowledgement of receipt is not obtained, securities law will preclude TSX from allowing the TSX Participating Organization to trade the US-listed securities.

Eligible Securities

• Only securities listed on a US exchange that are not also listed by a Canadian recognised exchange will be eligible for trading.
• Initially, TSX will likely post for trading securities that are constituents of the S&P 500 index (serving as a proxy for liquid securities). These will be enabled on a phased-in basis – starting with 30 to 50 of the most actively traded securities.
• Only CDS-eligible securities will be enabled for trading.
• TSX will post US-listed securities for trading using the symbol assigned to the security by the US listing exchange, except in the case where the symbol root is already in use by a Canadian-listed issuer. In those cases, TSX will designate a unique symbol to be applied. All US-listed securities enabled for trading for the day will be identified in the morning symbol status message. A file including symbols for all enabled US-listed securities will also be made available each day.

Trading Functionality

• Not a new trading destination. Same destination tag as applicable for TSX.
• Orders are to be entered with a price denominated in CAD. Orders will therefore be posted, displayed and traded in CAD.
• Standard TSX trading functionality applies, subject to the following exceptions: trading in US-listed securities will be disabled on US holidays when US markets are closed but Canadian markets are open; no opening auction, MBF session or closing auction; no special trading sessions; continuous trading only between the hours of 9:30 a.m. and 4:00 p.m.
• Pre-open session will be available from 7:00 a.m. to 9:30 a.m. during which time only cancellations of resting GTC/GTD orders are permitted. No new orders or amendments to resting GTC/GTD permitted until after 9:30 a.m.
• No formal market making program – Odd lot dealers will be assigned to manage auto-execution of odd lots at the Protected National Best Bid or Offer for US-listed securities. An odd lot book will be maintained in the same manner as is currently applicable for odd lots on TSX-listed securities.
• No cross interference (broker preferencing will continue to apply).
• TSX will apply its existing volatility control mechanisms.
• TSX will apply halts imposed by a US listing exchange or US regulator, and will similarly lift a halt when it has been lifted in the US.

Data

• No new real-time data feeds.
• Real-time order and trade data regarding US-listed securities will be disseminated through the existing real-time data feed products for TSX-listed securities.

Clearing and Settlement

• Only US-listed securities that are CDS-eligible will be permitted to trade on the TSX International Board.
• As all executed trades in US-listed securities will be between TSX Participating Organizations and for securities that are CDS-eligible, they will clear and settle through the same CDS infrastructure and processes applicable to trades in TSX-listed securities.
• Where cross-border inventory transfers are necessary to settle a position between TSX Participating Organizations within CDS, these can be facilitated through CDS’ existing cross-border movement service (i.e., book-entry transfer of position in US security; no exchange or conversion of asset).

Depository

• The US-listed securities to be traded on the TSX International Board are the same as those that would otherwise trade in the US.
• The custodial position for the US-listed securities will continue to be maintained at the Depository Trust & Clearing Corporation (“DTCC”). Current processes relating to entitlement payments and tax processing for US-listed securities will apply. There will be no requirement for a Canadian transfer/tax withholding agent as DTCC will act in such capacity as they do currently for US-listed securities held in client accounts at TSX Participating Organizations.
• Dealers that do not currently offer clients the ability to hold US-listed securities may need to establish processes to manage US dollar denominated entitlement payments.

Market participants are invited to provide comments on the proposed changes. Comments should be in writing and delivered by January 31, 2017.

Click on the link above for further details.