Canadian regulators are seeking to protect institutional investors from unfair pricing by implementing new restrictions around so-called dark pools.
Dark pools can limit the impact an order may have on a stock price by allowing institutional investors to match orders while concealing price and volume prior to a trade’s completion. New rules unveiled by the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada (IIROC) give visible orders priority over dark pools in the same marketplace at the same time. Exemptions are allowed for trades that have a value of more than C$100,000 and for smaller orders in cases where one of the parties finds a “meaningful” better price.
The new rules around dark pool trades take effect on October 10.
“The decision to maintain protections for large block orders directly benefits retirees and millions of other Canadian investors who invest through pension funds and similar investment vehicles. Under the new regulations, institutional investors can continue to benefit from systems like Liquidnet that provide a safe venue for executing large block orders without market impact,” said Robert Young, CEO of Liquidnet Canada, one of a small number of dark pools operated in Canada. Young said the company welcomes the changes.