CIRO Institutional Securities cheat sheet

Canadian securities regulation is layered: provincial securities acts, CSA national instruments, CIRO rules, and exchange/ATS rules all apply concurrently.

CIRO was formed by consolidating IIROC (investment dealers) and the MFDA (mutual fund dealers); its rules are consolidated in the CIRO Rule Book.

Universal Market Integrity Rules (UMIR) govern trading conduct on Canadian marketplaces, including manipulative and deceptive practices, order marking, and best execution.

National Instrument 31-103 sets registration categories (dealing, advising, investment fund management) and proficiency, capital, and conduct obligations.

Conduct standards require dealing honestly and in good faith, acting with care and diligence, and managing conflicts in the client's best interest.

Suitability (NI 31-103) requires reasonable steps to ensure a recommendation fits the client's objectives, risk tolerance, and circumstances; for institutional clients, know-your-client and know-your-product obligations still apply.

Institutional clients may be permitted to waive certain retail protections, but waivers must be informed, documented, and consistent with the rules; core market-integrity prohibitions cannot be waived.

Recordkeeping and reporting obligations (trade records, complaint handling, client statements) apply regardless of client sophistication.

Account opening requires KYC: identity verification, beneficial ownership, investment objectives, risk tolerance, financial circumstances, and authority to trade.

Client categorization distinguishes retail, permitted clients, and institutional/eligible clients; category determines which protections and disclosures apply.

Permitted client status under NI 31-103 includes certain institutions, governments, and high-net-worth individuals meeting defined thresholds.

Beneficial ownership identification is required; for corporate and trust accounts, identify directors, officers, and controlling persons.

Account documentation must specify trading authority, signing officers, and any limits on order size, products, or markets.

Onboarding includes anti-money-laundering screening: client identification, risk assessment, ongoing monitoring, and reporting of suspicious transactions.

Periodic KYC refresh is required; material changes in client circumstances must trigger updated documentation and suitability review.

Institutional onboarding often includes credit and margin approval, ISDA/credit support documentation, and settlement instruction verification before first trade.

Canadian equity marketplaces include the TSX, TSX Venture, and alternative trading systems (ATSs); orders may route across venues under best execution obligations.

Order types include market, limit, stop, iceberg, and pegged orders; each carries different execution risk and disclosure requirements.

Short sales must be marked as short and comply with the tick test/price restrictions and locate requirements under UMIR.

Settlement for Canadian equities is T+1 (since May 2024); failed trades trigger buy-in and close-out procedures.

Market makers and designated brokers have obligations for liquidity provision and order priority on their assigned securities.

Trade reporting to consolidated data feeds and regulatory reporting (e.g., large trader reporting) support market surveillance.

Circuit breakers and single-stock halts are triggered by price movement thresholds; trading resumes after a defined pause.

Best execution requires consideration of price, speed, certainty, and cost, with policies and regular review of execution quality.

Bond prices and yields move inversely; price = sum of discounted coupon and principal cash flows at the yield to maturity.

Accrued interest is calculated from the last coupon date to settlement; clean price plus accrued interest equals dirty (invoice) price.

Government of Canada bonds are quoted on a yield basis; corporate bonds are typically quoted on a price or spread basis.

Credit spread = corporate yield minus benchmark government yield; widening spreads signal deteriorating credit or risk aversion.

Duration measures price sensitivity to yield changes; modified duration approximates percentage price change per 1% yield change.

Bond covenants (negative pledge, change of control, limitation on liens) protect holders; covenant breach can trigger default or acceleration.

Settlement conventions vary: Government of Canada bonds settle T+1; many corporate and provincial issues settle T+2 or per market convention.

Callable, putable, and convertible features alter cash-flow timing and require yield-to-worst or option-adjusted analysis.

Money market instruments include treasury bills, commercial paper, bankers' acceptances, and repurchase agreements, typically maturing in one year or less.

Treasury bills are sold at a discount and mature at par; yield is calculated on a discount or money-market yield basis.

Bankers' acceptances are drafts guaranteed by a bank; they trade at a discount and are a key short-term funding tool for Canadian issuers.

Repurchase agreements (repos) are collateralized short-term loans; the repo rate reflects collateral quality and term.

Commercial paper is unsecured short-term debt; credit rating and issuer quality drive pricing and investor demand.

Money market yields are quoted on an actual/365 or actual/360 basis depending on instrument and market convention.

Liquidity and rollover risk are central: issuers must refinance maturing paper, and investors face reinvestment risk.

Central bank operations (e.g., Bank of Canada) influence short-term rates through open market operations and standing facilities.

A forward is a customized bilateral contract to buy or sell an asset at a future date and price; it carries counterparty credit risk.

A futures contract is exchange-traded, standardized, and cleared; margin is posted daily and marked to market.

An option gives the buyer the right, not the obligation, to buy (call) or sell (put) at a strike price; the buyer pays a premium.

Option pricing depends on underlying price, strike, time to expiry, volatility, interest rates, and dividends (Black-Scholes framework).

A swap exchanges cash flows; an interest rate swap typically exchanges fixed for floating payments on a notional amount.

Derivative transactions with institutional clients are governed by ISDA master agreements, schedules, and credit support annexes.

Counterparty credit risk is managed through collateral (CSA), netting, and credit limits; central clearing is mandated for certain standardized derivatives.

Hedging with derivatives must be documented and consistent with the client's risk management objectives; speculative use requires suitability assessment.

FX transactions settle on a spot, forward, or swap basis; spot settlement is typically T+2 under standard conventions.

Cross-border trades involve currency conversion, withholding tax, and regulatory reporting considerations in both jurisdictions.

FX exposure can be hedged with forwards, futures, or options; hedge accounting treatment affects financial reporting.

Settlement risk in FX arises from time-zone differences; CLS or bilateral netting reduces principal risk.

Cross-border securities transactions may require local registration, market-entry approvals, or use of local custodians and brokers.

Currency conversion for client accounts must be executed at a fair rate with disclosed spreads and documented conversion policies.

Tax treaties and withholding tax rates affect net returns on cross-border fixed income and dividend payments.

Sanctions and AML screening apply to cross-border payments and counterparties; screening failures can halt settlement.

Underwriting methods include firm commitment (underwriter bears risk), best efforts (issuer bears risk), and bought deal (underwriter commits before marketing).

A prospectus or offering memorandum must be filed and receipted before distribution to the public; exempt distributions may use offering memoranda or accredited investor exemptions.

The underwriting syndicate and selling group allocate securities; allocation policies must be fair, documented, and free of conflicts.

Due diligence is required to verify issuer disclosures; underwriters may face liability for misrepresentations in the prospectus.

Greenshoe (over-allotment) options allow underwriters to stabilize the aftermarket by purchasing additional shares.

Stabilization activities are permitted within regulatory limits but must be disclosed and not manipulate the market.

Book building gathers investor demand to set the offering price; indications of interest are not binding commitments.

Lock-up agreements restrict insider selling for a defined period after an IPO to support aftermarket stability.

Institutional orders may be executed as principal or agency trades; the capacity must be disclosed to the client.

Block trades and cross trades must comply with marketplace rules; crossing requires price and disclosure conditions under UMIR.

Soft dollar arrangements must be disclosed and justified; they cannot be used to pay for goods or services unrelated to research or execution.

Order marking (long, short, short exempt) is mandatory; mis-marking is a market-integrity violation.

Front-running client orders is prohibited; personal account trading must be monitored and restricted.

Trade allocation across client accounts must follow a documented policy and be applied consistently and fairly.

High-frequency and algorithmic trading require pre-trade risk controls, testing, and monitoring for manipulative patterns.

Confidential client order information must be protected; leakage or misuse constitutes a breach of conduct standards.

Best execution requires firms to use reasonable efforts to obtain the best available price considering price, speed, certainty, and cost.

Order handling policies must address order priority, aggregation, allocation, and handling of client-directed orders.

Client instructions that limit execution (e.g., limit price, venue restrictions) may override best execution considerations.

Orders must be executed promptly and in the sequence received, absent a documented and disclosed policy.

Best execution reviews should be conducted regularly and documented, with results reported to senior management.

Principal trades must be executed at a fair price; mark-ups and mark-downs must be disclosed and reasonable.

Order aggregation requires fair allocation of fills; partial fills must be allocated pro rata or per a disclosed policy.

Records of order handling and execution quality must be retained for regulatory review.

Margin requirements protect against counterparty default; initial margin covers potential future exposure, variation margin covers current exposure.

Counterparty credit risk is assessed through credit ratings, financial analysis, and exposure limits per counterparty.

Netting agreements reduce exposure by allowing offsetting obligations to be combined.

Collateral management requires valuation, haircuts, and daily margining under credit support annexes.

Concentration risk arises when exposure to a single counterparty, sector, or product is excessive; limits must be set and monitored.

Stress testing and scenario analysis assess portfolio resilience under adverse market conditions.

Credit limits must be approved, documented, and reviewed periodically; breaches require escalation and remediation.

Wrong-way risk occurs when exposure to a counterparty increases as the counterparty's credit quality deteriorates.

Firms must identify, disclose, and manage conflicts of interest; material conflicts require disclosure to clients or avoidance.

Market manipulation includes wash trading, spoofing, layering, and painting the tape; all are prohibited under UMIR.

Insider trading prohibitions apply to material non-public information; firms must maintain information barriers and restricted lists.

Gifts and entertainment policies limit inducements that could compromise independence or create conflicts.

Personal trading by employees is subject to pre-clearance, blackout periods, and reporting requirements.

Whistleblower protections and escalation procedures encourage reporting of misconduct without retaliation.

Fair dealing requires that all clients receive fair treatment; preferential treatment based on order flow or revenue is prohibited.

Recordkeeping supports market integrity: communications, order records, and trade data must be retained and available to regulators.

Compliance programs must include written policies, training, monitoring, and annual reviews; senior management is accountable.

Regulatory reporting obligations include financial reports, trade reporting, and client complaint reporting within defined timelines.

Privacy laws (PIPEDA and provincial equivalents) govern collection, use, and disclosure of client personal information.

Complaint handling must be documented, investigated promptly, and reported to regulators where required.

Business continuity and cybersecurity requirements protect client data and ensure operational resilience.

Marketing and advertising materials must be fair, accurate, and not misleading; performance claims require substantiation.

Referral arrangements must be disclosed; referral fees can create conflicts and must be managed.

Regulatory examinations require cooperation, accurate records, and remediation of identified deficiencies.

Institutional business requires a control environment spanning onboarding, trading, settlement, and reporting.

Segregation of duties between front office, operations, and compliance reduces fraud and error risk.

Trade surveillance systems monitor for manipulative patterns, unusual order flow, and policy breaches.

Client money and securities must be segregated and reconciled; custody arrangements must be documented.

Product due diligence ensures that complex products are understood before distribution; suitability and disclosure obligations apply.

Third-party and vendor risk management covers custodians, brokers, and technology providers.

Incident reporting and escalation procedures ensure that operational failures are addressed and reported.

Governance structures (boards, risk committees) oversee conduct, risk appetite, and regulatory compliance.