NI 23-103 (Electronic Trading): Definition + Case Study

NI 23-103 (Electronic Trading)

The CSA rule governing automated order systems, direct electronic access, and pre-trade risk controls at Canadian dealers.

Definition

NI 23-103 (Electronic Trading and Direct Electronic Access to Marketplaces) addresses the risks created by algorithmic trading and direct market access. Dealers must implement pre-trade risk controls for all electronically submitted orders: maximum order value or volume limits, price collars relative to the NBBO, and the ability to immediately suspend or cancel an errant algorithm or DMA client. Dealers offering direct electronic access (DEA) to clients must enter written DEA agreements that assign responsibility for compliance with marketplace and UMIR rules. Risk controls must prevent orders from causing a marketplace disruption, executing at clearly erroneous prices, or breaching the dealer's regulatory capital limits. Sponsored access (DEA where client orders bypass the dealer's own risk filters) is specifically addressed; dealers cannot allow clients to connect directly to a marketplace using the dealer's MPID without the dealer's risk controls intervening on each order.

Source

National Instrument 23-103 Electronic Trading and Direct Electronic Access; Companion Policy 23-103CP

Where this shows up on the CIRE

Outcome 8.1

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

1
A mining company executive knows that an internal assay report confirming a major ore discovery has not yet been publicly released. She calls her registrant and places a large buy order in the company's shares. Under Canadian securities law, which of the following is most accurate?
Outcome 8.1 · click for answer
A.The trade is permissible because the executive's account is at an arm's-length dealer and the order was placed verbally.
B.The executive is trading on material non-public information and the trade is prohibited under insider trading provisions of applicable securities legislation; the registrant who knowingly facilitates such a trade may also face liability.Correct
C.The prohibition applies only if the executive is a director or officer of a reporting issuer; a senior employee does not qualify as an insider.
D.The trade is permissible because the executive is buying, not selling, her own company's shares.
Insider trading prohibitions under provincial securities legislation apply to any person in a special relationship with a reporting issuer who trades with knowledge of a material fact or material change that has not been generally disclosed. Senior employees such as executives fall squarely within this definition. The prohibition applies equally to purchases and sales. A registrant who knowingly facilitates insider trading may be found to have tipped or assisted the insider, attracting their own regulatory and civil liability.
2
A client buys one call option on shares of a Canadian bank with a strike price of $130 and an expiry of three months. The current share price is $128. Which statement correctly describes the client's position at expiry if the shares are trading at $125?
Outcome 8.1 · click for answer
A.The call option expires worthless because the market price ($125) is below the strike price ($130); the client's maximum loss is the premium paid for the option.Correct
B.The client must buy shares at $130 because a call obligates the buyer to purchase.
C.The client's call is in the money and they will receive $5 per share.
D.The option converts to shares automatically because it is an American-style option.
A call option gives the holder the right; not the obligation; to buy the underlying at the strike price. At expiry with the stock trading at $125, exercising the call to buy at $130 would be economically irrational (the client could buy shares in the market for $125). An out-of-the-money call expires worthless. The buyer's maximum loss is the premium paid. A call buyer has the right to buy; a call seller (writer) has the obligation to sell. Automatic conversion to shares occurs only for deep-in-the-money options under some brokerage exercise-by-exception rules, which does not apply here.

AI case study

See how NI 23-103 (Electronic Trading) applies in practice

One named-role scenario with realistic numbers and the rule citation.

Want this kind of explanation on every wrong answer?

The Ciroexam AI tutor is grounded in the same primary sources cited above. Every wrong practice answer gets the rule that the distractor was testing.

Take the free diagnostic See pricing