NI 81-102

Test yourself

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

1. 1

   Under UMIR, a registered trader at a CIRO marketplace participant enters a large buy order for a thinly traded security. The trader fragments the order into many small lots throughout the session to avoid triggering an uptick in the displayed quote. A colleague flags this as potentially problematic. Which UMIR concept is most relevant?

   Outcome 5.1 · click for answer

   A.Best execution, because the trader is failing to obtain the best available price.

   B.Gatekeeper obligations, because the branch manager approved the order.

   C.Manipulative and deceptive trading, because intentionally managing orders to affect the appearance of trading activity or price formation may constitute manipulation under UMIR.Correct

   D.Short sale rules, because the order involves selling borrowed securities.

   UMIR prohibits trading activity that creates a misleading appearance of trading activity or that manipulates the price of a security. Deliberately fragmenting orders to manage quote impact in a way designed to create a false impression of natural market activity can fall within UMIR's manipulation provisions. This is distinct from legitimate order management strategies because the intent is to avoid natural price discovery rather than to achieve best execution for a client.

2. 2

   A client places a limit order to buy 500 shares at $18.00. The current market is $18.20 bid and $18.35 ask. Under standard order-handling rules, what should happen to this order?

   Outcome 5.2 · click for answer

   A.The order should be rejected because the limit price is below the current ask.

   B.The order should be immediately filled at the current ask price of $18.35 as a market order would be.

   C.The order should be accepted and held in the order book until the ask price drops to $18.00 or below, at which point it may execute at the limit price or better.Correct

   D.The order can only be filled if the bid price also falls to $18.00.

   A limit buy order specifies the maximum price the client is willing to pay. Because the current ask of $18.35 exceeds the client's limit of $18.00, the order cannot execute immediately and is entered into the order book. It will execute when a seller is willing to sell at $18.00 or lower. A limit order does not convert to a market order, and it does not require the bid to reach $18.00, only a willing seller at or below that price.

Related terms in Regulatory

• CIRO

  The Canadian Investment Regulatory Organization, formed January 1, 2023.

• CIRE

  Canadian Investment Regulatory Examination, the entry-level CIRO exam.

• CSA (Canadian Securities Administrators)

  Umbrella organisation of Canada's 13 provincial/territorial securities regulators.

• Canadian Investor Protection Fund (CIPF)

  Investor protection fund covering client assets at CIRO investment dealers up to $1 million per account category.

• NI 31-103

  National Instrument on Registration Requirements, Exemptions and Ongoing Registrant Obligations.

• Ontario Securities Commission (OSC)

  Ontario's provincial securities regulator and the largest CSA member by market participants.